Planting seeds for new baby

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daedalus

Well-known member
We have a 7-month old and would like to start setting aside some money for her future.  There's no way to know at this point whether she'll go to college, so a 529 plan is out for now.  Grandma wants to give a little $$$ too, but it will be well under the gift limit.

We're thinking of some kind of index fund (Fidelity) that we would put money into periodically.

We could put it in her name, and she would likely not have to pay taxes on it for a LONG time (standard deduction).  I don't like this idea because then it would be hers, and she could lean as far toward poor judgement with it as she wanted to.

I'm thinking I'll more likely just open an account in my name.  Downside is any dividends would add to our taxable income each year.  But I would have full say in what she could do with it later.

Any other ideas?  What have you folks done to set money aside for your little ones, other than a 529?  Any tax shelters I'm missing?  We already max our 401ks and I don't think we can do a tax-advantaged 401k...probably should look more into the backdoor roth though.  The timing might not be bad, as I could withdraw around the time she would turn 18 (yeah, late start, lol).
 
Pure w2 or have 1099, for self directed Ira, I believe there's no age minimum.  Add kid as employee.
 
UGMA?  I think it becomes hers at 18 in CA though (but there may be some exception that brings it to 25).  Also there may be some financial aid downsides if she does end up going to college, but I'm not super familiar with it, so... there's that :)
 
bones said:
UGMA?  I think it becomes hers at 18 in CA though (but there may be some exception that brings it to 25).  Also there may be some financial aid downsides if she does end up going to college, but I'm not super familiar with it, so... there's that :)
Click to expand...

UGMA is their money once they reach age of majority (since this $$ is technically theirs, no one can own securities under 18). So if they want to run off and buy a Ferrari or 500 kegs of beer, you have no control.

529, you control, can transfer to other family members w/o tax implications but only used for education expenses unless you want to pay that penalty. There's a max on how your assets in this type of account affects financial aid. California also doesn't have a state tax deduction for using the in state program manager, so you can use any 529 program based on your liking.

This website is useful:http://www.savingforcollege.com/
http://www.savingforcollege.com/intro_to_529s/does-a-529-plan-affect-financial-aid.php

Pretty cool comparison table for college savings options/account typeshttp://www.savingforcollege.com/compare_savings_options/

 
jumpinjacks said:
So if they want to run off and buy a Ferrari or 500 kegs of beer, you have no control.
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That's a concern, certainly.  But I figure the odds are good that at 18 she'll still be dependent on us enough to give us a lot of influence in her decisions.  And if not, then hopefully it's because she's adept at making good decisions.  Very worst case, at the very least she'll be blowing money I've long stopped missing.
 
I get that some of the plans will shelter additional income with some additional downsides, but other than that, are there really any benefits over just having the money in your account?
 
daedalus said:
We have a 7-month old and would like to start setting aside some money for her future.  There's no way to know at this point whether she'll go to college, so a 529 plan is out for now.  Grandma wants to give a little $$$ too, but it will be well under the gift limit.
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There is some flexibility with the 529 Plan, I'm not a qualified financial adviser so please consider this to be my personal opinions only.  529 plan can be used for college, trade schools, study abroad, etc.  You can also change the beneficiary of the account to another family member.  Please consult with a qualified financial/tax professional.
https://www.irs.gov/pub/irs-pdf/p970.pdf

"Eligible educational institution. An eligible educational
institution is any college, university, vocational school, or
other postsecondary educational institution eligible to participate
in a student aid program administered by the U.S.
Department of Education. It includes virtually all accredited
public, nonprofit, and proprietary (privately owned
profit-making) postsecondary institutions.

Certain educational institutions located outside the United
States also participate in the U.S. Department of Education's
Federal Student Aid (FSA) programs.

For purposes of the student loan interest deduction, an
eligible educational institution also includes an institution
conducting an internship or residency program leading to
a degree or certificate from an institution of higher
Chapter 4 Student Loan Interest Deduction Page 31
Page 32 of 97 Fileid: ? tions/P970/2015/A/XML/Cycle06/source 15:49 - 29-Jan-2016
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
education, a hospital, or a health care facility that offers
postgraduate training.

An educational institution must meet the above criteria
only during the academic period(s) for which the student
loan was incurred. The deductibility of interest on the loan
isn't affected by the institution's subsequent loss of eligibility.

The educational institution should be able to tell
you if it is an eligible educational institution"

 
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