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Savings Bonds for a 4 year old
Old 12-21-2017, 04:26 PM   #1
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Savings Bonds for a 4 year old

Hello, growing up my grandfather always bought us savings bonds for birthdays and christmas. Now days you can't even buy the paper ones and you have to make an account on treasurydirect.gov. I want to start buying savings bonds for my 4 year old niece but I don't know if it is best to buy the savings bonds or if other financial products out there would be better. The goal is to save up a little money for college or what ever happens after she graduates from high school. My brother has his retirement through vanguard, if they offer something similar or if he could make her an account there.

What would be my best options?
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Old 12-21-2017, 05:09 PM   #2
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I would not buy savings bonds as the returns are not good...

See if brother has started a 529 with Vanguard... you can add money to it...

If not, you can start one yourself.... not sure of the minimum initial amount though...
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Old 12-21-2017, 05:12 PM   #3
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go with the 529 if you can. Have them for five granddaughters. Very simple through Fidelity. Also, in Az you can write off $2k per year!
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Old 12-21-2017, 05:23 PM   #4
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Hello, growing up my grandfather always bought us savings bonds for birthdays and christmas. Now days you can't even buy the paper ones and you have to make an account on treasurydirect.gov. I want to start buying savings bonds for my 4 year old niece but I don't know if it is best to buy the savings bonds or if other financial products out there would be better. The goal is to save up a little money for college or what ever happens after she graduates from high school. My brother has his retirement through vanguard, if they offer something similar or if he could make her an account there.

What would be my best options?
With 529 it partly depends on the state you live in. If a no state income tax state, then Vanguard has a plan based in Nv, If your state has a state income tax then you probably want to look at whatever plan the state offers, since the owner of the 529 would at least in some cases have to pay state income tax on the income (not federal however).
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Old 12-21-2017, 05:39 PM   #5
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I agree- I've got 2 granddaughters, both under 5 and have established 529s for both of them. Savings bonds never entered my mind- with that long a time frame, you're almost guaranteed to do better with a good stock mutual fund.

One caveat is that 529s are for education only; if she chooses not to go to college you can't give her the money to, say, buy a car without tax consequences, but you can use it for another family member's education.
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Old 12-21-2017, 06:00 PM   #6
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I agree- I've got 2 granddaughters, both under 5 and have established 529s for both of them. Savings bonds never entered my mind- with that long a time frame, you're almost guaranteed to do better with a good stock mutual fund.

One caveat is that 529s are for education only; if she chooses not to go to college you can't give her the money to, say, buy a car without tax consequences, but you can use it for another family member's education.
But she can get the money if she does not go to college... just have to pay taxes.... same as a savings bond... tax free with college, taxable without....
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Old 12-21-2017, 06:31 PM   #7
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We bought savings bonds for our 4 nephews when they were each born, starting some 12 years ago. We bought more at each birthday and for Christmas. Then the Feds stopped issuing the paper bonds and everything went online. Nothing to open, Nothing to hold. We stopped when we needed to open an on-line account for them. We felt that was a parent's job, not Aunt/Uncle's.

Sad, IMO. Even though the rates aren't the greatest, I think it is cool for a young'un to be able to say they "loaned the Feds some money".
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Old 12-21-2017, 07:28 PM   #8
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I open an account for my grandson with about $600 a year ago with TD Ameritrade. It was a mixture of small amounts of money I had set aside for him and money he had saved from chores and gift money. I have a made a few more deposits and he has about $1100 in ITOT now. I am not sure which type of product it is but the customer service person helped me set it up so he has access when he is an adult but I manage it.
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Old 12-21-2017, 07:37 PM   #9
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We bought savings bonds for our 4 nephews when they were each born, starting some 12 years ago. We bought more at each birthday and for Christmas. Then the Feds stopped issuing the paper bonds and everything went online. Nothing to open, Nothing to hold. We stopped when we needed to open an on-line account for them. We felt that was a parent's job, not Aunt/Uncle's.

Sad, IMO. Even though the rates aren't the greatest, I think it is cool for a young'un to be able to say they "loaned the Feds some money".
Sad indeed.

A lot of responses here are very clinical, which is fine. You know, get the best rate, etc.

But it is more than that. It is a thought, and a thought that sticks with you.

I was on the other side of this kind of gift. I got bonds at my birth, baptism, various birthdays and even graduation. I held them full term, mostly 30 years. Had a stack of them. When I cashed them in, it was fun to see my godmother, aunt, uncle or even my parent's friend names. It brought back a lot of good memories. Granted, the 7% to 9% was nice too. But overall, the sentimental memories were precious.

BTW, although I cashed a few (my birth gifts) through a bank, the rest were done through a linked account at Treasury direct. I'm old enough now that they have all been redeemed.
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Old 12-21-2017, 07:50 PM   #10
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But she can get the money if she does not go to college... just have to pay taxes.... same as a savings bond... tax free with college, taxable without....
Pay taxes on earnings and 10% penalty if not used for education or eligible for exceptions.

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529 Plan accounts are not “use it or lose it” accounts. The money in the account is always your to withdraw, but you will owe tax on the earnings when you withdraw money for non-qualified expenses. Also, 529 plan contributions are made with after-tax dollars, so you’ll never owe tax on the deposits to the plan, only the earnings. Those earnings will also be subject to a 10% penalty on the amount included in income.

You can avoid the 10% penalty if your child does not need the money because he or she received tax-free scholarships and grants, veteran’s educational assistance, or employer-paid educational assistance, or attends a U.S. Military Academy. In those cases, you can withdraw the funds and pay tax on the earnings but avoid the 10% penalty.
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Old 12-22-2017, 12:03 AM   #11
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Pay taxes on earnings and 10% penalty if not used for education or eligible for exceptions.
Thanks... I did not know that...

I am emptying out my DS early next year since the thread on FARSA showed that it hurts his chances of getting assistance... I was going to spread it over 4 years, but now doing it over 2...
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Old 12-22-2017, 08:14 AM   #12
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Thanks... I did not know that...

I am emptying out my DS early next year since the thread on FARSA showed that it hurts his chances of getting assistance... I was going to spread it over 4 years, but now doing it over 2...


I would suggest you reconsider. IMO, throwing away 10% of the growth in hopes of getting more financial aid isnít prudent. Not all schools meet financial need, and much of the financial assistance is in the form of loans.

It would probably be better to use up the 529 funds in the first year or two of college, thus lowering the EFC for subsequent years without suffering the 10% penalty.
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Old 12-22-2017, 08:17 AM   #13
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Why not buy a few shares of the S&P and put them in an account.

The kid has a long window and the S&P will produce more. Far too often people buy the 'cute' savings bonds and they are one of the worse investments for a kid that has a long investment window.

Put in a tax advantaged account, if you can. You can form a company (S-Corp), pay the kid, and the money can even go into a Roth IRA. You should be able to pay the kid personally to pick up the yard and that will be earned income.

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You can open a Roth IRA in a child’s name to help him or her save for retirement, a first house, or, subject to some rules, educational expenses.

Children must have earned income in order to have a Roth IRA in their names.

The kids generally won’t owe taxes on the money when they withdraw it, no matter how much they have earned in the account over the years.

http://www.rothira.com/roth-iras-for-kids
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Old 12-22-2017, 09:04 AM   #14
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Like I said before, I like the sentimental, but I'm also pragmatic and agree with the stock idea. This lodged a memory out of my brain. There is a company that specializes in this idea of giving little gifts of stock. I am not endorsing, and I have no experience. But it seems to be made for this kind of thing:

https://www.stockpile.com/
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Old 12-22-2017, 10:00 AM   #15
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Thanks... I did not know that...

I am emptying out my DS early next year since the thread on FARSA showed that it hurts his chances of getting assistance... I was going to spread it over 4 years, but now doing it over 2...
How about changing the beneficiary from your Son to _____ (yourself or some other related kid). Then how could they count it against your Son as it won't be used for him ?

Then you can withdraw the money over 4 or more years so you get possibly a smaller tax effect with the penalty.
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Old 12-22-2017, 11:11 AM   #16
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I would suggest you reconsider. IMO, throwing away 10% of the growth in hopes of getting more financial aid isnít prudent. Not all schools meet financial need, and much of the financial assistance is in the form of loans.

It would probably be better to use up the 529 funds in the first year or two of college, thus lowering the EFC for subsequent years without suffering the 10% penalty.
He is in his second year... I am doing it correctly.... I would not throw away 10%... ever...
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Old 12-22-2017, 11:13 AM   #17
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How about changing the beneficiary from your Son to _____ (yourself or some other related kid). Then how could they count it against your Son as it won't be used for him ?

Then you can withdraw the money over 4 or more years so you get possibly a smaller tax effect with the penalty.
Not worth the trouble... it is only $10K.... as I said on previous post, no penalty...
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Old 12-22-2017, 11:31 AM   #18
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He is in his second year... I am doing it correctly.... I would not throw away 10%... ever...


Oops, didnít realize that. So you are just using the money as it was intended.
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Old 12-22-2017, 01:51 PM   #19
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Sad indeed.

A lot of responses here are very clinical, which is fine. You know, get the best rate, etc.

But it is more than that. It is a thought, and a thought that sticks with you.

I was on the other side of this kind of gift. I got bonds at my birth, baptism, various birthdays and even graduation. I held them full term, mostly 30 years. Had a stack of them. When I cashed them in, it was fun to see my godmother, aunt, uncle or even my parent's friend names. It brought back a lot of good memories. Granted, the 7% to 9% was nice too. But overall, the sentimental memories were precious.

BTW, although I cashed a few (my birth gifts) through a bank, the rest were done through a linked account at Treasury direct. I'm old enough now that they have all been redeemed.
I did bonds and the on-line account for my grandkids for years, but I stopped when the interest went to almost 0. I still keep track of the money and will transfer to them at age 18, based on what their parents want. I used to enjoy giving them the bond certificate for birthdays and Christmas. They certainly don't need any presents.
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Old 12-22-2017, 04:43 PM   #20
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Oops, didnít realize that. So you are just using the money as it was intended.
Yes, I was just commenting that I did not know there was a 10% penalty.... I only thought you had to pay the tax...

But, thinking about it, it makes sense or you could use it as a retirement account...
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