This is the first post in a series about Money Matters for All Ages. Sixteen personal finance writers address financial issues from babies to retirement and everything in between. See the end of the article for the entire series.
Photography: Six clones (clowns?) v3 by Spigoo
Our oldest son just turned 2 and our youngest son is now 4 months. Here’s a summary of the financial strategies that I’ve been working on for them.
Get a Social Security Number. Do this right away and it will make all of the other strategies easier.
Open a High Yield Savings Account. Children often receive cash gifts for birthdays, holidays, etc. I’m in the process of setting up an ING DIRECT account for my youngest. I sent a referral from the 2-year-old’s account to the baby, so they will both earn bonus money. Open a savings account in under five minutes with no fees, no minimums and FDIC insurance for yourself or your kids at ING. Once you have one account open, refer other family members to earn the bonus money! 
Affinity Bank also offers a 10% savings account up to $500 for children in California.
Organize Savings Bonds. The kids have received numerous savings bonds from family members. I am converting them to electronic version to make it easier to track. Any paper bonds will be placed in our safe deposit box.
Contribute to a 529 Plan. Open a 529 account if you plan on saving money to help pay for college for your children. I calculated how much we want to save for college for our baby and I am adding it to the accounts we have already established. If you haven’t set up an account yet, here’s how.
Help relatives set up 529 plans. If grandparents (aunts, uncles, etc.) are interested in contributing to your kids’ college funds help them set up an account of their own naming your child as the beneficiary. They can then take a state tax deduction if they live in a state that offers it.
Plan your investments. While the kids’ money has a similar asset allocation to our own, I plan to add some child friendly companies that our kids will recognize when they are older.
Claim Your Tax Savings. Claim the child tax credit on your taxes. As long as your baby was born on or before December 31, you are eligible for the entire tax credit.
Change your withholding. If the child tax credit above will result in a $1,000 refund for you, change your W-4 to have less money withheld in your paycheck.
Enroll in dependent care flexible spending. If you plan on using day care or a babysitter you can set aside $5,000 per year to pay for childcare pre-tax. You can change the amount mid-year if your childcare provider changes or the rates change.
Maximize zero tax for children. But beware of the Kiddie tax. Children owe no tax on the first $850 of earnings which creates a great opportunity to maximize income shifting. Earnings between $851 – $1,700 are taxed at the child’s rate and above that it will be taxed at the parent’s tax rate.
Modify wills and trusts. In the event that both my husband and I pass away, we created a will naming our children as beneficiaries. The will creates trust funds for our children that allow them access at age 25. This is an area that I don’t know whole lot about, so I am planning to spend some time in the next few years educating myself on this topic. I’ll be sure to share what I learn as I go.
Update beneficiaries. Change beneficiaries on life insurance policies or any accounts that are not included in the will. We live in a community property state, so my husband and I are listed as primaries on each other’s accounts. The children are listed as secondary beneficiaries. In addition, our children are listed as beneficiaries on other family member’s accounts.
Buy life insurance on yourself. Determine how much you need to support your children in the event that something happens to you or your spouse.
Don’t buy life insurance on your kids. It’s a waste of money. Instead use that money towards one of the previous strategies.
Get a piggy bank. Pick one that is fun to put money in and the pig should fill up quicker!
Update your budget. Diapers, formula and daycare are the big ones for us. Don’t forget other areas of your budget that were impacted by adding a baby to the family.
Sign up for mailing lists. Contact the manufacturers of the products you use most (diapers, formula, baby food) and retail companies (Toys R Us, Gymboree) to get on mailing lists. Coupons will start showing up in your mailbox.
Use cashback programs. Use the cashback programs to help fund the college plans. Upromise and Little Grad are both geared towards saving for college.
Action Plan
It’s never too early to start saving and investing for your children. While we are building their accounts we have also established specific purposes for the money; we do not intend for them to be able to spend the money freely at this point.
What are you doing for your children financially?
Here are all the articles in The Money Matters for All Ages series. The entire series is also available to download in a free e-book.
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Posted January 15, 2008 in College savings, Insurance, Intermediate, Investing, Kids, Savings, Taxes by Madison | 10 Comments
