EXPLAINER: Get more out of your child tax credit

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The COVID-19 pandemic caused significant financial turmoil for many Kentucky families. Thousands of mothers were forced to leave the workforce to tend to children out of school. Restrictions on businesses resulted in some people working fewer hours or losing their jobs altogether.



Many continue to feel the pinch of the wallet in COVID’s aftermath, making good financial decisions like saving seem impossible. But there is one option coming to many households that I encourage you to consider.


Beginning Thursday, federal child tax credits will be issued from the U.S. Treasury to households with one or more children. Depending on their income, families will receive $300 per month for each child under six and $250 for each child between the ages of 6-17. The monthly payments will be issued through December.


Understandably, some will need most or all of this credit for necessities. But, before you start spending, if you can spare even a small amount, there are two important options that could pay dividends in the future: a 529 tax-deferred education savings account or STABLE Kentucky account for children with disabilities. Investing even a small portion of each monthly tax credit into one of these vehicles will pay for itself when considering your child’s education and financial independence.


A 529 plan allows you to save money in a tax-deferred account for education costs, like college, trade school, k-12 tuition, room and board, computers, books, and more. These accounts allow your money to grow free of state and federal taxes. Considering the average student debt for Kentuckians is more than $32,000, this option could prove beneficial to you and your child in the years to come.


The child tax credit is a great way to get started or boost investing in your child’s education. Here’s a great example of how much your money could grow in a 529: if you invested $100 a month (1/3 of the child tax credit) you could potentially save more than $35,000 in 18 years (with a 5% annual rate of return). 


For Kentuckians with disabilities, a tax-free STABLE savings account allows you to save significantly more than you would otherwise be able to without the risk of losing needs-based benefits. I am proud to have brought STABLE to Kentucky in my first term, free of cost to Kentucky taxpayers. STABLE Kentucky gives people with disabilities who are 26 or younger more independence and financial security. Account holders may contribute up to $15,000 per year, and an additional $12,760 if they are employed. These funds may be spent on qualified expenses, including basic living expenses, medical care, transportation costs, housing, education, and more.


Before these child tax credits are deposited into your savings or checking accounts, I recommend making a plan for how best to stretch these dollars. A 529 or STABLE Kentucky account are two options to get more out of your dollars. To learn more about STABLE Kentucky, please visit Treasury.ky.gov, and to learn more about a 529 plan, visit www.kysaves.com.


Treasurer Allison Ball is the 38th State Treasurer for the Commonwealth of Kentucky. Treasurer Ball is currently serving her second term.

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