How to open a savings account for your child in the USA

As specialists in personal finance, we always try to encourage good financial habits in adults, young people and the little ones. Since children begin to know the value of money, parents do well to encourage savings.

You want to know how to open an account for your child?, we show you all the details.

Article content

1. Steps to open a savings account for your child
2. Types of accounts available to minors
3. What happens to taxes when you open an account for your child?

Steps to open a savings account for your child

In the United States, minors have the right to have an account to save, spend or have funds for the future.

The main requirement to contract these products when someone is under 18 years of age is the accompaniment of a representative or manager. This is because no bank allows a teenager to sign a contract.

Most traditional and online banking entities offer several options so that both children and young people can have a safe way to save their money.

Minor Savings AccountSavings account without charges for children under 18 years of age that remunerates the balance from the first dollar.
More infoRequestStudent Checking AccountChecking account with no monthly fee or obligation to maintain a minimum balance that allows free checks to be issuedMore infoRequestKids AccountSavings account for children that offers high profitability for your children to start in the world of personal financeMore infoRequest

The figure required to achieve this is by means of a joint or custodial account. Later we will review the characteristics of each one.

If you are thinking of opening an account for your child, you should consider the following:

Both could be account holders

In the case of a joint account, both the signing parent and the child have the possibility to deposit or withdraw money anytime.

Since many financial institutions do not require the presence of an adult to make any transaction, the minor can leave the account with nothing or accumulate overdraft fees.

Requirements and documentation

Opening a savings account for your child is an explicit and simple process. The only difficulty is to provide certain documents to the bank so that the adolescent can start using it. These roles vary from bank to bank, but usually include:

• Driver's license of the adult.
  
• Social Security number of the adult.
  
• Child's social security number, if any.
  
• Birth certificate of the minor.
• Proof of current address from both.

The online process may be similar, but the bank may ask you to visit a branch to verify the child's identity or to send an updated photo.

Types of accounts available to minors

Depending on the purpose for carrying out this procedure, you have several types of accounts for minors:

Education accounts

They are designed so that you save money in the future to pay for your children's studies and may include some benefits in terms of taxes. There are 2 main options:

• THAT (Coverdell Education Savings Account). This savings account is used to cover various educational expenses, such as primary school tuition. Although it can also be used for college. But not everyone is eligible to contribute to this fund and the maximum annual depositable amount is quite low.
• Plan 529. It is a savings program to pay for college and allows you to make large tax-free contributions to the account if you comply with the respective laws. As it is for higher education, this includes exchange schools, institutions abroad and any expenses for university or postgraduate studies.

Custodial accounts

Too known as UTMA or UGMA accounts, are another alternative for those looking to open a savings account for their children. They are not intended for your use, but rather as a beneficiary fund that you cannot manage.

They are also distinguished by:

• Be an irrevocable gift. While the deposits made to this account belong to the minor, the adult is responsible for managing it. The custodian must use it for the benefit of the holder to attend to their educational, personal and more needs.
• Change your status with the age of majority. Once the minor reaches adulthood (18 or 21), he can do with the money as he pleases.

Joint accounts

These instruments are used to carry out operations with debit cards, withdrawals and deposits. They are usually promoted as accounts for children and have names like:

• Savings club
• Looney Toons Accounts
• Student checks
• Youth savings accounts
• Teen checking account

What happens to taxes when you open an account for your child?

When an account begins to earn interest for a minor, this income belongs to the category of kiddie tax.

Any deposit over $ 2,100 may be taxed based on the estate and trust rates. This is true for adolescents under 19 years of age and full-time students (<24).

Tax filing occurs if the minor receives interest or unearned income greater than $ 10,500 per year. For this you use form 8615 in their name. If you receive less than this amount, you can include it in the return using form 8814.

There are several options for you to open one savings account for your children, nephews or children you want to sponsor. In Hispanic Business Blog get these products and many more.