When it comes to planning for your child’s future, the mindset should be no different than preparing for your own retirement. It takes intentional planning, thoughtful execution, and an understanding that not all savings vehicles are created equal.
You wouldn’t stash your retirement money in a piggy bank,or even just a simple savings account, and expect it to grow efficiently. The same logic applies to saving for your child. Whether your goal is to help them pay for college, launch a business, buy their first home, or simply give them a strong financial foundation, how you save is just as important as why you save.
Start With the Why
Before diving into the how, it’s essential to start with the why. Why are you saving for your child?
Is it to help cover the rising costs of higher education? Do you want to support their dream of starting a business or buying their first piece of real estate? Is the goal to gift them a reliable vehicle when they turn 16, or help them avoid student loans altogether?
Your purpose will guide your planning. Once you’re clear on what the money is intended for, it becomes much easier to choose the right account or investment vehicle.
What Happens When They Get the Money?
Zoom out and ask yourself: What does it look like when my child gains access to this money?
Do you want them to have full control at 18? Would you prefer they only access the funds for education or specific life milestones? Would you feel more comfortable maintaining control and deciding when and how the money is used?
These answers play a big role in determining which type of account makes the most sense, and how it should be structured.
Don’t Overlook the Tax Implications
Taxes play a huge role in how savings grow, and how much of it they ultimately keep.
Ask yourself:
- Is the account tax-advantaged?
- Is the account in your name or your child’s?
- Will you receive a 1099-INT or capital gains form at the end of the year?
- How will annual taxation affect the power of compounding over 5, 10, or 18 years?
The earlier you address these questions, the more you can optimize growth and avoid surprises.
Now Let’s Talk About the How: Saving Vehicles for Children
Once your goals and preferences are clear, you can begin exploring the savings vehicles available—each with its own set of rules, benefits, and limitations.
1. Traditional Savings Accounts
A simple savings account is easy to set up and access, making it great for short-term goals or teaching children basic financial literacy. However, the downside is clear: the interest rate is often so low that inflation outpaces growth. Plus, any interest earned is taxable to the account holder.
Best for: Emergency funds or early financial education
Taxation: Interest reported on 1099-INT; taxed as income
Access: Full parental control until funds are transferred
2. Certificates of Deposit (CDs)
CDs offer fixed interest over a defined term. They’re low-risk and can teach discipline around saving, but early withdrawals result in penalties and the returns are still modest.
Best for: Low-risk, medium-term savings goals
Taxation: Interest reported annually and taxed
Access: Tied up until maturity unless penalties are paid
3. U.S. Savings Bonds (Series EE or I Bonds)
These government-backed bonds are stable and can be used for educational expenses. I Bonds in particular are indexed to inflation. They must be held for at least one year and offer tax benefits if used for qualified education.
Best for: Long-term, education-oriented saving
Taxation: Deferred until redemption; may be tax-free for education
Access: Locked for at least 1 year
4. 529 College Savings Plans
529 plans are designed specifically for education savings. They grow tax-deferred and withdrawals are tax-free when used for qualified educational expenses such as tuition, room and board, and even some K–12 costs. Some states also offer tax deductions for contributions.
529 plans typically hold mutual funds or ETFs, and the account owner controls how the funds are used. If the child doesn’t attend college, funds can be transferred to another beneficiary or used for other purposes (though with tax penalties).
Best for: Families committed to funding education
Assets allowed: Mutual funds, ETFs (varies by plan)
Taxation: Tax-free growth and withdrawals for qualified expenses
Access: Controlled by account owner, not child
5. UGMA/UTMA Custodial Accounts
UGMA and UTMA accounts allow you to gift assets to a minor, who gains full control once they reach the age of majority (usually 18 or 21). These accounts are flexible—funds can be used for anything from education to real estate to entrepreneurship.
They can hold a broad range of assets, including stocks, mutual funds, ETFs, and in some cases real estate or collectibles (UTMA only). However, because the assets are legally the child’s, they can impact financial aid and financial control later on.
Best for: Flexible use and broad investment options
Assets allowed: Stocks, ETFs, mutual funds, and more
Taxation: Unearned income taxed under “kiddie tax” rules
Access: Becomes child’s asset at legal age—irreversible
6. Cash Value Life Insurance
Whole life or indexed universal life (IUL) insurance policies offer a unique savings strategy with tax-deferred growth, tax-free access through policy loans, and a death benefit. Parents often use this as a long-term, flexible asset that can be tapped for college, business, real estate, or legacy planning.
Unlike 529s or custodial accounts, these policies remain under parental control and don’t count against financial aid formulas like the FAFSA.
Best for: Multi-purpose savings, long-term wealth building, and legacy planning
Taxation: Tax-deferred growth, tax-free access via loans
Access: Controlled by policyholder; child can be insured or made beneficiary
Conclusion: Intentional Saving Starts with a Clear Plan
Saving for your child’s future isn’t just about putting money aside, it’s about building a strategy based on your goals, timeline, and values. Start by asking the big questions: Why are we saving? What kind of access and control do we want? How will taxes impact this over time?
From there, you can choose the right mix of tools from traditional savings accounts and 529s to more advanced strategies like UGMA accounts and cash value life insurance.
The sooner you start, the more powerful the compounding effect becomes, and the more options your child will have when they’re ready to launch into adulthood.
About the Author
Jacob Lewis is a licensed life insurance broker with Income & Estate Planning Partners, specializing in helping professionals and entrepreneurs create streams of guaranteed income and build lasting legacies. With a focus on income longevity and life insurance planning, Jacob works closely with clients to develop strategies that safeguard their assets and support their long-term financial goals. He is committed to providing personalized solutions that offer peace of mind and financial security.
About Income & Estate Planning Partners
At Income and Estate Planning Partners, we help individuals and families take control of their financial futures through thoughtful, customized strategies. Our team specializes in income planning for retirement, tax-efficient investment solutions, and estate planning designed to protect your legacy. With a planning-first approach, we work to simplify complex financial decisions so you can feel confident about the road ahead. Whether you’re preparing for retirement, navigating major life changes, or planning for future generations, we’re here to walk alongside you every step of the way.
Disclosure
The information provided in this article is based on sources believed to be reliable; however, accuracy and completeness cannot be guaranteed. This content is for general informational purposes only and is not intended to provide specific legal, tax, or investment advice. Please consult with a qualified legal or tax advisor regarding your individual circumstances. Nothing in this material should be interpreted as a recommendation or solicitation to buy or sell any security.