What kind of account should I open for newborn ?

[Kneedragger]

So I had my first child last month and my parents are going to give me money to start an account for her. I want to open an account that I can add money to and probably not make it available to be touched in at least 18 years.

What options would you suggest besides a regular savings account?

I will probably start out with 6-10k in the account.

Thanks

 

[luv2liv]

college savings plan.
in Pennsylvania, it's called PA529. your state will vary

 

[TwiceOver]

They could start a 529 for your child on their own that way there isn't any question of how you just came up with $10k to put in this fund. Though I believe the 529 has to be used for education related expenses.

 

[Nograts]

None until YOU AND YOUR WIFES retirement accounts are capped. Then 529. Then Anandtech account.

 

[ultimatebob]

I'm not a big 529 fan, since it needs to be used for educational expenses. She'll get stuck with some pretty obnoxious tax penalties if she decides to run off and join the circus instead

 

[nageov3t]

what about savings bonds, like Series EE bonds that are designed to be held for 20 years?

 

[TuxDave]

They could start a 529 for your child on their own that way there isn't any question of how you just came up with $10k to put in this fund. Though I believe the 529 has to be used for education related expenses.

Gifts under $14K (per person pair, so x4 if couple to couple) don't need to get reported since it is under the standard annual gift tax exclusion.

 

[Printer Bandit]

Swiss bank account.

 

[Kneedragger]

Yeah I would like to stay away from anything that needs to be used for education use only.

 

[deadlyapp]

what about savings bonds, like Series EE bonds that are designed to be held for 20 years?

This is what my parents did. I think they were $100 bonds that matured to $200 over ten years or so.

 

[maddogchen]

Vanguard total stock market index fund.

 

[ControlD]

what about savings bonds, like Series EE bonds that are designed to be held for 20 years?

The series EE rate is so low (0.10%) right now. You will double your money or a little more in 20 years. Seems like you could do better than that simply putting the money into a mutual fund.

 

[Murloc]

Swiss bank account.

Due to FATCA and other Eritrea-tier stuff I don't think they take american customers anymore.
US expats in the country can open them but I've read that it's not always straightforward.

 

[NutBucket]

Yep, a few years back UBS wanted my SSN and such so they could report to the IRS. I promptly closed my account.

As for the OP, I opened a 529. Educational expenses include housing and such. Just don't over-contribute to where it won't be spent.

 

[highland145]

Yep, a few years back UBS wanted my SSN and such so they could report to the IRS. I promptly closed my account.

As for the OP, I opened a 529. Educational expenses include housing and such. Just don't over-contribute to where it won't be spent.

lol Doubt that will be an issue if the costs continue to rise (doubtful) like they have.

 

[Uppsala9496]

In 2008 I bought some Disney stock in my kids name and I continue to make sporadic investments in it. 11 years from now if she needs some money, it will be there for her.
I'm up some 220% not including reinvested dividends on my initial investment.

 

[Homerboy]

Gold and bury it under a tree.

 

[dullard]

A 529 account is probably the best for your needs. Details will vary by state and by the plan you choose, but:

* In general, you can put in just about any amount (within reason), at just about any time.

* In general, anyone can contribute to it. Meaning her grandparents can just put money directly into it without going through you as an intermediary.

* In general, it is in your name and your control until she turns 18, then she can have it (or you can give it to any other person).

* In general, you can claim state tax deductions which could save you hundreds/thousands of dollars if your state has an income tax.

* In general, you won't be getting yearly forms where you have to pay taxes on your gains.

* In general, you can invest in almost anything (conservative or highly aggressive).

* In general, gains are tax free as long as it is used somehow for education. And it doesn't have to be university education. It could be a two-year degree, trade school, or similar. If she gets a full ride scholarship, she can take the money too without penalty.

* In general, she can use the money anywhere. You can open a 529 in any state (your state, or any state you choose) and she can use the funds in any state (the same state where you opened the account or a different one).

* In general, you can get around the $14,000 gift tax restriction. At the moment it is $70,000 gift tax free if you use a 529 (per person, so a wealthy couple can give $140,000 to a child without even considering gift taxes).

There is a reason that most wealthy people open as many 529 accounts as they can. The median income of 529 account holders is about $150,000

 

[Belegost]

Vanguard total stock market index fund.

That's a pretty good suggestion, decent alternatives(or mix in with VTSMX) would be the Vanguard 500 (VFINX) and Vanguard REIT Fund (VGSIX).

 

[EPCrew]

I'm not a big 529 fan, since it needs to be used for educational expenses. She'll get stuck with some pretty obnoxious tax penalties if she decides to run off and join the circus instead

Sort of... The person who opens the account owns the account and the funds. If the beneficiary decides to join the circus, the account holder is taxed on the earnings plus 10% penalty for federal (i think). I don't believe the total penalty is as steep as you think it is.

Plus, the funds can be transferred to another beneficiary. In case there's another round in the chamber.

If you're an NYC resident, the NYSaves 529 plan also offers income tax deduction on contributions up to X amount. (i think $10k)

 

[dullard]

Sort of... The person who opens the account owns the account and the funds. If the beneficiary decides to join the circus, the account holder is taxed on the earnings plus 10% penalty for federal (i think). I don't believe the total penalty is as steep as you think it is.

Plus, the funds can be transferred to another beneficiary. In case there's another round in the chamber.

If you're an NYC resident, the NYSaves 529 plan also offers income tax deduction on contributions up to X amount. (i think $10k)

To clairfy, if the money is not used for educational purposes, then it is taxed at the CHILD'S federal tax rate + 10% penalty.

So, if your child is like most children, she is probably in the 0% tax bracket (or maybe 10%). The low child tax bracket is even more likely in this scenario, since we are considering when a child uses the money without going to school. Paying ~0% federal tax rate + 10% penalty isn't too bad for non-educational uses. True, a child could make it rich without going to school and then pay a high penalty.

Also it is only the gains that are taxed. If you put $10,000 into the account and it becomes $12,000 when the child decides to blow it on a nose-job, then the child only pays taxes on the $2000 of gains. The child would pay income taxes (if any) on that $2000 and pay a 10% penalty of $200. Net result even with penalty is probably $11,800 which is better than you'd do with a savings account at today's interest rates.

 

[Kneedragger]

Good info here guys. I'm reconsidering going for the 529..

OK so where do I go if I want to set one of these up? Do banks do them or are they a state program?

 

[highland145]

Good info here guys. I'm reconsidering going for the 529..

OK so where do I go if I want to set one of these up? Do banks do them or are they a state program?

I went through AG Edwards at 1st. Then they dumped me on the state anyway.

 

[DCal430]

A 529 account is probably the best for your needs. Details will vary by state and by the plan you choose, but:

* In general, you can put in just about any amount (within reason), at just about any time.

* In general, anyone can contribute to it. Meaning her grandparents can just put money directly into it without going through you as an intermediary.

* In general, it is in your name and your control until she turns 18, then she can have it (or you can give it to any other person).

* In general, you can claim state tax deductions which could save you hundreds/thousands of dollars if your state has an income tax.

* In general, you won't be getting yearly forms where you have to pay taxes on your gains.

* In general, you can invest in almost anything (conservative or highly aggressive).

* In general, gains are tax free as long as it is used somehow for education. And it doesn't have to be university education. It could be a two-year degree, trade school, or similar. If she gets a full ride scholarship, she can take the money too without penalty.

* In general, she can use the money anywhere. You can open a 529 in any state (your state, or any state you choose) and she can use the funds in any state (the same state where you opened the account or a different one).

* In general, you can get around the $14,000 gift tax restriction. At the moment it is $70,000 gift tax free if you use a 529 (per person, so a wealthy couple can give $140,000 to a child without even considering gift taxes).

There is a reason that most wealthy people open as many 529 accounts as they can. The median income of 529 account holders is about $150,000

Some of the biggest states forbid deductions on 529 plans. So it depends on the state.

I would say in many cases a Roth IRA is a better way.

 

[DCal430]

What state are you in, in some states a 529 is a good idea, in others the state gives no benefits for a 529, so it is pointless to use.