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Investing for kids: Saving for your child’s future

Apr 26, 2022
Empower Insights

Explore some of the best ways to invest for kids

If you’re a parent, you know just how “scary” having kids can be. From holding their hand to cross the street to bundling them up extra tight when it’s cold outside, you’ll do anything to keep them safe. But while protecting them today may be your top priority, investing in their financial future is just as important.

Luckily, when it comes to putting away money for all their hopes and dreams, there are plenty of investment accounts to consider. 


College isn’t getting cheaper anytime soon as overall prices have increased by nearly 170% since 1980. Don’t worry, though — investing in a 529 plan can give you a head start in preparing for all the bills that come with higher education and campus life.

What can a 529 plan pay for? When the time arrives, your 529 plan can be used to pay for a wide range of eligible college-related expenses, including tuition, books and supplies as well as room and board.1

Also, keep in mind 529 plans aren’t just for your kids’ college. 529 plans can also be opened by individuals who want to pay for their own education-related expenses such as apprenticeship programs or graduate school. They can also be used to pay for K-12 private school costs as well as repayment of student loans.

Even better, 529 plans are tax-advantaged accounts. Accumulated earnings have the potential to grow tax-free and will not be treated as taxable income when withdrawn to cover qualified costs. And while you won’t be able to deduct your contributions when you file your federal taxes, many states allow you to write them off on your state return.2


Similar to a 529 plan, a Coverdell education savings account (ESA) is a tax-deferred vehicle aimed at helping you invest in your child’s education. According to the IRS, you can use ESA funds to pay for qualified expenses like tuition at eligible institutions, including at the elementary, secondary and college levels. But there are some key stipulations you should be aware of regarding how a Coverdell ESA functions.3,4

First off, there is an annual contribution cap of $2,000, and you can only contribute the full amount if your modified adjusted gross income (MAGI) falls below a certain threshold ($190,000 per year for joint filers and $95,000 for single filers). The more you earn, the less you’ll be able to contribute, and if your MAGI is more than $220,000 ($110,00 for single filers), you’re not eligible to contribute to a Coverdell ESA at all.

Unless they have special needs, the designated beneficiary must be younger than 18 years old — and once the beneficiary turns 18, you can no longer make contributions to the account. Also, any remaining funds in a Coverdell ESA must be distributed to the beneficiary by the time they reach age 30.


A Uniform Gift to Minors Act (UGMA) custodial account, such as an Empower Custodial Account, is an investment account you open in your child’s name and maintain it for them as they’re growing up. Once your child reaches the age of majority, which is 18 in most states, they assume ownership of the account and can control it as they see fit.

With an Empower Custodial Account, you’re allowed to gift up to $15,000 per year ($30,000 for couples filing jointly) without incurring gift tax. Any money you add to the account irrevocably belongs to your child and can only be spent to benefit them. Because a custodial account offers so much flexibility, you can use it to save for higher education or to simply teach your child about the basics of investing.6

Graphic. Interested in opening an Empower Custodial Account?

The Empower Custodial Account is intended for knowledgeable investors who acknowledge and understand the risks associated with the investments available through a brokerage account.  Please consult with your investment advisor, attorney and/or tax advisor as needed.


Trusts aren’t just for a so-called “trust fund baby” anymore. They can be valuable tools for anyone who wants to put together a well-organized estate plan, even for those without millions of dollars in the bank.5

As the grantor of a trust, you choose the people you want to receive the inheritance, such as your children. Or, you can choose a trustee to watch over your trust’s assets until your loved ones get older.

Your trust fund may include things like cash, a house, a business or other possessions you want to leave behind. You can even establish rules on how your money must be spent, such as for school purposes or for a down payment on a home.

There are many different types of trusts with some designed to function while you’re still alive and others not until after you die. They also offer a wide variety of benefits and can help reduce your estate and gift taxes.

For an in-depth look at trusts, check out Personal Capital’s article, “Estate Planning Primer.”


If none of the solutions above fit your budget, there are other routes you could take, like opening an individual development account (for lower-income families) or earmarking funds in a traditional savings account for college. Before making any decision, you may want to talk with a financial advisor, who can review your goals and help you understand all your options.

1 CNBC, “College costs have increased by 169% since 1980—but pay for young workers is up by just 19%: Georgetown report,” November 2021.

2 Experian, “How to Save Money for Your Kids,” December 2020.

3 Nerd Wallet, “What Is a Coverdell Education Savings Account?,” December 2021.

4 Credit Karma, “Coverdell education savings accounts: How they work and where to get one,” March 2022.

5 Personal Capital, “Estate Planning Primer: Trusts and Estates,” April 2021.

6 Smart Asset, “What Is a Custodial Account & How Does It Work?,” November 2021

Investing involves risk, including possible loss of principal.


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