12/16/2022
As personal finance specialists, we always try to encourage good financial habits in adults, young people and the very young. From the time children begin to learn the value of money, parents do well to encourage saving.
If you want to know how to open an account for your child, here are all the details.
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Steps to open a savings account for your child
In the United States, minors are entitled to have an account to save, spend or have funds for the future.
The main requirement for signing up for these products when someone is under 18 years of age is the accompaniment of a representative or responsible party. 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.
Checking account with no monthly fee, no minimum balance requirement and free check writing
Children's savings account that offers a high return to introduce your children to the world of personal finance.
The required figure to achieve this is through a joint or custodial account. Later on 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 signatory parent and the child have the ability to withdraw and deposit money at any time.
Since many financial institutions do not require the presence of an adult to make any transactions, the minor can leave the account with nothing or accrue overdraft fees.
Requirements and Documentation
Opening a savings account for your child is a straightforward and simple process. The only difficulty is to provide certain documents to the bank so that the teenager can start using it. These papers vary from bank to bank, but usually include:
- Adult's driver's license.
- The adult's social security number.
- Child's social security number, if any.
- Child's birth certificate.
- Proof of current address for both of you.
The online process may be similar, but the bank may ask you to visit a branch to verify the child's identity or send a current photo.
Types of accounts available for minors
Depending on the purpose of this procedure, there are several types of accounts for minors:
Education accounts
These are designed for you to set aside money in the future to pay for your children's education and may include some tax benefits. There are 2 main options:
- ESA (Coverdell Education Savings Account). This savings account is used to cover various educational expenses, such as elementary school tuition. It can also be used for college. But not everyone is eligible to contribute to this fund and the maximum annual deposit amount is quite low.
- 529 Plan. This is a college savings program and allows you to make large tax-free contributions to the account if you comply with the respective laws. Since it is for higher education, this includes exchange schools, overseas institutions and any expenses for college or graduate school.
Custodial Accounts
Also known as UTMA or UGMA accounts, these are another alternative for those looking to open a savings account for their children. They are not intended for them to use, but rather as a beneficiary fund that they cannot manage.
They are also distinguished by:
- Being an irrevocable gift. While 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 meet his or her educational, personal and other needs.
- Change its status at the age of majority. Once the minor reaches adulthood (age 18 or 21), he or she can do with the money as he or she pleases.
Joint accounts
These instruments are used for debit card transactions, withdrawals and deposits. They are usually promoted as children's accounts and have names such as:
- Savings Club
- Looney Toons accounts
- Student Checking
- Savings accounts for teens
- Checking accounts for teens
What happens to taxes when you open an account for your child?
When an account starts earning interest for a minor, this income falls into the kiddie tax category.
Any deposit over $2,100 may be subject to tax at the estate and trust rates. This is true for teens under age 19 and full-time students (<24).
Tax filing occurs if the minor receives interest or unearned income greater than $10,500 per year. You use form 8615 on his or her behalf. If he/she receives less than this amount, you can include him/her on the return using form 8814.
There are several options for you to open a savings account for your children, nieces, nephews or children you want to sponsor. At Busconómico you can get these products and many more.
Español: Cómo abrir una cuenta de ahorro para tu hijo