3 Easy Ways to Save for Baby’s Future Today
Now that I’m a father, I know how easy it is to get caught up in the “now” of parenthood. Between getting bogged down by diapers and flustered by feedings, saving for my daughter’s college isn’t really top of mind—but it should be. A few simple steps is all it takes to start saving for her future. And once I’m done setting her up for future success, I can focus on helping her with her current goals—like sitting up all by herself!
Here are three easy ways to get your baby’s financial future started.
1. Start a 529 Plan
Saving for a college education may be the furthest thing from your mind when their biggest accomplishment right now is rolling over on their own—but every cent counts. After your child receives their social security number, you can open up a 529 plan and start making monthly contributions to it.
Signing up is very easy, and multiple contributors (mom, dad, grandpa, or generous friend) can put money into the same account for the child. Perhaps the biggest advantage of a 529 Plan is its flexibility. How much you choose to set aside at any given time is entirely up to you, and you can change how much you contribute over time. For instance, if you want to contribute less while you’re paying for day care and then up the contribution once they hit school age, it’s simple to do so. Plus, if you live in Kansas or Missouri, you get a state tax deduction for your contribution!
2. Take Advantage of Flex Savings Accounts
Before you know it, you’ll be paying for daycare, which is averaging most parents who utilize a center nearly $1,000 a month. That’s why opening an FSA Dependent Care account through your employer is an easy and smart step you can take right away.
This account lets you contribute part of your paycheck before tax directly towards your child’s care. The maximum contribution to these accounts per the IRS is $5,000 annually for individuals or married couples filing jointly; or $2,500 for a married person filing separately. That number is fixed—regardless of number of children.
However, just because you reach your $5,000 maximum on your FSA doesn’t mean you’re completely out of luck. Potential income tax credits for dependent care expenses could add up to more savings for you. Consult a tax professional for more information when tax season starts sneaking up!
3. Save the Day by Saving for the Day
With big days usually come big gifts—bigger than the kids, usually. Between birthdays, baptisms, mitzvahs bar and bat at various moments in your kid’s life, relatives may give them cash or checks. Instead of collecting these in sock drawers or under beds, put that money into a savings account or saver CD. Then those gifts will officially earn interest instead of dust; plus, it’s a great teaching moment for financially responsible decisions.
These early moments in my daughter’s life are great, and as a new dad (that's me and my little girl on the right!) I can rest a little better knowing I am making decisions that will keep her secure both now, and in her future.
Joe Kraemer is a Registered Advisor with CommunityAmerica Financial Solutions who primarily works out of the Blue Springs Outer Road Branch. To set up a complimentary, no-obligation meeting with Joe, please click the green button below.