Putting away cash for my kid

I-bonds?

Consider an a account in your name but POD or TOD to the child. When the child is 18 or 21 give the money to the child. If you die 1st the money is paid or transferred to the child.

With an 18 year time horizon consider an index fund (say Vanguard) is they accept $1K min

One good safe option is I-bonds, which pay a certain fixed percentage

• whatever inflation is. There is no service charge for purchase or redeeming, and depending on what the money is used for, (college) the earnings can be tax-free.

Check out TIPS - Treasury Inflation Protected Securities.

Regards, BeachBum(Jim)

It is interesting that several other people are recommending fixed-income products. A few years back, I would bet almost everybody would have recommended securities for an 18 year time horizon.

Most Vanguard funds require a minimum investment of $3000. The only one lower that I'm aware of is STAR, which is not an index fund.

Brian

In order for the earnings on the savings bonds to be tax-free for college, the bonds have to be owned by the *parent*. The child must not be a co-owner, but may be the listed beneficiary.

FWIW.

i-bonds may still not be a terrible idea, but observe them carefully.  They cannot be redeemed at all before 12 months, but after that, during the first 5 years, you can redeem them and forfeit 3 months of accrued interest -- if the real rates have increased by then, giving up 3 months of pitifully small interest may be a very small price to pay to get newer higher rates going forward (and locking in another 12 months starting period).

re: other points that came up

With respect to concerns that the kid will pay taxes on his unearned income, note that at present, a child or dependent has a statutory deduction of $900 and a standard deduction of an additional $900.  You'd have to put away a good bit of money and have it earning quite a bit before you need to worry about your kid paying income taxes on it.

and

That all said, I'd probably still be inclined to put the cash into the 529, even though the OP said he didn't want to.  If you were planning on paying for college anyway, that's the best place for that cash, and if you want to make like those gifts should be cash for the kid, keep track of how much of presents for the kid you got which you put in the 529 - and just give the kid the cash out of your own pocket when the time comes.

If you are considering possible impact on financial aid, it's better for the money to be in the 529 and/or in your own accounts than to be in an account owned by the kid.

However, for tax purposes alone, there's no reason not to have at least some in the kid's name.  Not a huge amount (ie. at some point, the unearned income may cross the threshold and have to be paid at the parent's rate anyway).  But certainly more than the kid's likely to accumulate from little gifts here and there.

If we're just talking about a thousand bucks or so, I just don't know that it's worth your time or the hassle of doind much more than going down to whatever bank you do your own local banking at and opening up a children's savings account.  We have one for our kid with a whopping $175 in it.

You have some other options such as opening a joint account at a brokerage, opening a UGMA account with yourself as the custodian.  If you are considering these idea, do so very carefully.  A joint account may have gift tax implications (contributions may not qualify for the annual exclusion), and a UGMA account has other quirks.  As I said, unless you are talking about a substantial sum, or regular additions such that it'll soon become a substantial sum, you'll likely do best to just start with a regular savings account at the local bank.

I'd use ETFs simply because a mutual fund generally has a threshold of x $ to overcome. You'll suffer an initial trading cost though.

My advice: Follow Jack Bogle's cost matters hypothesis, and invest using the cheapest possible way to get your asset allocation.

Spend it on her now.

-- Ron