My parents want to give my new baby some money for a savings account. However, if its just going to sit there for 20 years, I’d prefer for it to gain interest/dividends. Is there any easy way to setup a fund that tracks s&p500 and preferably tax advantaged? Or am I better off just investing in the relevant mutual fund.
If you’re wanting to save for future education costs, a 529 would be the best tax advantaged option. For more general purpose investing, a UGMA account would probably be what you want. Do keep in mind that kids assume ownership of UGMAs when they turn 18 though.
As for funds, just invest in any mutual fund or ETF that tracks the S&P500 if that’s what you want. VOO is a popular vanguard ETF.
Do keep in mind that kids assume ownership of UGMAs when they turn 18 though.
This varies by state. In my state, my oldest gained access to their UTMA when they turned 18, but I am told I will still have my access until they turn 25, unless one of us explicitly revokes my access.
A UGMA/UTMA is basically a vehicle to gift money to a child, and then optionally invest it on their behalf, while having any gains on that money accrue to the child for tax purposes. Since most children don’t have much earned income, this will often result in them owing zero taxes on any unearned income on the account (unless there is more than $1350 of unearned income – read up on the “kiddie tax” if the income exceeds that).
OTOH a 529 is not a gift at all, until it is paid out. The money is technically still “owned” by the giver, they just have to name a beneficiary when they make an account. So any gains in a 529 don’t count towards the kid’s income at all, and if they are spent on educational expenses for the beneficiary they are not taxed on the other end either.
And once a year you can change the 529 beneficiary. So someone with a large 529 who finds that the beneficiary gets a scholarship (or doesn’t go to college) can change the beneficiary to someone else – even themselves.
Be careful with savings accounts. I made an account in elementary school at a local bank. I had a couple hundred dollars in the account. However because I was not making money, I stopped adding pocket change. At some point Chase bought out the local bank. In that merger Chase changed my account from a no-fee student savings account to a maintence account. With that change, Chase started taking $5 a month! One day I got a statement that said they closed the account because of insufficient funds. The bastards stole all my money! So make sure there are no fees for non-use or some stupid crap like that.
same thing happened to me. vampires
We’re at a federal credit union, but even still I worry about it being pocket change by the time they’re old enough to collect.
Nobody has mentioned this, but you can use up to 35k from a 529 to fund the beneficiaries roth IRA. Normal roth IRA rules still apply. Forbes has a great article covering this.
What this means is 10k deposited into a 529 at birth can become a million tax advantaged dollars come retirement age due to a lifetime of compounding interest.
More importantly for the broader audience, you can open a 529 before you even have the kid, and update the beneficiary later. So if you have the money to spare, and you’ve maxed out at tax advantaged accounts for yourself, this is something to consider.
UGMA or UTMA is probably what you’re looking for.
You should talk to a tax pro, to be sure.There’s also 529 accounts for education/vocational training programs. Each state runs their own program. Some will exempt contributions from state income tax. I think the big brokerages all use Nevada for their 529 accounts. Gains are tax free if used for qualifying educational expenses. Non-qualifying withdrawals incur something like a 15% penalty and are taxable. The definition of qualifying expenses is fairly liberal though, things like rent and laptop purchases qualify if attending school full time. Unused funds can be transferred to just about any relative.
To add to this, you don’t need to setup a fund to track s&p. Just buy VOO (or buy VTI).
529 or UGMA/UTMA generally depending on goals then stuff like a normal brokerage in the kids name (but this isn’t tax advantaged) if you want to go further
They should instead make a charming gold medalian necklace, the back of which has a personalised message engraved with the precise geolocation of a hidden underground cache containing years worth of tinned food, filtered water, and lo-tech weaponry.
A 529 account is specific investment account for children’s education. They have specific tax incentives to putting money into it. It also has various investment options. I would look into that
After more digging, I think the 529 is the way to go.
Also it depends on the state. Utah’s 529 looks neat and you can use it out of state.
VOO ETF for S&P, very cheap in terms of expense ratio. JNK ETF for a bit of junk bonds. XCCC for junkest of junk. I am not American so I can’t say much about taxes.
Agreed on the tickers! I use something very similar for my personal investments. I was more asking about the best mechanisms.
I have brokerage accounts in my name for each of my kids. I invest them in ffnox
I would be careful investing in US American things at the moment. There’s TACO trump and the AI bubble. I would suggest to diversify internationally.
