When it comes to financially preparing your child for adulthood, starting early can make all the difference. The longer your money sits invested, the more potential there is for growth! Whether you’re dreaming of helping them pay for college, buy their first car, or simply giving them a head start on wealth-building, here’s a detailed guide on how you can save for your child’s future.
Disclaimer: I am not a licensed financial advisor or coach! This is a summary of the financial education that I have learned through my own research and speaking with licensed financial professionals. Everyone’s finances are unique – always consult your own financial advisor before making any financial decisions.
1. Start With Your Own Financial Foundation First
Before diving into savings for your child, make sure your own financial base is strong! There’s little point in setting your child up financially if they have to spend their money covering your after-retirement expenses. You need to be able to cover expenses as you get older, like long-term care or assisted living homes. This means:
- Having an emergency fund (ideally 3–6 months of expenses). This will help cover costs of unplanned emergencies, so you can have peace of mind and not sacrifice your money goals to cover the expenses.
- Paying off high-interest debt (a good rule of thumb is anything over 3.0%). Paying off the high interest debt above minimum payments will help lower the total amount paid in interest over the long run.
- Contributing to your own retirement accounts. Make sure you have a retirement setup first! You don’t want to be working past retirement age because you need to or possibly leaving your kids to pay for your expenses because you can’t work anymore and don’t have enough monthly income to support yourself.
Your child’s future is important, but taking care of your own finances before saving for your child’s future ensures you’re not putting yourself (or them) in a tough spot later.
2. Open a 529 College Savings Plan
This is the first account I would start with because of the duplicate tax benefits! A 529 plan is a tax-advantaged savings account designed for future education expenses. You can use the money for tuition, books, room and board, and even some K-12 expenses.
Tax Benefits: Contributions grow tax-free, AND withdrawals are tax-free when used for qualified education expenses. That’s a lot of tax benefits!
Age Requirement: You can open a 529 plan and name your baby as beneficiary as soon as your baby is born and has a Social Security number. (Or, you can open it in your name and change the beneficiary later.)
SECURE Act 2.0: New 529-to-Roth IRA Rollover Rule
Let’s say your child receives a full ride scholarship – what can you do with their 529 plan? Under the SECURE Act 2.0, starting in 2024, you can roll over up to $35,000 from a 529 plan to a Roth IRA — tax-free and penalty-free — under these conditions:
- The 529 account must be at least 15 years old (this is why getting started early is best – even just opening an account with a small dollar amount like $50!)
- The beneficiary must have earned income (to qualify for the Roth IRA).
- Annual rollover amounts are subject to Roth IRA contribution limits (as of 2025 that’s $7,000).
This new rule gives more flexibility to families concerned about overfunding a 529 if their child doesn’t attend college or receives a scholarship.
3. Open a Roth IRA (Once They Have Earned Income)
A Roth IRA is an excellent long-term investing tool (for both you and baby). In this investment account, you make after-tax contributions and the investments grow tax-free! While your child needs to have earned income to contribute, you can name your child as a beneficiary at any age. Tip: Make sure to actually INVEST the money you wire to your Roth IRA. If it sits in the cash account of the Roth IRA, it is not invested. You must choose where to invest the money, like into a Target Date Index Fund.
Age Requirement for Ownership: No minimum age, but your child must have earned income to make contributions.
Age Requirement for Beneficiary: A newborn can be listed as a Roth IRA beneficiary.
You can also help them open a custodial Roth IRA when they’re earning money from a job — like babysitting or working at a local shop.
4. Consider a Brokerage Account
A regular brokerage account can be used to invest in stocks, ETFs, and mutual funds. While it doesn’t have tax benefits like a 529 or Roth IRA, it offers total flexibility — you can withdraw anytime, for any reason. No special rules to follow for this one! This account is a great way to diversify yours and your child’s portfolio with more flexibility for any future needs.
Beneficiary Rules: A child can be listed as a beneficiary from birth. If you want to invest directly for your child, you can open a custodial account on their behalf.
5. What’s the Right Order to Invest In?
At this point you’ve done the research on how to save for our child’s future and know which investment accounts you’d like to set up, but in what order should you fund the accounts to get the most band for your buck? If you’re trying to decide where to start and what to prioritize, here’s a simplified guide that prioritizes tax benefits. You may decide with your financial advisor that another order works better for your family, and that’s perfectly okay! Like maybe you need the flexibility of a brokerage account first, or perhaps you know your child is already making money and you want to capitalize on the Roth IRA before they stop making income. Everyone’s financial situation and goals are unique. Again, if you’d like to maximize tax benefits, I’d invest in this order:
- Build your emergency fund + pay off high-interest debt
- Contribute to your own retirement (401k, IRA)
- Open and contribute to a 529 Plan for your child
- Set up a Roth IRA for your child (if they earn income)
- Invest in a brokerage account for flexible, long-term saving
Final Thoughts
Now you know how to save for your child’s future! Setting them up financially is one of the most loving and powerful things you can do for them. Whether you’re starting with a 529 plan, setting up a Roth IRA, or building wealth in a brokerage account, every little bit helps — especially when you start early!
Have more questions about how to financially prepare for a baby? Check out the rest of my motherhood and money tips on the blog!