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What savings scheme do you use for a kid?


52-80
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If you want an efficient tax-advantaged vehicle for your kid what are the options?

At the top of my head:

  • Health Savings Account - people treat it as a cash pot, not necessarily for health, but needs to be sponsored by employer to opt-in
  • 529 / College account - an option... but there's a good chance kid won't attend school in US
  • IRA/Roth IRA - qualified as long as child has recognized income like from self-employed chores; esp good if parents have registered corp

Anything else?  Or corrections to my handwavey assumptions?  You'll save me a weekend of googling.  What are you doing for your kid?

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Posted (edited)

I have wrestled with this.  I have not done a 529 because I don’t want to intensify pressure on my kids to attend traditional college, and I am not at all sure that there won’t be massive shifts in the way post-high school education works/costs over the next 10-15 years.  Aside from that there’s no obvious savings vehicles for middle class people (below the “trust fund” threshold, although I’m not sure where that threshold is).  So my reaction has just been to save and invest as much as I can trying to grow my own wealth, figuring that by the time my kids are grown there’ll be enough to help them in whatever way I want.  I’ve got traditional retirement accounts, brokerage accounts, and real estate investments.

I think a lot of it boils down to what you feel your financial responsibility is to your adult children.  A lot of subjectivity in that decision.  For me, I plan to fully fund pretty much anything I consider positive for their personal development until they’re 25.  By the time they’re in their late 20s they need to be fully independent.  I don’t necessarily feel responsible for buying my kids their first house or leaving them a significant inheritance; in fact, a part of me thinks doing that would reduce their dignity.

Edited by Snake Diggity
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As an addition to a 529, I also have a little savings account for nothing in particular that I established when they were born.  Could be for study abroad, eventual wedding, grad school, who knows.  $100 twice per month (1st & 15th) automatically drafted.  When they hit a birthday, I add $10 to that amount.  So, when they are 18, I'm contributing $280 twice per month to their savings account.  Easy annually adjustments to me, automatic transfers, and it adds up to around $86k for a safety net for them (or you, if needed). You could probably could even get more bang if it was invested in a bonds or something.

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Combination of things.

I do some 529, but also have bought both of them Whole Life policies.  I also have a rather hefty whole life policy on myself.  

Reasons:

1) WL cash doesn't show up on FAFSA

2) If they don't go to traditional college, I can still use the cash tax free to help them with other forms of education, to buy an investment property, or the like. 

3) The cash in their policies is under my control until I transfer ownership.

4) Should they have some sort of unfortunate health event, or decide  to join the Navy or something, rendering themselves ineligible for purchasing life insurance, they'll at least have that.  And I can buy more for them since I added a rider to purchase additional units regardless of their health. 

5) I intend to spend down my wealth building, thus the life insurance itself will replenish my wife with cash if I die early, or be the the legacy gift to my kids when I die.  It creates more income for me during my retirement but will also take care of my wife  and legacy for my kiddos.  

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529’s for all 3. Each have a savings account that random checks from family and whatnot go into, along with some chunks when I think about it.  I need to setup an auto draft like Armadillo upthread. Need to set up some Vanguard accounts like I had growing up. That helped when I was younger.  

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1 hour ago, Texas St. Armadillos said:

As an addition to a 529, I also have a little savings account for nothing in particular that I established when they were born.  Could be for study abroad, eventual wedding, grad school, who knows.  $100 twice per month (1st & 15th) automatically drafted.  When they hit a birthday, I add $10 to that amount.  So, when they are 18, I'm contributing $280 twice per month to their savings account.  Easy annually adjustments to me, automatic transfers, and it adds up to around $86k for a safety net for them (or you, if needed). You could probably could even get more bang if it was invested in a bonds or something.

I do the same, just a small honey pot for whatever. If they need to supplement college or if they don't and want to use it for a downpayment on a home one day or just whatever.

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i did the math on what college would cost in 18 years, and figured out how much to put in every month in a 529 assuming a good rate of return.  i do that.  if they can graduate with zero debt, i'll feel like i've done my job.

 

my sister does IRA for her daughter.  i've not really gotten my head around how that works.

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8 minutes ago, BehoId, The Underminer! said:

i did the math on what college would cost in 18 years, and figured out how much to put in every month in a 529 assuming a good rate of return.  i do that.  if they can graduate with zero debt, i'll feel like i've done my job.

 

my sister does IRA for her daughter.  i've not really gotten my head around how that works.

There are some exemptions where you can pull out the funds but that doesn’t seem super smart. Are the IRAs in the kids name? Or does she have them in her name and how old is she? If she’s older than 59 1/2 she could withdraw from a Roth tax free and use it to pay for the school 

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20 hours ago, Texas St. Armadillos said:

As an addition to a 529, I also have a little savings account for nothing in particular that I established when they were born.  Could be for study abroad, eventual wedding, grad school, who knows.  $100 twice per month (1st & 15th) automatically drafted.  When they hit a birthday, I add $10 to that amount.  So, when they are 18, I'm contributing $280 twice per month to their savings account.  Easy annually adjustments to me, automatic transfers, and it adds up to around $86k for a safety net for them (or you, if needed). You could probably could even get more bang if it was invested in a bonds or something.

Could be a nice sportscar for yourself if the kid turns out to be a shithead; or a decent pot for their small venture, or to fund some gap years.

I found out 529 is way too restrictive; dont want to do IRA until he turns 10 and claim more "legitimate" income; and no access to HSA.

Guess I'll just open a vanilla post-tax brokerage account.  Either a Vanguard, or simply another one with my current broker.
 

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Both kids are on the payroll up to the standard deduction cutoff, max a Roth IRA and then the balance into traditional brokerage accounts that are invested for dividend returns, not moonshots. They also have 529’s that we put some into annually. I haven’t worried as much about college, the IRA’s can always be a fall back if needed. For their money the make babysitting or whatever, they have checking/savings accounts at a local bank that it all goes into that they spend on their own. If it hits a certain balance, we roll some more over to the investments account.

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On 4/21/2022 at 6:51 AM, 52-80 said:
  • 529 / College account - an option... but there's a good chance kid won't attend school in US

You can use 529 money for foreign universities.

We have 529s for each kid. $500/mo per kid. Each was started when they were a couple of months old. As soon as we received their SSN, we opened their accounts.

The oldest has a checking and savings account at RBFCU.  She is required to keep at least $1K in her checking and $2K in her savings account. We opened it 2 years ago. Her goal is to get her accounts to $5K & $10K respectively before she graduates high school.

They each are required to split all income/allowances/gifts between 3 buckets - saving, spend, and donate.  At least 50% has to go into the savings bucket. They can split between spend & donate as they see fit.  

They each get a weekly allowance.  $1 per year of age.  This is not tied to chores because you should not get paid for the responsibilities you have as part of the family.  Allowances are paid because everyone needs spending money.

They both have a brokerage account.  The oldest currently contributes $100-200/month out of her babysitting income. I match the first $100.  The youngest takes her "savings" bucket to the bank to deposit and then invest once it is full, which is like every 3 months.  I match that. I also have a scheduled $50/mo automatic investment for each of them.  I started each account when they were toddlers.  All money is put into an S&P 500 fund.

The oldest is a babysitter.  She took the American Red Cross Babysitting Certification class in 6th grade.  It goes a long ways with potential clients you don't know.  She charges $15/hour for 1 kid and $20/hour for 2-3. She has 4 families she regularly babysits for and does extremely well. FRI & SAT gigs are always $100+ and weekday early shifts are always $60.  One family has booked her for 3 weeks this summer to help out with the kids during the day for 6 hours a day M-F.  She gets paid via Venmo.

 

 

 

 

 

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7 minutes ago, CooterBrown said:

You can use 529 money for foreign universities.

Had to dig a bit but qualifying schools are those that participate in the Fed Student Aid program, which for foreign schools has really good coverage in the UK, but is bereft of the notable schools elsewhere - TU Munchen/Chemnitz, NTNU, ETH, Ecole Polytechnique, INSEAD, etc....   and also those things shouldn't cost much so it's only room and board that will benefit from the 529 pool

https://fsapartners.ed.gov/knowledge-center/library/federal-school-code-lists/2021-11-01/2022-2023-federal-school-code-list-excel-format-november-2021

 

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On 4/21/2022 at 8:38 AM, Texas St. Armadillos said:

As an addition to a 529, I also have a little savings account for nothing in particular that I established when they were born.  Could be for study abroad, eventual wedding, grad school, who knows.  $100 twice per month (1st & 15th) automatically drafted.  When they hit a birthday, I add $10 to that amount.  So, when they are 18, I'm contributing $280 twice per month to their savings account.  Easy annually adjustments to me, automatic transfers, and it adds up to around $86k for a safety net for them (or you, if needed). You could probably could even get more bang if it was invested in a bonds or something.

Are you adopting and is it retroactive?

You've missed 33 birthdays, dad.  

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Another vote for Roth.  I put a couple grand in each of my kids' Roth, invested 100% in low cost growth index funds.  If it even hits close to historical numbers they'll have large amounts of tax free money after 40 plus years of compounding.  They can pour a cold one out in my honor when they turn 59 1/2.  If not, we (or they as I'll almost surely be dead) are probably all fucked and scrounging for food anyway.

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Another vote for Roth.  I put a couple grand in each of my kids' Roth, invested 100% in low cost growth index funds.  If it even hits close to historical numbers they'll have large amounts of tax free money after 40 plus years of compounding.  They can pour a cold one out in my honor when they turn 59 1/2.  If not, we (or they as I'll almost surely be dead) are probably all fucked and scrounging for food anyway.

You guys doing the Roth, how old are your kids / what age were they when you started ?


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1 hour ago, Horns99 said:


You guys doing the Roth, how old are your kids / what age were they when you started ?


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Well they need reported taxable income and a tax filing so it's not for toddlers.  I started with their first summer jobs around 15. 

It's also not a bad spot to do a moon shot, say buy some leveraged fund or ETF with a grand or two (say something like tqqq). Definitely not something you'd do with real retirement funds but think of it as a lottery ticket*.

* Not investment advice yada yada yada.

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On 4/21/2022 at 8:38 AM, Texas St. Armadillos said:

As an addition to a 529, I also have a little savings account for nothing in particular that I established when they were born.  Could be for study abroad, eventual wedding, grad school, who knows.  $100 twice per month (1st & 15th) automatically drafted.  When they hit a birthday, I add $10 to that amount.  So, when they are 18, I'm contributing $280 twice per month to their savings account.  Easy annually adjustments to me, automatic transfers, and it adds up to around $86k for a safety net for them (or you, if needed). You could probably could even get more bang if it was invested in a bonds or something.

Not a stonk expert but shouldn't you have started at $280 and reduced it by $10 each birthday?

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On 4/30/2022 at 11:38 AM, 52-80 said:

All you folks who say Roth (IRA)….what are you using as their income, for eligibility ?

They are on the payroll at my office. If that’s not an option, once they start earning outside income then you can make the Roth contributions off of that.

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  • 1 month later...
Posted (edited)

Starting a 529 for my daughter. Wife has a friend whose husband is an Edward Jones guy, so she wanted me to talk to him. No big deal, everything sounds ok, but it’s a 3.5% commission structure. Or whatever you call it where they take 3.5% of whatever I put in. My instinct is no, I should just do this myself and invest in low cost index funds and start moving stuff into bonds or otherwise thinking about derisking in 10 or 12 years. Looking for a sanity check - I’m not a die hard boglehead and could be convinced that paying a fee like that is reasonable for managing something like this. What say surly?

Edited by Celery Man
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21 hours ago, Celery Man said:

Starting a 529 for my daughter. Wife has a friend whose husband is an Edward Jones guy, so she wanted me to talk to him. No big deal, everything sounds ok, but it’s a 3.5% commission structure. Or whatever you call it where they take 3.5% of whatever I put in. My instinct is no, I should just do this myself and invest in low cost index funds and start moving stuff into bonds or otherwise thinking about derisking in 10 or 12 years. Looking for a sanity check - I’m not a die hard boglehead and could be convinced that paying a fee like that is reasonable for managing something like this. What say surly?

Lol, hedge funds don't even charge 3.5% of assets invested.  Tell senor Jones to f himself.

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529s for college

UGMA/UTMA custodial savings account where we save and invest money (and also put in checks from family members like birthday and christmas)

Greenlight account and card for allowance -- they get $1 per every year of age on a weekly basis.  

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16 minutes ago, 52-80 said:

Lol, hedge funds don't even charge 3.5% of assets invested.  Tell senor Jones to f himself.

That was my feeling, but I generally do low fee investing and was not clear on what is within normal. Thanks 🤘

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On 7/1/2022 at 4:38 PM, Celery Man said:

That was my feeling, but I generally do low fee investing and was not clear on what is within normal. Thanks 🤘

Just to reiterate, that's insane. 

Doesn't each state have their own plan and you just invest into it? I vaguely recall picking the state (CO, I believe their fund is managed by Vanguard?), then answering a couple of questions about risk tolerance and that was it. 

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Just to reiterate, that's insane. 
Doesn't each state have their own plan and you just invest into it? I vaguely recall picking the state (CO, I believe their fund is managed by Vanguard?), then answering a couple of questions about risk tolerance and that was it. 

Each state is different. Utah and Colorado are considered the best and nearly identical to each other. We use Utah. All plans can be used for almost any school worldwide. We just went with the age based investment plan. There are other selections available like picking a retirement plan.
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On 6/30/2022 at 7:04 PM, Celery Man said:

Starting a 529 for my daughter. Wife has a friend whose husband is an Edward Jones guy, so she wanted me to talk to him. No big deal, everything sounds ok, but it’s a 3.5% commission structure. Or whatever you call it where they take 3.5% of whatever I put in. My instinct is no, I should just do this myself and invest in low cost index funds and start moving stuff into bonds or otherwise thinking about derisking in 10 or 12 years. Looking for a sanity check - I’m not a die hard boglehead and could be convinced that paying a fee like that is reasonable for managing something like this. What say surly?

Your wife's friends Edward Jones husband is all about getting your money under his management so that he can take a slice each year, or upfront, or both.  Run away...

529's are easy.  Pick a state (we picked Utah, does not have to be your state).  Pick an asset allocation ... basically conservative/moderate/aggressive.  Invest and forget about it until they are approaching college age.

The best part about the 529 was that it was there when our kids headed to college.  We didn't suddenly have another payment to make, we just started pushing the withdrawal button on the 529 website.

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We maxed out the 529 contributions for the first few years of our kids lives and figure 15 years of growth should add up to a good amount.

UTMA of 5k each when they were born for a college graduation gift for a wedding or whatnot. If they can graduate debt-free and with that they should be in good shape and I don't owe them any more than that.

I don't understand the logic of funding an IRA for them, shouldn't they be able to save for their own retirement during their working years? That seems like not my problem.

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2 hours ago, FWD said:

I don't understand the logic of funding an IRA for them, shouldn't they be able to save for their own retirement during their working years? That seems like not my problem.

The little munchkins have time on their side, and plenty of it.  If money doubles every 7 years or so, they might have 6 or 7 doubling periods until they need the money.  Even if they eek out 5 doubling periods accounting for inflation, that's still $32 in future bucks for every $1 invested today.  If you invest in a Roth, all of that money is tax free and they get to choose when in later life to withdraw it -- after reaching certain ages.

Money invested prior to age 30 has a much larger impact than money saved after that.   Plus, your kids have the advantage of watching that account grow during their 20's, when they are like to just blow their newly found income.  Watching that growth can have a big impact on their desire to save while they're young, when it matters most.

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Posted (edited)
On 6/30/2022 at 7:04 PM, Celery Man said:

Starting a 529 for my daughter. Wife has a friend whose husband is an Edward Jones guy, so she wanted me to talk to him. No big deal, everything sounds ok, but it’s a 3.5% commission structure. Or whatever you call it where they take 3.5% of whatever I put in. My instinct is no, I should just do this myself and invest in low cost index funds and start moving stuff into bonds or otherwise thinking about derisking in 10 or 12 years. Looking for a sanity check - I’m not a die hard boglehead and could be convinced that paying a fee like that is reasonable for managing something like this. What say surly?

3.5% is fucking outrageous. I almost want to say 1.5% is high too. Family friend has his own financial management firm and does 1%. 

Edited by Helobious
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On 6/30/2022 at 7:04 PM, Celery Man said:

Starting a 529 for my daughter. Wife has a friend whose husband is an Edward Jones guy, so she wanted me to talk to him. No big deal, everything sounds ok, but it’s a 3.5% commission structure. Or whatever you call it where they take 3.5% of whatever I put in. My instinct is no, I should just do this myself and invest in low cost index funds and start moving stuff into bonds or otherwise thinking about derisking in 10 or 12 years. Looking for a sanity check - I’m not a die hard boglehead and could be convinced that paying a fee like that is reasonable for managing something like this. What say surly?

Holy shit. I wouldn’t even return the Edward Jones fuckface’s phone call. PM me what amount you’re investing initially, and what you’d invest on an ongoing basis. I don’t manage money but can help you. 

The guy at Edward Jones will tell you he’s charging that much, likely because the amount you're initially investing is small. But, that’s horse shit and extremely offensive, and should seriously ruin your wife’s friendship. I’d be so offended that I wouldn’t talk to them again, and would make it my mission to get insanely wealthy and make sure they know what they missed out on. 

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he'll probably take your 350bps fee and stick half ithe money n SPY (which charges 9bps) , and the other half in some shitty product he gets a kickback on.

good gig

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I told the guy no thanks already and am going to do what I do with retirement - pick a couple of broad index funds from whatever options in the 529 and automatically chunk money into it every month. I'll put a couple grand in to start and then $400/mo. I doubt that that is too aggressive but I'm shooting for "you can go to a state school, I hear UNC is nice".

I have a couple of mutual fund investments and some single stock bets I've made over the years but like I said, mostly hold low fee S&P type index funds in retirement. I understand the basis point math there to be an amount that is taken off of the top every year - is the 3.5% as outrageous as it sounds from you guys given that it is taken off of contributions (and not on the balance of the account)? That was one of the things I was having a hard time understanding from a quick google, without having the appropriate language for types of account expenses at my fingertips. I guess I was doing similar math thinking about roth vs traditional 401k at some point but it's been a second since I thought of things through that lens.

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On 7/6/2022 at 2:42 PM, Celery Man said:

I told the guy no thanks already and am going to do what I do with retirement - pick a couple of broad index funds from whatever options in the 529 and automatically chunk money into it every month. I'll put a couple grand in to start and then $400/mo. I doubt that that is too aggressive but I'm shooting for "you can go to a state school, I hear UNC is nice".

I have a couple of mutual fund investments and some single stock bets I've made over the years but like I said, mostly hold low fee S&P type index funds in retirement. I understand the basis point math there to be an amount that is taken off of the top every year - is the 3.5% as outrageous as it sounds from you guys given that it is taken off of contributions (and not on the balance of the account)? That was one of the things I was having a hard time understanding from a quick google, without having the appropriate language for types of account expenses at my fingertips. I guess I was doing similar math thinking about roth vs traditional 401k at some point but it's been a second since I thought of things through that lens.

Sounds like to me he was going to put that money into A share mutual funds (It's what almost all Edward Jones guys do) that have a 3.5% front load, and some up to 6.5%.  

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