A New Addition to the Family Can Equate to New Savings Strategies

Mallory Labik

July 23, 2024

baby shoes and clothing

I’m happy to announce that my son, Leo, was born on January 4th, this year. And it has been an incredible journey thus far, despite the sleep deprivation! Needless to say, much of our financial focus has changed since Leo’s arrival. My husband and I are now prioritizing a savings plan for Leo, and I thought it was the perfect time to share two types of accounts that may help other new (or not so new!) parents pursue some of their savings goals for their children.

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Mallory Labik
Wealth Advisor
Mallory Labik
CFP®, CDFA®

Mallory is a wealth advisor at Fragasso who is dedicated to helping clients design a customized wealth plan unique to their goals and investment preferences. She specializes in working with women investors and those experiencing significant life transitions, such as divorce or the loss of a spouse. Mallory finds it especially fulfilling to guide individuals […]

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This article has been reviewed for accuracy by Fragasso's leadership team and accredited by Mallory Labik to help ensure the information reflects current financial planning and wealth management principles.

1. 529 Education Savings Account

Piggy bank and books

After running education funding schedules for my clients for years and seeing the rise in tuition costs, I knew establishing a 529 Education Savings Account right away for Leo was absolutely crucial for us. As soon as we received his Social Security Number, I was online setting up his account. If you’re not familiar, a 529 account is set up specifically to assist the beneficiary in saving for education costs. Future distributions and earnings are all tax free assuming the funds truly are used on qualified education expenses, otherwise the earnings are taxed and penalized. Contributions to a 529 may also be state tax deductible depending on the state you live in and that state’s specific tax rules.

I should mention that grandparents may consider saving for their grandchildren’s education, too. In addition to lifting the financial burden from their child and grandchild, there are also tax saving benefits.

2. UTMAs/UGMA accounts

A person is answering question about uniform transfers to minors act (UTMA).Saving for education may not be your first or only priority when it comes to your child. Many of us want to establish an account for our children that does not limit spending to education only. If you fall into this category, you may want to open an UTMA (Uniform Transfers to Minors Act) Account, for your child. This type of account can be established with your bank or as an investment account. Funds can be added and/or distributed with more flexibility, meaning there’s no requirement to use the funds on education. Keep in mind these types of accounts are truly in the child’s name, with you or another parent/guardian listed as custodian. That means at the age of majority (age 21 in Pennsylvania) those funds are truly theirs to use in whatever manner they’d like. I only recommend funding these types of accounts to those who are comfortable with their 21-year-old making financial decisions. If you’re not, an UTMA may not be the appropriate account for you and your child.

These are just two of the most common types of accounts that many start saving into for their children. However, there may be other options that will allow you to meet your goals especially as your children get older and your financial situation changes. As always, I highly recommend working with your financial advisor to develop an appropriate and efficient savings plan for you and your family.