What is needed to open a savings account for a child?
To open a savings account for your child, you typically need to provide information including your child's name, birthdate and Social Security number. You'll also likely need to provide your own Social Security number, driver's license number, address, phone number and email address.
You need an SSN to claim your child as a dependent on your income tax return. Your child may also need a number if you plan to: Open a bank account for the child. Buy savings bonds for the child.
Most banks require a child to be at least seven before they can open an account for themselves, though they do all differ, so it's worth checking the specifics. Under-sevens require a parent, guardian or grandparent to set up an account and act as signatory. This method can also be selected for older children.
| Savings Account for Kids | Best for | APY* |
|---|---|---|
| FirstCard | Saving and building credit | Up to 4.25% |
| Copper | Savings rewards | 5.00%* |
| Alliant | Credit union savings | 3.10%* |
| Capital One 360 | Saving for multiple goals | 2.50%* |
Perhaps the easiest way to start saving for your child's future is by opening a general savings account. A child of any age can have this type of account, as long as the parents serve as the primary or joint account holder. Savings accounts are very easy to open and start depositing money in.
If your child's interest, dividends, and other unearned income total more than $2,500, it may be subject to a specific tax on the unearned income of certain children. See the Instructions for Form 8615, Tax for Certain Children Who Have Unearned Income for more information.
A child can generally have a savings account at any age. The best savings accounts for kids earn interest and have no monthly fees. A parent or guardian will likely need to open the account.
Do I Have to Pay Taxes on My Child's Savings Account? Interest earned on a savings account is considered unearned income. Per IRS rules, if a child has more than $2,500 of unearned income, that money will be taxed at their parents' tax rate or their own—whichever is higher.
However, there are many accounts held on behalf of children with one of their parents as trustee. Here, providing the trustee can prove they are using the monies for the benefit of the child, they can withdraw funds from the child's account.
Having their own savings account makes children more money aware and can encourage them to develop good savings habits as grown-ups. Until your children are old enough to stash away some pocket money or birthday cash gifts themselves, you can save a little for them every month.
Is a CD better than a savings account for a child?
Since CDs typically earn higher annual percentage yields (APYs) than standard saving accounts, opening a CD can help your child's savings grow faster. You might also purchase a CD to give to your child or provide a head start on paying for a first car, wedding or other big goal.
Some kids' savings accounts require low minimum opening deposits of $25 or less. Others require $100 or more. Be prepared to help your child save up if needed.
Financial experts suggest most kids are able to grasp money concepts by age 9, which makes it a good age to open an initial savings account. Because checking accounts require greater financial responsibility, they suggest waiting until your child turns 15 to open a checking account.
A Roth IRA for a child needs to be started and managed by a parent or other adult as a custodial account. The child needs a Social Security or other tax identification number, plus earned income. The Roth IRA stays a custodial account until the child reaches the age of majority, which is 18 in most states.
- Custodial account. ETFs and index funds. Individual stocks. Savings bonds.
- Other investment opportunities. Bank fixed deposits. Insurance policies. One-time child investment plans.
A good starting point when saving for your children is setting aside 3% to 5% of your net monthly income. Let's say your household income is $6,000 after taxes, this works out to $180 to $300 per month. It doesn't seem like a lot, but every little helps, and could sit neatly within your budget.
Under the kiddie tax law, all unearned income over the threshold is taxed at the parent's marginal income tax rate rather than the child's tax rate. In the 2023 tax year, unearned income under $1,250 qualifies for the standard deduction.
Minors have to file taxes if their earned income is greater than $13,850 for tax year 2023. If your child only has unearned income, the threshold is $1,250 for tax year 2023.
The IRS defines eligible compensation as taxable income, including wages, salaries, and tips. While children generally must be at least 16 years old to obtain formal employment, there are situations in which a younger child may earn income, such as modeling, acting, or working for a family company.
Now there are different ways to add a child. You could add them as an agent under a power of attorney or add them as a designated beneficiary to that account and that is something different, but making a child a joint owner on a bank account is almost never a good idea.
At what age does kiddie tax end?
The Kiddie Tax is a part of income tax rules that apply to individuals under 18 years and full-time students under 24 years of age. If the child's unearned income, or investment income, is more than the Kiddie Tax threshold for the tax year, then the child must pay tax on any unearned income over the threshold.
Generally, the answer to “do I have to pay taxes on a gift?” is this: the person receiving a gift typically does not have to pay gift tax. The giver, however, will generally file a gift tax return when the gift exceeds the annual gift tax exclusion amount, which is $17,000 per recipient for 2023.
It's not illegal to take money from your kids in most cases, although, of course, there are exceptions, like if the child's money is in a specific trust and you abuse the funds.
As long as you, as a parent or guardian, are willing to be a joint owner for the account, you can open a kid's savings account for your child whenever you'd like. You can open some types of savings accounts as soon as your child is born and has a Social Security number (SSN), such as a 529 college savings account.
Yes, money can be withdrawn from custodial accounts, as long as it is used "for the benefit of the minor," a vague term that includes, but is not limited to educational costs.
