Investment fund for the grandkids???

[Dogone]

Check life insurance. You can pay a yearly premium. As years go by the cash value grows. If they don’t need money let it grow for a lifetime. If not cashed in your grandchildren will inherit it. I looked a many options. This one just fit my goals.

 

[MTPipeliner]

I think a regular taxable brokerage account gives you the most flexibility as well as control, but no tax advantage like a 529. Like others have stated a UTMA account becomes theirs at the age of 18 in most states but comes with some tax advantages.

 

[cornfedkiller]

Correct me if I’m wrong, but the benefit of a 529 plan is tax savings? But then it’s also tied to higher education?

You put tax-deferred money into the account (like a 401k or HSA), it grows over time, and as long as the money is used for education, the withdrawals are tax free. It allows you to invest money and never pay tax on it or the gains as long as its used for education.

Edit: The contributions are not tax-deferred, they are post tax.

 

[Sevens]

I’ll just say that 25 year olds are still idiots. Wouldn’t setup something where they get it all then. Give them some, like 25% when they’re 21 or 25. They’ll probably lose a lot of it one way or another, but let the lesson sting and sink in. Then when they’re 30 - or whatever age you decide - and they get the remaining 75%, they’ll hopefully have learned from their mistakes and use the funds more wisely.

 

[Dos Perros]

You put tax-deferred money into the account (like a 401k or HSA), it grows over time, and as long as the money is used for education, the withdrawals are tax free. It allows you to invest money and never pay tax on it or the gains as long as its used for education.

...or roll it over into a Roth IRA and you can use it on whatever you want.*

* - read the fine print: https://www.schwab.com/learn/story/529-to-roth-ira-rollovers-what-to-know

 

[gentleman4561]

I have 529 accounts set up for my kids. I also talked to my investment guy about setting up a separate nest egg account for them and he suggested setting up an account that is owned by me and controlled by me but earmarked for them. Anything with their name on it, they get access to when they turn a certain age. I want to say it was 18. So I have investment accounts that are for them, but their names aren’t on them. If one of them decides to grew up to be an asshole then they can’t have it.

It reminds me of the recent viral video of the lady calling in to Dave Ramsey asking for advice on what to do with here estate after finding out both of her daughters had “turned into socialists” lol

 

[cornfedkiller]

...or roll it over into a Roth IRA and you can use it on whatever you want.*

* - read the fine print: https://www.schwab.com/learn/story/529-to-roth-ira-rollovers-what-to-know

That's interesting.. so tax is never paid on it at all?

 

[HuntHarder]

I thought 529 money contributed was after tax money, but grows tax free. So you still pay tax on contributions, just not on interest earned.

 

[TBarron]

529 has a lot more flexibility than just college expenses. You can use it for any education related expense trade school etc, but you can use it to purchase equipment etc if you want to help them start a business or even purchase an existing business.


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[dubbeltap69]

Fidelity Roth IRA all day long…. Wish I would have started earlier with my two boys

Good on ya either way for investing in them. Maybe you can instill in them to do it for their kids and grandkids.

 

[bozeman]

Do both. 529 for the oldest which can be used for siblings if/when needed......Custodial brokerage accounts for each child. Set them up for financial success, but....and this is important. Invest in their financial stewardship. Teach them to honor the Lord with their finances at a young age. This is just as, if not more important, than the $$ in the accounts.

 

[mlevimadden]

Fidelity Roth IRA all day long…. Wish I would have started earlier with my two boys

Good on ya either way for investing in them. Maybe you can instill in them to do it for their kids and grandkids.

The only problem with contributing directly to a Roth for young children is they need to have earned income to be eligible to contribute. Definitely not a bad strategy, but not one I’d do as a grandparent without the parents consent and agreement on strategy, since you’re front loading the tax burden.

 

[mlevimadden]

Yep 529 seems to be the best option. Plus the tax advantages. I also learned that 529 funds can be moved over to siblings if the funds are not used.

Also If the kid qualifies for scholarships you can withdraw up to the scholarship amount without penalty other than regular income tax on gains.

Colorado has a grant right now that will pay up to $2500 into a 529 for the first 5 years with qualifying contributions

Can you share details on the grant or PM me on this? I am also in CO with a 529 account but wasn’t aware of a match option.

 

[missjordan]

529 and a custodial brokerage account.


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[Dos Perros]

That's interesting.. so tax is never paid on it at all?

529's are after tax accounts, so you pay your income tax on the money that goes into it.

 

[cusecat04]

Tax implications on 529s are plan dependent. We are in NY and I can deduct up to 10k (married filing jointly) for 529 contributions from my state tax burden, no help for the federal filing....

The Roth IRA is another nice idea, something we have started with my oldest after she got a papered job that allows tracking earned income to allow her to start a Roth.

Both of these need coordination with the parent/s as both have implications for them. NY only allows 5k per child to be deductible, if the parent/s are already using that you can not. Roth IRA requires earned income which people do with young children but some of that paperwork generation is suspect in my mind; W2s or 1099s make this easier.

As a grandparent I would suggest separate taxable accounts in your name which gives you flexibility, control, and doesn't pass any burden off on the parent/s.

Good on you!
Get it invested in low cost growth funds and it will be eye opening what you can build.

 

[7mm-08]

I'm in the brokerage fund camp on this one. And, I listen to that old fool Warren Buffet when it comes to investing - a Vanguard S&P 500 index fund is the ticket (if you aren't a stock or equities guru).

 

[svivian]

Can you share details on the grant or PM me on this? I am also in CO with a 529 account but wasn’t aware of a match option.

CollegeInvest 529 College Savings Plan First Step Program

Introducing FIRST STEP, a free kickstarter saving program for Colorado newborns from CollegeInvest, Colorado’s 529 college saving program.

www.collegeinvest.org

CollegeInvest 529 College Savings Plan Matching Grant Program

The CollegeInvest Matching Grant Program provides eligible account owners with matching funds when opening and contributing to 529 College Savings Accounts.

www.collegeinvest.org

 

[TaperPin]

If kids live past 30, they’ve reached the point we stop worrying about them as much, but everyone’s an individual. One of our boys was dating a new gal about the time he turned 30 - he was quite smitten and she loved concerts. Every dime of extra money would have been spent traveling to cool concerts and living like hippies - with enough money they would have quit their jobs until the money ran out. Our other boy was hooked up with a drama queen who was all into big houses. He would have used the money to get into a house he couldn’t afford, or landscapes that look like something off of Pinterest and half the plants would be dead now. They have a few well off relatives and will inherit 6 figures, and knowing in advance that will eventually happen may not help their decision making when the day comes - all we can hope for is they aren’t in between relationships when it happens and having some rebound crisis.

I’ve had remodeling clients off all ages who came into money one way or the other - some remodel, some buy new, some developed coke habits and were broke in 4 years, some are trust fund slugs that stay drunk and play video games, some have a stupid expensive car or RV that they can’t afford to own or fix, some buy a cabin and it rots without maintenance, some buy a boat and that’s a hole to pour money into, some buy an airplane that sits, some build a giant shop and fill it with toys and payments they can’t afford, some buy a condo in Cancun they get tired of. I’m sure someone has used the money to pay off bills, or do constructive things with and it’s just not as obvious.

My personal bias is to inject money at multiple times for multiple worthwhile things, rather than fund some weird new hobby in a big lump sum like collecting swords or cosplay costumes. Do things that encourage good decision making and stability, and that’s different for every kid or grand kid.

If you want to give a kid a great education in investing, if they actually own a wide variety of individual stocks, funds, etc. that can’t be touched, they look them up and follow them. Rather than one simple number at the end of the year, they naturally want to learn about each company and what impacts it. Even a conservative fund vs growth fund reinforces what they are good for. I know a dad that funds a little every month of his 20 something son’s online trading - he knows the son will blow the money, but it’s an eduction the son puts a lot of effort into.

Beware of the finance scams that allow kids to cash out future pay outs for pennies on the dollar - many will gladly take one donut today rather than two dozen in 10 years.

 

[Clarktar]

What mutual or index funds are people liking?