Bank and Savings Accounts for Minor Children

A good start for children is to give them bank and other savings accounts when appropriate.

For our children we set up two financial accounts when they arrived.  One was a 529 college savings account. We contributed the maximum amount that was deductible from state income taxes each year.  The contributions were invested in two mutual funds, one growth and one value.  Over 20 years, the value of our total contributions would almost double at a 7% rate of return.  For reference, the average stock market annual return is 10%. 

The second was a custodial savings account, which we planned to use for funding her future allowance.  A side benefit of this account is that the interest earned is not subject to federal or state income tax.

We set up a third financial account once the oldest started earning money, a Roth IRA account.  The intent was to both teach her about saving for retirement and to give her an early start on retirement savings.   To fund the account, we used the funds in the custodial account for contributions.  The maximum allowed contribution to a Roth IRA in 2025 is the lesser of $7000 or amount earned.  For perspective, $7000 in a Roth account earning an average of 7% a year will be worth over $100,000 in forty years, tax free.

The custodial accounts will convert to their own accounts once they reach 21, while the 529 plan will continue to be owned by my spouse, with our child as the beneficiary.  If there are funds leftover, they can be transferred tax free to another family member.   A recent added benefit is up to $35,000 or 529 funds can be used as Roth contributions in the future.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial nor custodian account advice. Please consult a professional advisor.

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