grand kids investment

[Dancer373]

I have 3 grandkids aged 4 and under. I would like to start some kind of investment account for each one with an eye towards college. Probably open with 3K each. Any ideas on a Vanguard fund for this ( I currently have many Vanguard funds for myself)? I live in north Florida . Any thoughts or ideas would be helpful.

 

[saluki9]

Sure

Check out the Iowa savings 529 plan. The plan is run by Vanguard and you don't have to live in Iowa to use it.

http://collegesavingsiowa.uii.upromise.com/

Not only do you get low expenses, but with the 529 you will get the federal tax benefits and you will retain control of the money.

 

[brewer12345]

If you decide you don't want to do the 529 thing, you could open a custodial account for them. The Vanguard STAR fund would make a good choice.

 

[Patrick]

Sure

Check out the Iowa savings 529 plan. The plan is run by Vanguard and you don't have to live in Iowa to use it.

http://collegesavingsiowa.uii.upromise.com/

Not only do you get low expenses, but with the 529 you will get the federal tax benefits and you will retain control of the money.

What do you all think of the New York 529 Plan?

http://nysaves.uii.upromise.com/

It uses Vanguard funds too, and expenses are only 0.55%.

 

[youbet]

Also consider ESA accounts. You can only contribute $2K/yr, a downside. But you can open them at Vanguard, Fidelity, Schwab, etc., and they have some great advantages.

In my case, I can only afford to kick in about $2K/yr per grandchild anyway, so ESA's work out very well.

 

[FinanceDude]

Also consider ESA accounts. You can only contribute $2K/yr, a downside. But you can open them at Vanguard, Fidelity, Schwab, etc., and they have some great advantages.

In my case, I can only afford to kick in about $2K/yr per grandchild anyway, so ESA's work out very well.

Remember the age 30 rule with ESAs..............not every kid does the college thing at 18...............

The 529 plans have m ore flexibility than ESA.............

 

[youbet]

The 529 plans have m ore flexibility than ESA.............

Yeah, I'm aware of the age 30 requirement with ESA's. You can, however, transfer the money to another younger child if you desire.

But the new news you bring is that the 529 Plans are more flexible. I didn't know I could use a 529 to fund private high school, or that I could buy individual stocks in a 529 like I can in the ESA. Thanks for that good info FinanceDude. It's good to know an FA.

 

[ats5g]

What do you all think of the New York 529 Plan?

http://nysaves.uii.upromise.com/

It uses Vanguard funds too, and expenses are only 0.55%.

fyi - for comparing 529 plans, a good website is Saving For College.

My parents contribute to the NY 529 plan. We went with that one b/c of the TIPS and value index fund. Also, the fees were quite low.

You could also check out the Utah 529 plan.

- alec

 

[Rich_by_the_Bay]

Like the OP I have 4 grandkids (little) whom I would like to help some day if I can. We should be fine in retirement financially, but will not be so wealtlhy that our ability to do this is assured 14 years from now under any circumstance.

After considering the alternatives, my DW and I decided that the best course of action would be to tend to our own retirement needs, maxing out our tax sheltered alternatives, and saving hard. 95% of our savings for retirement are tax-deferred, not counting the house. If all goes well, the money will have grown tax-deferred and we will gift it to them as we can.

OTOH, should unexpected needs arise involving long term care, an unprecedented stock market skid, a wayward grandkid or two, etc. those funds would be available to us for our personal needs (and our kids would not be burdened), rather than being tied up in a 529. True the college funds would not longer be feasible in that unlikely scenario, but we feel it is best to gift that money if and when it truly clearly and permanently unneeded by us.

Hopefully we will do well, will gift the money, and everyone including my kids will benefit from any excess we are able to generate. But I'd rather not gift money I am not sure I won't need some day.

 

[FinanceDude]

Like the OP I have 4 grandkids (little) whom I would like to help some day if I can. We should be fine in retirement financially, but will not be so wealtlhy that our ability to do this is assured 14 years from now under any circumstance.

After considering the alternatives, my DW and I decided that the best course of action would be to tend to our own retirement needs, maxing out our tax sheltered alternatives, and saving hard. 95% of our savings for retirement are tax-deferred, not counting the house. If all goes well, the money will have grown tax-deferred and we will gift it to them as we can.

OTOH, should unexpected needs arise involving long term care, an unprecedented stock market skid, a wayward grandkid or two, etc. those funds would be available to us for our personal needs (and our kids would not be burdened), rather than being tied up in a 529. True the college funds would not longer be feasible in that unlikely scenario, but we feel it is best to gift that money if and when it truly clearly and permanently unneeded by us.

Hopefully we will do well, will gift the money, and everyone including my kids will benefit from any excess we are able to generate. But I'd rather not gift money I am not sure I won't need some day.

I can appreciate your reasons, and that is why different avenues exist for different situations. I like 529s for the following reasons:

1)Money gifted into them reduces the estate of the grandparents.

2)Whomever is the owner of the plan has CONTROL of the assets, something a lot of grandparents want.........

3)While it is true you can't liquidate the plan without paying taxes on the gains, at least under current laws distributions are not taxed.........so I get tax-defered gains growth, and if it grows a lot I am willing to pay taxes on the gains.........

4)I like the fact you can change benies if necessary, I had one client who had two children that he set up the plans for, and they had pretty large balances in them. As it turned out, one son joined the military, and got the GI bill, and became a plumber. The other child (daughter) got a scholarship to Northwestern, and he was able to take out the amount of her scholarship ($40000 a year) with no tax consequence, and use is to help with with other college expenses, like a car so she could work, etc.

Different strokes for different folks...........I have 529 plans for my kids, so I guess I'm a little biased..........

 

[Dancer373]

Thanks for all the information ! I've got a lot to investigate. I've learned a lot from all of you since I joined this forum- I'm actually understanding what I read now

 

[MasterBlaster]

Fun with compound interest and Investing for the grandkids:

Well if you want to set up the grandkids for retirements, Invest $4k or so for them at birth.

Then if your fund picks can average about 9 percent real return (after inflation) over the grandkids lifetimes they'll be set.

When they are 64 years old they will have right around a million (current value) dollars (not nominal dollars). So they could pull out around $40k or more a year in real terms. Add that to their SS and defined benefit pension and they'll be set.

And all it cost you was a mere $4k.

- What a legacy

 

[P.S.]

Fun with compound interest and Investing for the grandkids:

Well if you want to set up the grandkids for retirements, Invest $4k or so for them at birth.

Then if your fund picks can average about 10 percent real return (after inflation) over the grandkids lifetimes they'll be set.

When they are 64 years old they will have just over a million (current value) dollars (not nominal dollars). So they could pull out around $40k or more a year in real terms. Add that to their SS and defined benefit pension and they'll be set.

This is my parents' plan.

Question: what about multiple 529 plans for the same kid ( parents, grandparents). Choose different states?

 

[FinanceDude]

This is my parents' plan.

Question: what about multiple 529 plans for the same kid ( parents, grandparents). Choose different states?

Proably rhe easiest way to do it. Typically, those funding the 529 get some sort of tax break in their state, so it is worth checking out. In Wisconsin, $3000 a year is exempt from state taxes each year, so it is worth it to us to do our state's plan, even though it is run by Wells Fargo, and the results have been just ok.

The important thing is to FUND the plan, rather than keep hunting for the BEST return in a plan. If the grandparents are in a different state, it may be worth it to have them fund that one, and be the owner, and make their kids successor owners.

I got to meet the guru of 529, Joe Hurley, back in 2000 when he addressed a meeting of the FPA in Milwaukee.............

 

[P.S.]

Thanks!

I got to meet the guru of 529, Joe Hurley, back in 2000 when he addressed a meeting of the FPA in Milwaukee.............

Cool! always really thankful when I get to hear words of wisdom straight from the mouth of a noted authority.

 

[Patrick]

This is my parents' plan.

Question: what about multiple 529 plans for the same kid ( parents, grandparents). Choose different states?

It looks like you don't need to use different states. From the Iowa plan:

"Can I open an account for more than one beneficiary?
Yes. While there can be only one beneficiary named for each account, you can open separate accounts for different beneficiaries. If you enroll online, you will be given the opportunity to open other accounts.

Note: The same individual can be the beneficiary of multiple accounts. For example, a father, mother, grandparent, and uncle can each open a separate account for the same beneficiary and can also open separate accounts for other beneficiaries. "

 

[FinanceDude]

It looks like you don't need to use different states. From the Iowa plan:

"Can I open an account for more than one beneficiary?
Yes. While there can be only one beneficiary named for each account, you can open separate accounts for different beneficiaries. If you enroll online, you will be given the opportunity to open other accounts.

Note: The same individual can be the beneficiary of multiple accounts. For example, a father, mother, grandparent, and uncle can each open a separate account for the same beneficiary and can also open separate accounts for other beneficiaries. "

While this is true, it often works better from a tax standpoint to have them in different states. For instance, if the grandparents live in Illinois, and get a state tax break to put money in the Illinois plan, why not? Even if their grandkids live in Iowa, they can still do that.

There is reciprocity with all 50 states in 529 plans............so different states are not issues. Also, if the grandparents are wealthy, and want to give a lot of money to the grandkids for education, you could run into maximum limits on plans, but that is the exception rather than the rule............