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Whether you’re taking care of multiple children, a disabled spouse, or elderly parents, you’ve likely experienced the high cost of dependent care firsthand. With expenses from babysitters to after school programs, it can be difficult to stay ahead of all your other financial obligations while spending on dependent care.

To help make dependent care more affordable, President-elect Donald Trump has included a new provision in his child care plan: the Dependent Care Savings Account. It’s a tax-favored account that anyone with dependents can contribute to in order to save for eligible expenses. Read further to learn exactly what it is, how it works, and who will benefit from it.

What Is The New Dependent Care Savings Account?

Trump’s child care proposal includes creating a Dependent Care Savings Account (DCSA). Parents can contribute up to $2,000 per year to this tax-favored account. Contributions are tax deductible and grow tax-free. Much like a Health Savings Account (HSA), money in a DCSA doesn’t expire. Unused contributions can even be used for a child’s college education expenses once he/she reaches 18.

How Does The Dependent Care Savings Account Work?

DCSAs will be available to everyone regardless of employment status. They won’t be tied to employer accounts.

As previously stated, the maximum annual contribution for DCSAs will be $2,000. Unlike employer-sponsored Dependent Flexible Spending Accounts, unused money in a DCSA will be allowed to carry over year after year. In this way, substantial amounts of money can be accumulated for future dependent care expenses.

Examples of eligible dependent care expenses include:

  • Children
    • After school programs
    • Babysitters
  • Disabled  Spouse
    • In-home care
  • Elderly Parents
    • Adult day care
    • Assisted living

The exact details on how claims will be processed and reimbursed have not been released yet. We suspect it’ll operate similar to an HSA, but on a federal level.

Who Does The Dependent Care Savings Account Benefit?

Anyone who spends money on dependent care can take advantage of the DCSA and reap the tax benefits.

It should be noted that dependents include disabled spouses and elderly parents, not just children. This broadens the applicability of the money put into the account and makes it all the more easy to use it for eligible expenses.

Low-income parents will receive an additional benefit when using DCSAs. The government will match half of the first $1,000 contributed each year. That’s $500 in additional benefits each year.

Trump hasn’t laid out the specific details on how he plans to fund the government match for contributions made by low-income parents. That, however, would come at a large cost. Over 40% of American households have children. If every low-income parent contributed to DCSAs up to the government match, he would need to find a viable way to fund all of those accounts.

His general answer to the funding question is that it’ll be “offset by additional growth.”

Final Thoughts

It’s important to note that in order for DCSAs to have a large scale impact in reducing the cost of dependent care for American families, parents will need to take advantage of the account and contribute to it. Given that participation in FSAs and HSAs has been increasing, the outlook seems promising.

The $500 government match for low-income parents is a lofty provision but may be underutilized in reality. Low-income families may have a hard time coming up with the disposable income to contribute to a DCSA in the first place.

President-elect Trump’s child care plan, specifically the creation of the Dependent Care Savings Account, depends largely on utilization rates. We have our eyes peeled to see how this change affects finances for the U.S., especially families with children or elderly parents.

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New baby? No doubt this new arrival has turned every aspect of your life upside down in the best possible way. Now is the time to make sure your financial house is in order. Here’s a 10-step account and financial checklist to lay the groundwork for your little one’s successful future.

New account checklist for new babies

1. Apply for a Social Security number for the baby: An SSI number is the linchpin to open a bank account in your child’s name, purchase savings bonds, obtain medical coverage and access government benefits.

2. Review your life insurance: If you don’t have life insurance, you should get coverage as soon as possible. If you already have a life insurance policy, check to make sure it’s adequate to cover the needs of the new addition to the family.

3. Pick a guardian: Choose a family member or close friend who is willing and financially able to care for your child, should you or the other parent pass away or become incapacitated before your child turns 18.

4. Set up powers of attorney: Put in writing your legal power of attorney, which sets out who will be responsible for your financial and personal affairs should you be unable to make those decisions for yourself. You also should set up a health care power of attorney that makes your wishes known in the event you become seriously ill and are unable to participate in decisions about your care.

5. Write your will: It’s not just wealthy people who need a will. Every parent should create a document spelling out how his or her estate should be handled. The will may also include or reference legal guardianship and powers of attorney.

6. Open a savings account in the baby’s name: Choose a no-fee, no-minimum balance, online savings account. You can link the savings account to your checking for automatic withdrawals.

7. Set up an emergency fund: You should put aside money from each paycheck into a savings account with the goal of having sufficient funds to cover living expenses for six months.

8. Review your work benefits: Confirm how much paid (and unpaid) maternity leave is offered through the birth mom’s employer, and whether paid leave is available for the other parent. Determine how you will obtain health benefits for the baby, either through an employer or government plan. Consult with your human resources office on flexible spending accounts and other benefits that may apply to your situation as a new parent.

9. Check in with Uncle Sam: You can claim a tax credit of $1,000 for your new baby and take an annual tax deduction of $3,950 for each dependent child. You can also receive tax credits if you adopt a child and/or if you pay for child care. You should review your withholding status, which could mean that more take-home money is available to increase your emergency fund every month, for instance. Single parents may be able to claim head-of-household status.

10. Start saving for college: Set up a 529 savings account, which generally is not subject to federal and state taxes if used to pay for college tuition. (If the funds are used for other purposes, earnings may be subject to a 10 percent federal tax penalty.) Details on fees and other aspects of the 529 plans vary by state, so do your research.

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The best high-yield online savings accounts offer strong interest rates and great customer service, making them a popular option for savers. Studies also show online savings accounts often come with lower fees.

“High-yield” is unfortunately a bit of a misnomer these days; a decade ago, interest rates were 4% and 5% among select savings accounts and money market accounts. Today, the best rates are around 1% while a fair amount are still hovering near 0%! This trend will continue until banks and credit unions need more cash from depositors.

Banking Deal: Earn 1.05% APY on an FDIC-insured savings account at Synchrony Bank.

Interest rates

Interest rates are important because money shouldn’t lose too much purchasing power. In a perfect world, interest rates offered by banks should beat inflation while preserving the balance without risk. I am not aware of any bank offering a savings option with ongoing interest rates high enough to beat inflation, whether measured by the government-reported CPI-U or by any other meaningful measure of consumer prices. Nevertheless, if your savings is at a brick and mortar bank earning below 0.25% APY, choose one of the better options below.

Customer service

When evaluating customer service, there are two important factors to consider. The best banks offer all account maintenance and transfers through a professional, reliable, and easy-to-navigate website. Secondly, live customer service representatives should be knowledgeable, helpful, and available, although customers should have to deal with a representative infrequently if at all.

Based on my own experiences and reviews from other Consumerism Commentary readers, here are the most-recommended accounts for short-term savings. All of the listed interest rates directly below from our partners and in the table that follows are current but they are subject to change by the banks. Although I have nine accounts listed below the table of rates, you don’t need to have accounts with that many different banks. Choose one that fits you the best.

First, here is a list of the latest interest rates. Following this table, I offer a few of my own observations and opinions about savings accounts from nine popular online banks.


Barclays is a large, international bank that has been around for 300 years, and operates in over 50 different countries. Barclays offers a 1.00% APY on all deposits, with no minimum balance and no monthly fees.


Synchrony Bank Savings AccountAt 1.05% APY, Synchrony bank offers one of the highest rates available today on an FDIC-insured savings account. With no minimum balance required and no monthly service fees, it’s one of the most popular options.


Click here to start saving with Capital One 360!Capital One 360 offers no fees and no minimum balance requirement. Like ING DIRECT before it, Capital One 360 also has a great website and excellent customer service. So far, managing your money with Capital One 360 is just as easy as it was with ING DIRECT. Capital One 360 offers a current interest rate of 0.75% APY .


Ally Bank was selected by Kiplinger Magazine as the best savings account for 2009. Formerly known as GMAC Bank, Ally Bank provides an interest rate for their online savings account of 1.00% APY. Click here to apply.


EverBank has a variety of products including a high yield checking account, a money market account, and world currency CDs, all with top-tier interest rates. Currently, for first time account holders, Everbank’s Yield Pledge Money Market account offers a new account bonus rate of 1.11% for the first year, with an ongoing APY after that of 0.61% for account balances up to $150K. And their Yield Pledge Checking Account for first time account holders for balances up to $100,000 offers a new account bonus rate of 1.11% for the first year and the ongoing APY is tiered 0.25%-0.61% APY. Click here to apply.


FNBO Direct offers no fees and no minimum balance requirement. FNBO Direct is the online arm of First National Bank of Omaha. FNBO has an interest rate of 0.95% APY. Click here to apply.


Discover Bank offers a solid online savings account with a fast opening process; my account was opened within twenty-four hours. The current interest rate for the Discover Bank Online Savings Account is 0.95% APY.


CIT Bank was founded in 1908 in St. Louis by Henry Ittleson. Throughout the 20th century, CIT continued to grow, in all sectors. CIT Bank, an FDIC-insured institution, serves consumers and small businesses with certificates of deposit, savings accounts and custodial accounts. CIT Savings account offers 0.95% APY on all deposits between $100-$24,999 and 0.95% APY on all deposits of $25,000 and above. Click here to apply.


SmartyPig currently sports one of the better interest rates you can find online at 0.75% APY. In addition to the high interest rate, you can also convert your savings goals into gift cards and earn an additional bonus for each gift card conversion. SmartyPig is not a bank by itself, but it is a goal-oriented savings vehicle, a layer, that can be compared with other savings accounts.


HSBC Advance offers no fees and no minimum balance requirement. HSBC Advance (formerly HSBC Direct) entered the race with one of the highest interest rates ever available at 6% APY. HSBC Advance Online Savings Account has an interest rate of 0.05% APY for $15,000.


Lending Club Investing offers a significantly higher return than most banks. LendingClub is a social lending site where you can invest in loans issued to individuals and businesses. The most recent average net annualized return for notes by grade A to C is between 5.20% and 8.19%. While these investments are not FDIC insured, given the low interest rates paid by banks, LendingClub may be an alternative worth considering.


What is your favorite online savings account? Share your thoughts in the comments below.

For more banks to round out the selection, see this list of savings accounts interest rates. I have been tracking the rate changes for many years now, and this list gives you an idea of which banks have been consistently offering the highest interest rates.

Credit: iStock photo by psphotograph

Tell us: What online savings account works best for you?

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Now that the government backed down on its proposed changes to 529 plans for future education expenses, we can expect the same tax benefits present for education to be applied to families and individuals who face expenses caring for disabled people.

Families will be able to deposit funds into special savings accounts, called 529As, and earnings in these accounts will grow and can be withdrawn without any tax consequences. The annual contribution limit will start at $14,000, linked to the amount of the gift tax exclusion, and accounts can grow to $100,000 without being counted against qualification for Social Security benefits. The actual account maximum will be defined within each state’s regulations.

As long as the money withdrawn will be used to pay for qualified expenses, like housing, education, transportation, health care, and rehabilitation for the disabled beneficiary, these tax advantages will apply. This new account is a result of Congress passing the Achieving a Better Life Experience (ABLE) Act of 2014 and President Obama signing this bill into law.

Like 529 plans for college education, 529A plans will be managed by each state. This will provide another stream of revenue for the companies contracted by the states to provide these services, an economical benefit to organizations usually within that state. For an idea of what kind of fees consumers will see with 529A plans, you can see this chart that outlines current 529 plan fees on a state-by-state basis. There’s no reason to assume that 529A plans will be any less expensive than 529 plans.

Will 529A accounts help people with disabilities?

Federal benefits like Medicaid aren’t helpful to households that have more than $2,000 in savings. Medicaid could have been an essential tool for helping families afford medical expenses for disabled people, but the asset limitation does little to encourage financial security. A 529A plan would allow a disabled person to have much more sizable assets while still qualifying for Supplemental Security Income.

Some families have been able to establish a special needs trust to get around the $2,000 savings maximum for Medicaid, but not every family with a special-needs member can afford to establish a trust and these trusts don’t offer the tax benefits that 529A plans will. Some savvy savers have used 529 college savings plans inside a special needs trust to pay for educational expenses for a disabled beneficiary, but with the 529A plan, this can be done without the special needs trust.

One disadvantage of 529A accounts is that a household may take advantage of only the plan available in its home state, unlike 529 plans for college savings. Savers won’t be able to shop around. AARP also points out that any funds remaining in an account after a beneficiary passes away may be turned over to the state to help pay for Medicaid expenses. Also, if a beneficiary withdraws funds from a 529A plan and doesn’t qualify for special tax treatment, the withdrawals will be subject to a 10% penalty as well as the income tax, just like a 529 plan.

Excess contributions, deposits made into 529A plans beyond the gift tax exclusion, will be subject to a 6% penalty — so if you choose to save using this vehicle, be careful.

The added cost of typical expenses for an individual with autism over the course of his or her lifetime is $1.4 million according to the U.S. Department of Agriculture. The added cost increases to $2.3 million for a person with intellectual disabilities. Keeping that in mind, the advantages of a 529A plan represent a small drop in a bucket for people who are embarking on a life journey with an automatic financial disadvantage. When some families can take advantage of 529 plans for savings on education expenses, 529A plans could help create a complementary opportunity for families whose children may never attend college, but are certain to spend just as much, if not more, money on educational expenses for specialized services.

529A plans are protected in bankruptcy proceedings, as long as the contributions were made at least two years prior to filing for bankruptcy. A portion of contributions made more recently may be available to creditors’ claims. Due to the sometimes unmanageable cost of living with a mental or physical disability, the need to declare bankruptcy is more likely than it would be for other individuals, so this protection could be important or even life-saving.

These are the full qualified expenses, and they are quite comprehensive: Education, housing, transportation, employment training and support, assistive technology and personal support services, health, prevention and wellness, financial management and administrative services, legal fees, expenses for oversight and monitoring, funeral and burial expenses. Any withdrawals made for other expenses will be subject to the penalty and tax.

Who qualifies to be a 529A plan beneficiary?

In order to qualify, a person must be or have been blind or disabled before his or her 26th birthday. If the person qualifies as blind or disabled under Title II of the Social Security Act or has a disability certificate on file with the IRS, he or she will qualify. Disabilities that qualify are those that include a mental or physical impairment that can lead to death or will last for at least 12 months, by the determination of a physician.

Some details about 529A plans still need to be worked out by the government, but as the plans exist on paper, they could provide some relief to people managing life with a disability. Once 529A plans are available to savers and consumers, readers will be able to find more information on Consumerism Commentary.

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