Submitted by yourgoldenstars t3_yiqiu0 in personalfinance
My daughter is now in preschool and I get anxious thinking about saving for her. Right now I can put 2k into savings/investment for her but I don't know what the best place would be to put that money. Where to start? Within the year I should be able to consistently start putting away more money for her.
I'm sorry if this is in the wiki, I checked and nothing caught my eye on savings for children.
Etf/index funds are probably a good bet. What about a 529 plan if you are planning on her attending colllege
Etf/index funds are probably a good bet. What about a 529 plan if you are planning on her attending colllege
I will check into this.
But I'm not sure I understand it correctly. When I read this I think "Well the money isn't going to sit for 100 years. And a 6% interest gain after 100 years seems pretty bad." I don't know much about investing, am I reading this wrong?
Ok I will look into those! Is splitting a good idea, or with only 2k should I focus it all on one?
Have you already hit the max or on track to hit the max on all of your available tax advantaged space?
Have you read the Prime Directive? Have you seen the Flow Chart?
Your response to another commenter is concerning...
> But I'm not sure I understand it correctly. When I read this I think "Well the money isn't going to sit for 100 years. And a 6% interest gain after 100 years seems pretty bad." I don't know much about investing, am I reading this wrong?
The misunderstanding is not 6% appreciation in TOTAL across the 100 years.
It's an expected 5-10% (about 6-7% on average) per year over multiple years. As in, you might be up/down from year to year, but over the long term (ie decades), you expect to have an annual rate of return ~7%.
If this was misunderstood, I want to make sure you, yourself, have your own retirement well squared away. If this concept was holding you back from investing for your retirement, get your retirement well funded first, before you consider giving away money to your children.
Once you've taken care of yourself...
u/billthecatt has arguably the best answer to this question linked and pasted below:
Typical kid options:
529 - Great for college/education, but not all kids go to college/private schools, etc. More Details here: https://old.reddit.com/r/personalfinance/comments/mq0rjb/information_about_college_529_savings_plans/
UTMA (Custodial) - Invest on behalf of the child, Pros - lower taxes (assuming amounts don't get too high, see below), fewer restrictions on usage than 529. Cons - Is the child's money, so no takebacks. Minor takes full control at the age of termination (varies by state, typically 18 to 21). Also, will reduce/impact financial aid for college. You should tax gain harvest this type of account (realize gains periodically, while in the 0% tax bracket).
IRA (Roth/Traditional-Custodial) - Cons: Requires earned income, which most minors don't have or have much of.
Normal investment account in your name - Cons: Probably higher taxes than UTMA, Pros - you keep control
HYSA - Pros: Won't "lose" nominal value, low risk Cons: May lose out to inflation.
CD - Pros: Like HYSA, but with guaranteed returns over investment period. Cons: May lose out to inflation.
I-Bonds: Currently high-yielding bonds that can be purchased in accounts for minors: (up to $10k/year; interest changes every 6 months) /r/personalfinance/comments/qprqpy/ibond_questions_answered/
The first 4 options (529, UTMA, IRA, investment account) are account types that allow for investing based on your time horizon. If your child is young, a more aggressive investment mix may make sense for you (Stock ETFs/funds), and you may want to shift to a more conservative mix over time, depending on your goals for your child(ren).
More information:
UTMA Kiddie Tax Info: https://www.marketwatch.com/story/the-kiddie-tax-is-getting-easier-and-maybe-cheaper-under-the-new-tax-law-2018-05-24
UTMA Taxes: In general, in 2020 the first $1,100 worth of a child's unearned income is tax-free. The next $1,100 is taxed at the child's income tax rate for 2020. Anything above $2,200, however, is taxed at the marginal tax rate of the parent(s), which usually is higher than the child's rate.
Overfunding a 529 isn't so bad: /r/financialindependence/comments/hqexle/oversaving_in_a_529_is_a_much_smaller_problem/
The “after 100 years” part is showing that the portfolio has existed for that long and averaged an annual return of 6%. That means after one year, the money you have in the account will grow 6% on average for however long you keep it in there
The money you put into a 529 plan can only be used for higher education. For example college. I think in some states you might be able to use it for private high school as well. If it’s taken out and used for something else you will be hit with penalty fees and taxes. Index and etf funds you set up in a brokerage account like vanguard, fidelity etc. Being your daughter is a minor i think it’s set up as a custodial account in your name. The money is taxed when you withdraw it if there are gains. I am by no means an expert. Do a quick google search and you can get a lot more information. If the money is left for a long period of time you should do better in an index fund than in a savings account, however it will fluctuate and could be scary if your looking at it every day Most 529 plans are invested in funds as well, so again it fluctuates.
UltimateTraders t1_iujyhqu wrote
Maybe a safe index fund like the dow Jones 30. It's 30 companies and over 100 years it's average gain is about 6%