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What to do with $900 dollars given to the baby?

October 25th, 2011 at 04:26 pm

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?

4 Responses to “What to do with $900 dollars given to the baby? ”

  1. MonkeyMama Says:

    I am personally not a fan of 529 plans at all - unless you have wealth to tax shelter. & keen in mind, you can always move the money into a 529 plan later. None of these decisions are really very *final.*

    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.

  2. MonkeyMama Says:

    P.S. My kids get both get $1k per year in gifts, minimum. Just to clarify the kind of money I am talking about.

  3. baselle Says:

    Depends on how risk adverse you are, how you feel about the "full faith and credit of the US", how retro you are, how diversified you want to me, whether you can withstand teasing Smile ... etc, but I'd look at an I-bond for giggles and grins.

    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.

  4. ceejay74 Says:

    I think you're much more up on investing than I am, so take my experience with a grain of salt. ;-) So far I've opened a $1000 CD and a $500 mutual fund in my daughter's name. The CD matures in 5 years and had an OK rate. The mutual fund is with PAX, who seem to be a morally aware company so a good place for my daughter to start investing. She also has 275 pounds in NT's UK savings account, because I have no idea where to start with putting that money somewhere useful.

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