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Investment Ideas for Newborn
12-14-2009, 03:13 PM
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#1
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Dryer sheet wannabe
Join Date: Jul 2007
Posts: 13
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Investment Ideas for Newborn
Hi All;
In an attempt to get our new baby on the right track to early retirement I would like to start buying some investments for her. I really don't have much leftover after funding our retirement, but $50-100 a few times a year will add up over time, especially once I get the grandparents involved.
So, my question to you all is this, where would you put this first initial investment?
Thanks in advance for any and all ideas.
Ted
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12-14-2009, 03:30 PM
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#2
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Full time employment: Posting here.
Join Date: May 2005
Location: Atlanta suburbs
Posts: 900
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We opened 529 (education savings) plans for all little sailors as soon as we got their social security numbers (they are 5,3 and 1 now). All of them in my name, with the kids as beneficiary.
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12-14-2009, 04:41 PM
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#3
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
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I just use a plain vanilla balanced fund in a custodial account. Nothing fancy, low cost, and most brokers/fund families have at least one inexpensive fund with low minimums.
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"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
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12-14-2009, 04:48 PM
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#4
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Recycles dryer sheets
Join Date: Apr 2006
Location: Hardscrabble Texas
Posts: 372
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DD and SIL opened a VG Star fund for our new granddaughter (10 months old). We plan to chip in a few bucks with each Christmas and birthday.....well, along with all the toys. She won't be spoiled at all.
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.....#.....
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12-14-2009, 05:33 PM
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#5
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 1,645
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My mom has been buying EE bonds for my DD. I have to admit, I have no idea how they work. She just asked me if I would like more bonds or a 529. I'm leaning toward a 529. DD is almost 4.
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12-14-2009, 06:56 PM
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#6
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Recycles dryer sheets
Join Date: Apr 2009
Posts: 93
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+1 for 529s.
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12-14-2009, 07:01 PM
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#7
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Full time employment: Posting here.
Join Date: Oct 2007
Location: New York
Posts: 898
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I opened a 529 for my little guy when he was less than a month old. I bought a vanguard total market fund.
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Money's just something you need in case you don't die tomorrow.
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12-14-2009, 09:55 PM
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#8
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Thinks s/he gets paid by the post
Join Date: Sep 2008
Posts: 2,171
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Quote:
Originally Posted by TedMunson
Hi All;
In an attempt to get our new baby on the right track to early retirement I would like to start buying some investments for her. I really don't have much leftover after funding our retirement, but $50-100 a few times a year will add up over time, especially once I get the grandparents involved.
So, my question to you all is this, where would you put this first initial investment?
Thanks in advance for any and all ideas.
Ted
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Target Retirement 2060?
Seriously, how far out do Target Retirement funds go?
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12-14-2009, 10:01 PM
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#9
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2008
Location: No fixed abode
Posts: 8,765
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Apple and Coke! They'll own the world by the time the kid is in college.
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"Good judgment comes from experience. Experience comes from bad judgement." - Anonymous (not Will Rogers or Sam Clemens)
DW and I - FIREd at 50 (7/06), living off assets
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12-14-2009, 10:32 PM
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#10
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Thinks s/he gets paid by the post
Join Date: Sep 2009
Location: Hong Kong
Posts: 1,688
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Having re-read The Millionaire Next Door last weekend, I have to wonder just how much financial support is optimal for our children ?
On a slightly more serious note, I would go with funding the education. If they can get decent education and have little or no student debt at the end of the process they will be off to a good start.
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Budgeting is a skill practised by people who are bad at politics.
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12-14-2009, 11:57 PM
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#11
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Full time employment: Posting here.
Join Date: Feb 2008
Location: Central Coast, California
Posts: 923
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We've chosen to save money in OUR names, but tagged for the kids' educations. We use Vanguard index funds and money market accounts.
Part of the reason we've decided to go this route is because when financial aid is calculated, money in the child's name currently is taken at a higher percentage than money in the parent's name. Also, if it's in our name, we can decide what happens with it and it's not legally the kids' (of course, having a 529 in your name takes care of this as well).
We're considering a 529, but haven't done all our research yet.
We fully fund our retirement accounts before a dime gets put into the kids' account. As the folks on this board have said so many times before, you can't take out loans for retirement, but you can for school!
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"You'd be surprised at how much it costs to look this cheap." -- Dolly Parton
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12-15-2009, 07:12 AM
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#12
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Thinks s/he gets paid by the post
Join Date: Jan 2006
Posts: 1,645
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I was funding a ROTH for a while. I think you can withdraw funds for education? And if they don't get used, you have the $ for retirement.
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12-15-2009, 07:28 AM
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#13
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Thinks s/he gets paid by the post
Join Date: Jul 2009
Location: North Scottsdale
Posts: 1,545
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I would suggest a 529 plan. There is a wide variety of ways that the funds can be used even if the kid ends up not going to a four year college.
Minors can only contribute to a Roth IRA to the extent that they have earned income. Unless the kid is a child actor its unlikely they will qualify until they get their first job.
Uniform Gift Trusts are another option although the earnings (cap gains, dividends, etc) are taxed at your rate and not the kids. Also, the money goes to the kid at 18 or 19 depending on the state you live in and technically they can do whatever they want with it.
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12-15-2009, 07:45 AM
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#14
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jun 2007
Posts: 13,228
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Quote:
Originally Posted by RockyMtn
I would suggest a 529 plan. There is a wide variety of ways that the funds can be used even if the kid ends up not going to a four year college.
Minors can only contribute to a Roth IRA to the extent that they have earned income. Unless the kid is a child actor its unlikely they will qualify until they get their first job.
Uniform Gift Trusts are another option although the earnings (cap gains, dividends, etc) are taxed at your rate and not the kids. Also, the money goes to the kid at 18 or 19 depending on the state you live in and technically they can do whatever they want with it.
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The other drawback to the Uniform Gift Trust is as Urchina says, the money is considered to be the child's when calculating financial aid. A MUCH higher % of your child's net worth is considered against financial aid than yours.
I guess the drawback of a 529 is that it has to be used for college expenses or else you'll pay taxes + 10% penalty on earnings.
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12-15-2009, 11:06 AM
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#15
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2005
Location: Chicago
Posts: 13,186
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Look into the Coverdell Educational IRA. I'm using them for my three grandchildren. You can add $2k/yr per child and self-manage the investments just like a retirement IRA. Very flexible. Withdrawals for a very broad range of educational expenses are made TAX FREE, not tax defered. In other words, they work like a Roth, only the withdrawal money must be spent on a liberally interpreted list of allowable educational expenses. Unlike a 529b plan, you can pay educational expenses for a child at any age, so a computer for a middle school child would be OK. Tuition to a private elementary school would be fine. If one child doesn't use the money, it can be transfered to another. So, considerably more flexibility in terms of investment options and where/how you can spend the money tax free than a 529b, but, sadly, limited to only a $2k/yr per child contribution limit.
I have 3 grand kids, so that's $6k/yr total. That's about all we choose to gift at this time. If we could afford more (and still do the things we want to do in RE), we'd fund the Coverdells first and then place the remainder into 529b's.
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"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
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12-15-2009, 11:16 AM
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#16
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2006
Posts: 12,483
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Quote:
Originally Posted by RunningBum
I guess the drawback of a 529 is that it has to be used for college expenses or else you'll pay taxes + 10% penalty on earnings.
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Not quite correct. ANY ACCREDITED institution is acceptable, which covers most technical colleges and trade schools. Plus, you can change the beneficiary to almost anyone you want, as high "up" as grandparents and as far "removed" as cousins. It has a lot of flexibility, and unlike the Coverdell Education IRA has no end date where you have to use the money by.
If your kid or kids turns out to be a handful, would you rather have the control to keep money away from him or have to cut him a check at age 21??
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)
This Thread is USELESS without pics.........:)
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12-15-2009, 11:22 AM
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#17
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2005
Location: Chicago
Posts: 13,186
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Quote:
Originally Posted by FinanceDude
Not quite correct. ANY ACCREDITED institution is acceptable,
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Better check on that FD. Isn't "post secondary school" part of the criteria? In other words, paying tuition/fees for private highschool or books or computers for public highschool would NOT be OK as it is in a Coverdell.
Also, where you mention "cut him a check at age 21," you're refering to custodial accts, not Coverdells, correct? There is no age 21 limitation with Coverdells.
Coverdells and 529b plans each have pros and cons. By opening both, you can maximize the pros and minimize the cons.
__________________
"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
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12-15-2009, 11:28 AM
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#18
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2006
Posts: 12,483
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Quote:
Originally Posted by youbet
Better check on that FD. Isn't "post secondary school" part of the criteria? In other words, paying tuition/fees for private highschool or books or computers for public highschool would NOT be OK as it is in a Coverdell.
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That is true........it has to be post high school......but the universe is pretty big. Plus, if the student qualifies for any academic or sports scholarships, the custodian can take out a matching amount of that scholarship with no penalties, and can do with the money what they want.........
I had one client with an interesting situation. The son was quite handy and wanted to work in the trades, so he went to tech school. The daughter was a gifted musician on the cello and got into Julliard. Both plans were funded equally. The son was older, so after he graduated from
tech school, the parents changed the beneficiary to the daughter so she had enough money to complete her studies at Juilliard. Worked out well for both.........
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)
This Thread is USELESS without pics.........:)
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12-15-2009, 11:28 AM
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#19
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2006
Posts: 12,483
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Quote:
Originally Posted by youbet
Look into the Coverdell Educational IRA. I'm using them for my three grandchildren. You can add $2k/yr per child and self-manage the investments just like a retirement IRA. Very flexible. Withdrawals for a very broad range of educational expenses are made TAX FREE, not tax defered. In other words, they work like a Roth, only the withdrawal money must be spent on a liberally interpreted list of allowable educational expenses. Unlike a 529b plan, you can pay educational expenses for a child at any age, so a computer for a middle school child would be OK. Tuition to a private elementary school would be fine. If one child doesn't use the money, it can be transfered to another. So, considerably more flexibility in terms of investment options and where/how you can spend the money tax free than a 529b, but, sadly, limited to only a $2k/yr per child contribution limit.
I have 3 grand kids, so that's $6k/yr total. That's about all we choose to gift at this time. If we could afford more (and still do the things we want to do in RE), we'd fund the Coverdells first and then place the remainder into 529b's.
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Coverdell has to be used by age 30..........
__________________
Consult with your own advisor or representative. My thoughts should not be construed as investment advice. Past performance is no guarantee of future results (love that one).......:)
This Thread is USELESS without pics.........:)
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12-15-2009, 11:38 AM
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#20
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2005
Location: Chicago
Posts: 13,186
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Quote:
Originally Posted by FinanceDude
That is true........it has to be post high school......but the universe is pretty big.
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Ugh! That doesn't sound good! So, dad loses his job while junior and sis are in highschool and you can't make tax free withdrawals to pay for books, computers, band uniforms, etc.? Hard to justify not using both 529b plans and Coverdells based on that situation.
Quote:
I had one client with an interesting situation. The son was quite handy and wanted to work in the trades, so he went to tech school. The daughter was a gifted musician on the cello and got into Julliard. Both plans were funded equally. The son was older, so after he graduated from
tech school, the parents changed the beneficiary to the daughter so she had enough money to complete her studies at Juilliard. Worked out well for both.........
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Doesn't the Coverdale cover that situation as well? And, if daughter was using a private music tutor pre-Julliard, Coverdell funds would have applied.
I understand why professional money managers frown on do-it-yourself plans like Coverdells, but I really think there is a workable strategy to harvest the benefits of both and maximize the benefit to the child. I do admit, however, that with a Coverdell, you don't get to be anyone's "client." The argument that you need to chose 100% Coverdell or 100% 529b plan doesn't seem to optimize the child's opportunity to benefit
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"I wasn't born blue blood. I was born blue-collar." John Wort Hannam
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