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Thread: Smart Investment for Baby

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    Featured Member MadisonM's Avatar
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    Default Smart Investment for Baby

    My younger sister is pregnant and due the first week in January. She has decided that she wants me to be the baby's Godmother. I would like to set up some kind of investment for the baby, but am not sure the best route to go with it. I was thinking some kind of investment that I can put money into as part of the baby's birthday and Christmas presents-like $100 or so each birthday and the same for other holidays, and then he/she can take the money out when he/she is 18. My grandmother always got me bonds for my birthdays, so I don't know if I should get the baby bonds, or start a savings account, or what. Any advice would be great.

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    Veteran Member leebay88's Avatar
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    Default Re: Smart Investment for Baby

    529 College saving account

    http://www.savingforcollege.com/

    The Utah sponsored plan has very low fees and it doesn't matter if you are an out of state resident.

    You can also try a UGMA/UTMA acount.

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    Featured Member Vamp's Avatar
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    Default Re: Smart Investment for Baby

    With the state of the econmy right now bonds have a very low interest rate. To get the full value of the bond will take longer than eighteen years.

    I agree with leebay the 529 is a good program. Do your home work.

    Credit Unions also have children CDs. The interest rates on cds are really good right now. Some are as high as 5% interest. Children cds start at a hundred dollars. At a credit union you could also get a regular savings account that would change as the child got older. All you would need is the childs social security number.

    As always do your homework with any investment.

    Congrats and good luck!

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    God/dess doc-catfish's Avatar
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    Default Re: Smart Investment for Baby

    Quote Originally Posted by Vamp
    With the state of the econmy right now bonds have a very low interest rate. To get the full value of the bond will take longer than eighteen years.
    With respect to the series EE bonds, I agree. The series I bonds at the moment are another story.

    http://www.publicdebt.treas.gov/sav/sbiinvst.htm

    I do agree on shopping around for the 529. Here's a good place to get started.

    http://www.401kid.com/
    Former SCJ now in rehab.

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    God/dess montythegeek's Avatar
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    Default Re: Smart Investment for Baby

    Savings bonds pay about 3.6% currently, but are tax deffered until cashed so mom and dad do not get the tax bill on them each year. An alternative is an investment in a stock with a dividend reinvestment plan and also a direct purchase option. A big, broad company like a Proctor and Gamble or McDonalds would work nicely for this, especially if dividends are reinvested in the stock and the kid sees "his company" all over the place.

    529s are great for a kid who wants to go to school and is 10-years away but can be a mess for a kid who is notyet born.

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    Default Re: Smart Investment for Baby

    Don't give an 18-year old $4000, no strings! My gawd. I agree, have it in some sort of school fund.

    That's very sweet of you, btw.

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    Veteran Member leebay88's Avatar
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    Default Re: Smart Investment for Baby

    Quote Originally Posted by montythegeek

    529s are great for a kid who wants to go to school and is 10-years away but can be a mess for a kid who is notyet born.
    It;s not that bad you can open an account with no SS# or you can open an account and make the parent the beneficiary and when the kid is born change it over.

    Just ppwk but i guess it's a hassle depending on who you ask. I've had to do it a few times in my prior life

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    God/dess VenusGoddess's Avatar
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    Default Re: Smart Investment for Baby

    ^ I would not do this. What happens if the child doesn't want to pursue "higher education"? I just invested some of Makayla's money into CD's and such that she won't "lose" the money if she decides not to do the school thing...

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    Veteran Member leebay88's Avatar
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    Default Re: Smart Investment for Baby

    That is one of the reasons why people use 529 accounts so the $$$ can only be used on education and not to buy a new Harley. With UGMA accounts when the child reaches of age they can do whatever they want with the money.

    It all depends what you (donor) want the $$$ to be used for. With 529 accounts you still keep control of the assets while it is no longer in your estate. If the child does not use the $ for education you can change the beneficiary to somebody else.

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    God/dess VenusGoddess's Avatar
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    Default Re: Smart Investment for Baby

    ^ That's why we decided not to do the 529. What if we don't have any more children? I believe it is stupid to put your money somewhere where you cannot get it out later on down the road.

    We have several things going on with Makayla's money. A trust will be completed for her shortly. Within this trust, she will have all access to money after she turns 30. Before then, she can dip into it to pay for school or any other educational endeavors...but if she forgoes school, then she won't be able to touch the money (for shopping sprees, whatnot) until after she turns 30. Myself, personally, I feel better with that set up.

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    Featured Member MadisonM's Avatar
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    Default Re: Smart Investment for Baby

    Thanks for all the advice guys! I'm going to start looking into what to do. The main reason I want to do this is because my sister is only 18 and doesn't have a job, and her boyfriend is also 18 and only has a part time job. My parents are helping them out as much as they can, but I'm sure that my sister and her boyfriend aren't going to be able to put money away for the baby's college. I am currently paying for college myself, and I'm getting loans and grants and paying for whatever that doesn't cover, but once I graduate I'm going to be paying back tons of loans. I want the baby to have money to pay for college if he/she decides to go to college. I don't want the money to just be spent on anything though. If I would have gotten thousands of dollars when I turned 18, I wouldn't have spent it on school, even though I was gonna go to school right away. I still would have gotten the loans and grants and used the money for something fun... lol... so yeah I only want it used for school, but if he/she doesn't go to college, I still want her/him to get the money, but not until they are a little older and more responsible.

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    Banned Melonie's Avatar
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    Default Re: Smart Investment for Baby

    'm going to start looking into what to do. The main reason I want to do this is because my sister is only 18 and doesn't have a job, and her boyfriend is also 18 and only has a part time job. My parents are helping them out as much as they can, but I'm sure that my sister and her boyfriend aren't going to be able to put money away for the baby's college.
    I hate to bet the pit of eternal pessimism, but something that you might seriously want to consider is the possibility that your younger sister and her boyfriend might not be above 'redirecting' any money that you and others are trying to set aside for the baby. Along those lines, UGMA gifts are only protected by the integrity of the 'custodian'. Same goes for children's CD's, bank accounts etc. since the co-named adult essentially has full ability to empty the accounts and spend the money in any way they choose.

    And I hate to mention this possibility either, but the existance of 'custodial' assets may work against your sister's potential eligibility for social program assistance - because if your sister is the 'custodian' the money may legally be considered as an asset in your sister's name not the baby's. To avoid this conundrum, some means must be provided to truly transfer control of the money to the new baby.

    529 accounts are protected by law, but are also 'protected' against redirecting the money for needy purposes other than education. This can be extremely inconvenient if the new baby decides not to go to college, or wins a scholarship !

    I agree with Venus that establishing a trust might be a very good way to go in this somewhat unstable situation, because trust conditions can be established which prevent anyone from withdrawing trust money except the new baby upon reaching age 18-21-25-30 or whatever (with exceptions for educational expenses, health emergincies or whatever). Trusts are reasonably easy to establish, and would provide an ideal vehicle for friends and relatives to give money towards the new baby's future that are guaranteed to be used for that purpose and that purpose only. Establishing a trust account also eliminates the ongoing bureaucratic/tax return burden of accounting for UGMA items on the part of those making the gifts.

    Trust accounts can be as simple as a dedicated bank account, into which anybody can make deposits but nobody can make withdrawls except the new baby at age 18-21-25-30 or earlier for a trust approved purpose. Trust accounts can also be as complex as setting up a 'trustee' to reinvest the money in the trust account into stocks/bonds etc. to maximize returns, but with all proceeds eventually returning to the trust account.

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    Senior Member NaughtyAngel's Avatar
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    Default Re: Smart Investment for Baby

    Wow Melonie. Thanks for taking the time out to post all of that. I really appreciate a lot of your advice. You sure know your stuff!

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    Default Re: Smart Investment for Baby

    You should also look into a Coverdell IRA. It may solve some of the potential tax issues with the 529. Here is a basic tutorial:

    http://www.savingforcollege.com/intro_to_esas/

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    Default Re: Smart Investment for Baby

    Coverdell ESA's are considered to be an asset in the parent's name ... which in the case of an 18 year old mother could potentially disqualify her from eligibility for needed social benefit programs.

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