Best Savings Account for a Newborn? – Smart Money Moves to Consider for Your Infant

Welcoming a new baby into the world comes with a lot of emotions—joy, excitement, and, let’s be honest, a little bit of financial anxiety. Fortunately, guest blogger and CERTIFIED FINANCIAL PLANNER™, Nichole Coyle, joins us to shed some light on how best lay the groundwork for your child’s financial future:

Diapers and daycare costs add up fast, but as a financial planner, I like to remind parents that the best time to start investing in your child’s future is today.

Whether you’re a first-time parent or adding another tiny human to the family, here are a few key accounts to consider opening for your infant.

529 College Savings Plan – Best Savings Account for a Newborn for Future Education Fund

College tuition isn’t getting any less expensive, and while your little one may not even be in preschool yet, they’ll be headed off to college before you know it. A 529 plan allows you to invest money for education expenses in a tax-advantaged way. It offers features that can make it an attractive savings account for a newborn.

Why open one early?

• Contributions grow, and can be used, tax-free (when applied to qualified education expenses).
• Many states (including Ohio!) offer tax deductions or credits for contributions. Check with your financial or tax advisor for specific conditions and limitations.
• The earlier you start, the more time compound growth has to work its magic.

Even if your child doesn’t go to college, the funds can be used for K-12 tuition, vocational schools, or even transferred to another family member. Additionally, up to $35,000 can be rolled over into a Roth IRA.

Custodial Brokerage Account (UGMA/UTMA) – Invest in Their Future

A UGMA (Uniform Gifts to Minors Act) or UTMA (Uniform Transfers to Minors Act) account allows you to invest money on behalf of your child. The money legally becomes theirs when they reach adulthood – 18 or 21, depending on the state – in Ohio, UGMA is 18, and UTMA is 21. Additionally, when the account is established, Ohio permits extending custodianship to the age of 25.

Why open an UGMA/UTMA?

• Provides more flexibility than a 529 plan (can be used for anything, not just education).
• Provides parents and other adults with a tax-advantaged way to pass on gifts to minors without needing to create a formal trust.
• Any income earned on the contributed funds is taxed at the tax rate of the minor who is being gifted the funds. Since the minor’s income is presumably significantly lower than that of the adult donor, this can lead to significant tax savings
• Gives your child a head start in wealth-building.
• Can be a great way to introduce financial literacy when they’re older.

Keep in mind that this money legally belongs to your child once they reach adulthood—whether they use it for a backpacking trip or college is entirely up to them.

High-Yield Accounts – The Best Savings Account for a Newborn

Even babies get birthday money, and rather than letting it sit in a drawer, why not open a high-yield savings account? Think of this as the first piggy bank (with the benefit of earned interest). This is a great place for gift money from grandparents and a way to instill good saving habits early on.

Perks of a high-yield savings account:

• Earns more interest than a traditional savings account.
• Keeps funds safe and accessible for short-term needs.
• Teaches kids about savings as they grow.

Look for an account with no fees and a good interest rate to maximize growth.

Roth IRA – The Ultimate Head Start

A Roth IRA for a baby? It might sound odd, but hear me out. If your child has any form of earned income—think baby modeling, acting gigs, or even a small side hustle when they get a little older—you can contribute to a custodial Roth IRA on their behalf. For those entrepreneurial types, this might be the best savings account for a newborn.

Why is this a game-changer?

• Contributions grow tax-free and can be withdrawn tax-free in retirement.
• The earlier they start, the more decades of compound interest they get.
• They can withdraw contributions penalty-free for things like a first home or education expenses. Make sure you check with your advisor about possible tax implications if you are considering withdrawing earnings.

It’s a rare opportunity to be able to open this for an infant, but if your baby books a Gerber commercial, you might want to think about it! And it’s a good thing to keep in mind as your little one gets older and starts their first job.

Health Savings Account (HSA) – If You Have a High-Deductible Health Plan

While an HSA is technically for you, not your baby, it’s an excellent tool for covering medical expenses as they grow. Contributions are tax-deductible, grow tax-free, and can be withdrawn tax-free for medical expenses. Plus, unused funds roll over indefinitely.

If you’re planning for long-term financial health, an HSA can be a great way to cover childhood medical costs while saving for the future.

The Best Savings Account for a Newborn – Start Early, Benefit Later

Opening financial accounts for your baby isn’t just about securing their future—it’s about giving them options. Whether it’s funding their education, helping them buy a first home, or setting them up for retirement before they even know what a 401(k) is, these accounts lay the foundation for lifelong financial security.

Not sure where to start? A financial planner (like me!) can help you customize a strategy based on your family’s goals. Because let’s face it—your little one may be tiny now, but their future is big!

Nichole Coyle, CFP®, CSLP®

Managing Partner, Financial Planner

2300 St. Clair Ave NE

Cleveland, OH 44114

216.621.4644 x1607 office

330.607.2213 cell

nichole@impactcfp.com

Securities and advisory services offered through Cetera Advisor Networks LLC, member FINRA/SIPC, a Broker-Dealer, and a Registered Investment Advisor.

Cetera is not affiliated with the financial institution where investment services are offered or any other named entity.

Investments are: Not FDIC/NCUSIF insured * May lose value * Not financial institution guaranteed * Not a deposit * Not insured by a federal government agency.

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful. Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer’s official statement and should be read carefully before investing.

Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investing in any state’s 529 Plan.

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