“Do I Really Need This New Kids Savings Account?”
Politics aside, a lot of parents are asking the same thing about the new Kids Savings Accounts: Do I really need this? How does it work? Is it worth it?
Here’s the simple version.
• It’s a tax-favored savings account for children. Parents can put money in each year, and the growth is tax-free. It works a lot like a Roth IRA, but kids don’t need earned income to qualify.
• The money is meant for long-term goals. Education, buying a home, or starting a business. It’s designed to help kids build financial stability early.
• It doesn’t replace a 529 plan. A 529 is still the main tool for college savings. A Kids Savings Account is more flexible, but it doesn’t offer the same education-specific tax benefits.
• Whether it’s “worth it” depends on your goals. If you already save through a 529 or custodial account, this is simply another option. If you’re just starting to save, it may be a simple way to build long-term growth.
A Simple Example
Let’s say a child is born in 2025 and a parent contributes $2,000 per year into a Kids Savings Account.
If the account earns a steady 5% annual return, here’s what that looks like by age 21:
Total contributions: $42,000
Approximate account value at age 21: about $63,000
That’s roughly $21,000 of tax-free growth over their childhood and early adulthood.
If the parent contributes $1,000 per year instead, the account would grow to roughly $31,000 by age 21.
These numbers aren’t predictions — just simple math to show how long-term, tax-free growth works.
Bottom Line
You don’t need this account, but it may become a helpful tool depending on how you save for your child’s future. It’s still new, and details may change, so it’s a good idea to follow updates and confirm rules as they develop.
Disclaimer: Content published by Red Letter Accounting is provided for general educational and informational purposes only and should not be considered individualized tax, accounting, financial, or legal advice. Readers should consult a qualified professional regarding their specific circumstances before making financial or tax decisions.
Some content may be created with the assistance of artificial intelligence and is reviewed and edited by Red Letter Accounting before publication.
About the Author
Charmaine Dawson, MAFM is the Founder and Principal Accountant at Red Letter Accounting. She combines corporate accounting experience with a passion for helping business owners gain confidence through clear financial guidance.
Through the Red Letter Accounting blog, Charmaine and the team share practical insights on bookkeeping, accounting, taxes, and business finances to help you make informed decisions and keep more of what you earn.
Ready to Take the Stress Out of Your Finances?
Whether you need bookkeeping, accounting support, tax preparation, or help getting your finances back on track, we're here to help. Schedule a consultation and let's find the right solution for your business.
