Is a Joint Bank Account The Best Option for Your Child?

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Published Aug 11, 2016

Teaching your child financial responsibility starts at a young age. One of the best ways to teach financial responsibility is to open a bank account. It’s never too early to start saving!

Teaching your child financial responsibility starts at a young age. One of the best ways to teach financial responsibility is to open a bank account. It’s never too early to start saving!

Figuring out what kind of account is appropriate for your child, however, can be overwhelming. You want an account that will keep the money safe, allowing you to help manage those vital funds. You don’t want your child to be trapped by fees that could potentially decrease the amount of their account, nor do you want them to access the money too early. Free checks should not be a major deciding factor, since personal checks can be purchased inexpensively online. On the other hand, you do want your child to be able to use the money they’ve saved for college, that first car, and other major expenses. How do you decide what type of account is right for your child?

Know Your Accounts

In Trust For (ITF) or Custodial Accounts allow you to maintain control of the money in the account as usual throughout your lifetime, but transfer the assets easily to your child as soon as they reach the legal age. (The legal age is currently 18 years old.) 

Joint Accounts place both your name and your child’s on the account. This means that both of you can make decisions about how to withdraw, transfer, and use funds.

529 Plans are savings plans specifically designed to set aside money for your child to use on college. This is a great way to create a college savings account dedicated specifically to education costs.

Minor By Accounts allow you and your child to put money into the account for later use, then withdraw the money at a normal rate at the age of 18. This can provide funds for college, a first home of their own after high school, or other needs as your child ages.

Child Accounts give your child sole ownership of the account. As a minor, however, you will need to be on the account to help them make responsible decisions.

Totten Trust or POD Accounts pass the money in a particular account to your child in the event of your death.

Uniform Transfers and the Gifts to Minors Act allow minors to own property and enter into contracts with a custodian or trustee to manage the account.

Tax Consequences

For federal income tax purposes, the amount of tax payable for a child’s account depends on three factors: the incidence of ownership, the type of income, and the amount of income. If the child owns the account or trust, it is their responsibility to report any associated income, and they will be responsible for taxes on that account. On the other hand, if the account is owned by someone else and the child will simply benefit from it later, it’s the responsibility of the account owner to deal with the taxes. Earned versus unearned income have different tax laws, but reporting is relatively straightforward. Taxation for children’s income begins at $950, and the next $950 is taxed at the child’s rate. After that, income is taxed at the parent’s rate.


Creating a bank account for your child, whether an account that they’re allowed to access or one that will benefit them upon turning eighteen, graduation, or your death, is a great way to start them down the road to financial success. From their first birthday present income to odd jobs, babysitting, and that ultimate first “real” job, encouraging your child to set aside a portion of their income will set them up for great financial habits for the rest of their lives. Not only that, they’ll have a source of savings that will help cover critical expenses at later points in life. Carefully evaluating the type of account that is best for your child, will allow you to make the right decision when it comes to setting up the account and choosing how to manage those funds.

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