Investment experts: advice on savings account for grandchild (1 Viewer)

[BHM]

I want to setup something for my grandson for when he turns 18. Money for college or down payment on a home.

I would like to make monthly contributions of around $100.00. Savings accounts through the bank earn like .00000000000001%. I thought about US Savings bonds but each one would mature x number of years after they would purchased each one.

The Section 529 college savings plan would work but from what I read, if he was to receive a full scholarship, the funds would have to go to another child.

Not really sure of what other options. Any thoughts or suggestions?

 

[rob22278]

The START saving program (Louisiana's 529 Plan) will match contributions based on your AGI, between 2-14%. If the child would receive a full scholarship, the funds can be used for any qualifed expenses:

OSFA

46. What are the expenses that can be paid with START account funds?​

These funds may be used to pay Qualified Higher Education Expenses, which are limited to the

following:​

• Tuition
• Fees
• Books
• Supplies
• Equipment
• Room and Board (if the student is attending on at least a half-time basis)
• Expenses for “special needs”

 

[El Caliente]

What if (under Start) the child doesn't plan on going to school in state?

 

[rob22278]

What if (under Start) the child doesn't plan on going to school in state?

http://www.startsaving.la.gov/savings/pdf/STARTFAQs.pdf​

The Current Value of an account may be used to pay the Qualified Higher Education
Expenses of the beneficiary at any accredited college or university (in or out-of-state),
and at campuses of the Louisiana Technical College and state-approved proprietary​

schools.

 

[Bayouman007]

is all that not covered under a full scholarship?

 

[FullMonte]

You could always invest in some good mutual funds. You'd have to consult with an accountant to see the tax implications, but at least that way the child/teen could use them for whatever they wanted if they didn't need them for school.

 

[JonsDuu]

I want to setup something for my grandson for when he turns 18. Money for college or down payment on a home.

I would like to make monthly contributions of around $100.00. Savings accounts through the bank earn like .00000000000001%. I thought about US Savings bonds but each one would mature x number of years after they would purchased each one.

The Section 529 college savings plan would work but from what I read, if he was to receive a full scholarship, the funds would have to go to another child.

Not really sure of what other options. Any thoughts or suggestions?

If you trust him to manage the money, pay him for work for you (say mowing your lawn, cleaning up your house, etc). Then advise him to put the money in a Roth IRA. Inside the Roth IRA, buy index fund tracking the S&P 500.

With a Roth IRA, he can pull out the money without penalty if the money is used for 1st time home purchase ($10k lifetime limit) and for qualified educational expenses (tuition, fees, books, room & board).

With a Roth IRA, he pay tax now. But if he make less than $3,900, he'll have no tax liability. His parents would still be able to claim him as a dependent. As family domestic help, he doesn't have to pay social security nor payroll taxes. As for state labor laws, check with your state/local child labor laws. Here in caley, he can work without limitation as a family domestic help and doesn't have to pay for state disability taxes nor unemployment taxes.

Distribution from Roth IRA are tax-free if qualified (eg after 59 1/2 years or for 1st time home purchase/educational expenses).

If, on the other hand, you don't trust him as much, you can invest in the 529. The 529 is owned by you, not by him. The 529 can be used for any qualified person (son, grandson, nephews, first cousins, uncles, parents, etc). The investment choices for 529 is pretty limited compare to the Roth IRA. And 529 doesn't pay for 1st home down payment.

With a Roth IRA, any investment vehicles is fair game (eg you can buy saving bonds inside Roth IRA, dump it in the pithy saving rate, invest in mutual funds, invest in individual stocks, etc). You get favorably tax treatments for certain expenses (retirement, home, education).

 

[zatsnzapps]

Money for college or down payment on a home.

You're really looking at two completely different savings goals. If you're sure he will go to college, then a 529 plan can be advantageous. In fact, they can help your taxes too. The kicker is the funds need to be used for college expenses or there is a pretty big penalty.

One thing to consider is control of the money. You can set up an account where you maintain control of the money, or you can set it up to where he has control. Be aware that if you give him control of the money (full ownership), you won't have any input into how he spends the money. You may not care either way, but something to be aware of.

Safe investments aren't paying squat today because of low interest rates. Money Market accounts blow and Savings accounts aren't much better. You could ladder some CDs, but that isn't paying much either.

If you're a gambling man and don't mind the risk of losing some of your money, you could invest in some aggressive mutual funds. One thing to consider is many investment firms want $2500 or $3000 to open a new account - and that's not chump change.

You could also look to get a Brokerage account and get some 'safe' dividend paying stocks. Some of the best stocks are Exxon-Mobil, McDonalds, Johnson & Johnson, and Procter & Gamble (there are many others too). These stocks are safer, so lower returns, but they pay dividends that you can then use to reinvest into more stock shares. These companies are very stable, so you can probably ride the downs in the market knowing you are still getting dividends.

Hope that helps. Oh, and I'm not a financial advisor and this isn't financial advice (I'm really not and it's really not. )

 

[BHM]

Thanks for all the input. As of right now, he is only 16 months old so I can not really trust him to make wise spending choices. Unless a room full of Elmo stuff is considered wise choices.


I want the money mainly for college tuition but did not really want it tied up only for educational spending. For example, he gets a full scholarship or he decides that he just wants to go to a trade school. I was wanting the money to be used for something else such as a down payment on a home in case it was not needed for college.

Then again if he turned 18 and blew it all on hookers and blow, I would be kind of disappointed. Time to do some more thinking...

 

[zatsnzapps]

You don't need to decide right now on how you want to save for the longer term. If you just want to get started, American Express Bank offers a high (well, not really, but relatively speaking) yield savings account at 0.9% interest with no minimums.

I have an account through them, and the only downside is the money is tied up for six (I think) days. Other than that, it's a great way to tuck away a little extra savings outside of your checking account. Open it in your name and you can make deposits as you wish. You can tie it to your checking account to move funds in and out of the account. Very convenient.

The biggest plus is you can take your money whenever you want without any penalties (outside of the six days it takes your money to 'clear' after a deposit).

Oh, you could also use the account to save to get minimums for mutual funds or stocks, and then invest in them. Just a thought.

 

[vandelay]

Thanks for all the input. As of right now, he is only 16 months old so I can not really trust him to make wise spending choices. Unless a room full of Elmo stuff is considered wise choices.

I want the money mainly for college tuition but did not really want it tied up only for educational spending. For example, he gets a full scholarship or he decides that he just wants to go to a trade school. I was wanting the money to be used for something else such as a down payment on a home in case it was not needed for college.

Then again if he turned 18 and blew it all on hookers and blow, I would be kind of disappointed. Time to do some more thinking...

i found this on the LA Start website:

E. Receipt of Scholarships
1. If the designated beneficiary of an education savings account is the recipient of a scholarship, waiver of tuition, or similar subvention which cannot be converted into money by the beneficiary, the account owner or beneficiary may request a refund from the education savings account in
the amount equal to the value of the scholarship, waiver or similar subvention up to the balance of principal and interest in the account.

as far as having flexibility though, your best bet may be opening a brokerage account as the custodian. that way you can invest in dividend paying stocks, quality mutual funds, etc, and then at the end, you can use the money on whatever you want. i'm not sure the tax arrangement with that though, but i would think you would be responsible for them. you could always split the difference too, that way you don't build up too much in the 529.

most of the online savings accounts are paying around 0.9%, so you could at least get that started and the money working while you are exploring your options.

 

[FullMonte]

If you trust him to manage the money, pay him for work for you (say mowing your lawn, cleaning up your house, etc). Then advise him to put the money in a Roth IRA. Inside the Roth IRA, buy index fund tracking the S&P 500.

The only thing with that is...If you pay the child/teen to work for you, the only way he can put the money into an IRA is if he files a tax return on the money you pay him.