13 Mar What’s the best way to save money paid for child support?

Q. I’m recently divorced and I receive child support. But I earn enough money that I don’t need to use the child support for expenses, so instead, I have been saving it. I think, given our kids are only 6 and 8, that I should invest the money. What’s the best way to do it?
— Mom

A. We’re glad you’re asking.

We know the stock market has been in turmoil lately, so it’s all the more important to remember your specific goals for the money when you make decisions.

Once you’ve decided how and when to use these funds, you’ll better understand your investment time horizon and how much risk it may make sense to take on, as well as what types of accounts and investment options can help you best accomplish your objectives, said Charles Pawlik, a certified financial planner and chartered financial analyst with Beacon Trust in Morristown.

“For example, if you plan to invest for the long-term — at least 5-10 years — and want flexibility to use the funds for your children’s benefit, you may want to consider a brokerage account,” Pawlik said. “You could potentially invest in a broad-based mutual fund or exchange traded fund (ETF) tracking an index like the S&P 500.”

This approach requires a long-term horizon due to equity market volatility, he said.

Another option could be to establish UGMA (Uniform Gifts to Minors) or UTMA (Uniform Transfers to Minors Act) accounts, he said.

“These accounts allow for broad flexibility to utilize the funds for anything that benefits the child and may provide tax savings,” he said. “However, once funds are contributed to these accounts for a child, they become assets of the child and can’t be revoked.”

A parent or guardian manages the account until the minor reaches the age of majority, at which point the account is turned over to the child and the assets can be used as they wish, he said.

If you more specifically want to utilize funds for education expenses, it could be worth considering setting up 529 plans for your children, Pawlik said.

“These accounts are state-sponsored and allow for tax-deferred growth and tax-free withdrawals if the funds are used for qualified education expenses for the child,” he said. “There are a significant number of low-expense 529 plans available, with a range of investment options that can be selected.”

For instance, many plans offer age-based investment options that will adjust the asset allocation on an on-going basis based on the age of your child, he said. It is also important to note that each 529 plan or state may also impose different restrictions or limitations of where those funds can be spent or how they are treated for tax purposes, he said

Given that you have a lot of options, and because you want to consider the advantages and disadvantages of those options, you may want to work with a certified financial planner who can help you review your overall financial situation, your goals for the money and your risk tolerance to determine the best course, he said.

Email your questions to Ask@NJMoneyHelp.com.

This story was originally published in March 2025.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.