When we decide to save for our kids, choosing the appropriate account can be quite an undertaking. In this article we will discuss the option of using the parents account to accumulate wealth for the little ones. This is one of the most simplistic ways parents can save for kids. It doesn’t require additional paperwork, it has its set of unique advantages, but like most things, using your own account has its disadvantages as well.
NO ANNUAL CONTRIBUTION LIMIT: When we save for our kids and place money into an account specifically for them, we are faced with contribution limitations. A couple of major funding limitations are: IRS Annual Gift Exclusion & Account Specific Fund Restrictions. When using our own accounts to save for our kids, we generally don’t face funding limitations
INVESTMENT FLEXIBILITY: Depending on the type of child specific account you use, you have a limited choice of investment options. If you use your own account, you are able to use the same investment options for your child that you use for yourself.
PERMANENT CONTROL OF FUNDS: Some child-specific saving vehicles limit the parent’s choice of when to give control of the assets to the child. If you have the money in your account, you have control over when and how to use it for your children.
TAXES: Some child-specific or goal-specific accounts have tax benefits. If you use your own account to save for the children, all earnings and gains will be taxed at your tax rate, which will most likely be higher than your children’s tax rate.
CREDITOR ACCESS: If you use your personal account to save for your children, the funds are available to your creditors. In most instances, placing the funds in an account specifically for the child places the funds outside the reach of your creditors.
Saving for your kids in your own account is only one option. In future articles we will discuss the advantages and disadvantages of other popular choices for saving for the kids. Please consult with your advisor to determine the best method for your family