Two relatives gave us some money for upcoming birthday for our baby (which is tomorrow).
I am wondering how to best invest them.
We already have an ESA account (that one was no-brainer since it can be used for any education needs, inculing private high school, middle school, even elementary).
I am debating if 529 plan is worth the hustle. I is kind of restrictive and counts against financial aid.
Givers gave no wishes or restrictions as to how the want the gift used, we could do whatever we see fit. Since we are able to cashflow all babys expenses I wanted to save it for him.
He won't need it for another 17 years.
I don't know. Maybe stock of something solid (like Apple) or SP500 fund? If I open it in his name as a custodian taxable account, will I have to pay taxes upon withdrawal at the babies tax rate or ours?
What to do with $900 dollars given to the baby?
October 25th, 2011 at 04:26 pm
October 25th, 2011 at 05:01 pm 1319562092
Money in 529 plan is generally better than money in kid's name - when it comes to financial aid.
Taxes will be at kiddie tax rate. Meaning, any dividends or small gains in the interim will probably not be taxed at all ($1700-ish per year tax-free, per child?). If investing for the long run, they can always wait until adulthood to cash out, and avoid the kiddie tax altogether. The kiddie tax would basically be your tax rate - and I do think they upped the age to 24 or something. Used to be age 18 to graduate from kiddie tax.
I personally just put gift money in my kids' name - it is not enough for any tax consequences anyway. Heck, any gains are tax-free but I can invest anywhere with no limitations. I am not concerned about financial aid - cost of living is high here, wages are high - financial aid is rare - you are probably in same boat.
October 25th, 2011 at 05:04 pm 1319562270
October 25th, 2011 at 11:16 pm 1319584586
Money grows Fed tax deferred, state tax free, if its used for a qualifying education expense it can be cashed in tax free. You must keep the money in for at least 1 yr, if you withdraw before 5 yrs you lose 3 months of interest. Current interest rate is at 4%. Interest rates change every 6 months based on the CPI (tied to inflation, where the "I" comes from. I don't know whether its better if its in your name/SSN or child's name/SSN. I don't know whether it would count as asset, probably would.
October 26th, 2011 at 06:36 pm 1319654168