Consider a Coverdell. A Coverdell Education Savings Account (CESA) offers you the ability to save up to $2,000 per child per year toward education expenses, as long as you are within the income limits. You can use the money toward eligible K-12 expenses or college costs, and anyone can contribute, including grandparents and family friends. (The annual limit, however, applies to all contributions.) As long as the money is used for qualified education expenses, distributions from the account are tax free. (See: Start your education savings with a Coverdell Plan)
Consider an UTMA. Want to put money aside for your child? A Uniform Transfers to Minors Act (UTMA) custodial account lets you establish and manage assets for them, including stocks and securities. Once the account is established on behalf of your child, the assets are considered irrevocable gifts that belong to them. Contributions are unlimited (the contributions are considered gifts, and fall under the annual gift exclusion rule), and you can invest them in any of Thrivent’s available mutual funds. The money must be used for the benefit of your child—and not just for education.
Any investment income that occurs belongs to your child, so it may be subject to the “Kiddie Tax”: Just know that once your child reaches the age of majority (generally age 18 to 21, depending on the state), they’ll have access to the funds for any purpose. (See: UTMA plans)
Don’t forget to save for your own retirement
No matter how important you consider your child’s future to be, don’t forget about yourself. Your own financial stability is just as important as your children’s. In fact, part of your child’s future success requires that they don’t have to support you in your golden years. To ensure this, you’ll need to save adequately for retirement.
One way to do that is through an Individual Retirement Account (IRA) or investing at work through a 401(k), both of which typically provide a tax benefit for working Americans.
Thrivent offers traditional and Roth IRA accounts, as well as SEP IRA accounts for the self-employed. The more you can put away each year, the better your chances of enjoying a comfortable retirement for you—and less financial worry for your offspring. (See: Traditional IRA versus Roth IRA: Which is right for you?)