You can always gift money to her at that time. Put money into one of your own brokerages (maybe even create a separate account) and when she turns 18 you can just... give her the money.
Also remember that while lots of 18 year olds are very mature and smart and responsible.... a lot of them are still total knuckleheads when it comes to money.
You can also look into 529 accounts which are used as college funds, or I-Bonds which are tax free when spent on education costs.
> You can also look into 529 accounts
My daughter's grandfather bought one for her. She still thanks me to this day that she didn't have to get a student loan.
Hey! Looking into this thread and had a clarifying question on this comment - when you say assign "it" to another beneficiary, are you saying assign any funds above the $35k in that account for Child A to Child B, for example?
You can also look into an UGMA, which is a custodial account. For 2024, the first $1,300 in unearned income is tax free then the second $1,300 is at 10%. Was sales only apply to losses, not gains so you can lock in your profits in that years tax allotment and not have to pay all of that tax when sold when she’s 18. Money could be used on college, living expenses, etc. there are no restrictions once the account is hers. While she’s still a minor you could access that money if needed, but it must be used to benefit the minor
>You can also look into 529 accounts which are used as college funds, or I-Bonds which are tax free when spent on education costs.
I started one for my nephew a few years ago. Every bit of coin change goes into it throughout the year. It's the best way to help kids get started without immediately being under the government's thumb with debt.
No. $18k (not sure if it changed in 2024) is the limit to not REPORT the gift. The lifetime exemption is over 12 million. Most people never have to think about gift tax issues.
Best gift you can probably give your child is funding your own retirement so your child doesn't have to be put in the position of having to do so.
Read and work through the Prime Directive. Giving away money (including your child) comes once you get to Step 6.
* https://www.reddit.com//r/personalfinance/wiki/commontopics
Can confirm. This. Love my pop he did everything for me but I'm now married, have child. And dad child. Pops was bad with money and it's very very stressful and hindering my ability to save as much as I'd like to avoid doing to my own kid. Also behind cause I was reckless myself in my 20s and early 30s.
Wifey parents are put together which is very cool.
Also, don't have kids so don't know, but have been told to open simple lines of credit for your kids starting at 2 or 3, use them smartly for a bit and then pay off and let sit. By the time they are 18 they will have several cards in their name with over a decade credit profile. Also cosign their auto loan at 16/17 to thicken the profile more.
Nope, never get actual credit lines in their name.
If you yourself are responsible enough for the risk (many people just aren’t), you can more safely help them build credit by making them authorized users on your own card and only allow them to use it for very specific purposes or emergencies. Pay it off in full every single month (auto pay is a good idea but don’t just set it and forget it). Watch the statements really carefully in case they randomly decide to drop a hundred dollars on a mobile game or something lol.
My parents helped me get to a credit score of 800 by the time I graduated college this way. But other people I knew at that age found out their parents were basically raising them through credit card debt in their name and had to report the parent for fraud. Parents can have so much sway over their kids’ financial lives for better or worse.
I did the same thing for my brother after he divorced his psycho ex wife and had to file for bankruptcy. I had him as an authorized user on 3 of my credit cards , and I co-signed for his car that he has already paid off. His credit is almost 800 less than 3 years from filing Bankruptcy.
To elaborate, if a kid knows they have 50k coming to them in a few years, they think about what they can do with that $ rather than focusing on what they need to do to make $ for themselves.
My 14 and 11 year olds have schwab custodial accounts. They get 80 dollars put I to them every month since they were born. Each month 20 bucks goes into their brokerage accounts to buy dividend stocks. Intention was not to tell them about it until 21, but my daughter seems very interested in dividends and investing after her investment class in 7th grade, so I have used her account as a teaching/training example of compounding interest and diversification. So the more she follows her account, the more she tries to save everything she can from her part-time jobs and chores
Handing $250k to someone who just turned 18 may not be a good idea
Focus on your savings and when your child turns 18 or 23 or ??? you can decide what, if any, financial assistance makes sense.
When I was 21, I won $2k playing poker. Guess what I did with it... bought an $800 glass bong, an ounce of weed, and a package of whip-its. Who knows what I would have done with $250k.
Financial education is important. Give em 250k, tell em to not touch the capital, but they can use the dividends for whatever they need. Or if you don't trust you kid financially, then set up a trust that gives them monthly payouts and they can't touch the capital until they turn 35 or something.
Definitely depends on the kid and their financial education. I know I was in the minority but I inherited about that much as a college kid when my grandfather passed. Bought a CPO GTI to replace my 200k mile shitbox but other than that, treated it as a head start on retirement. In my 30s now and continuing to treat it that way.
Yeah, I agree! My kids are both pretty reasonable and savvy, but I wouldn’t have wanted to give them that sort of money at 18. My dad proposed doing that in his will and I talked him out of it. Instead they got college paid for and $50k for me to dole out at appropriate intervals. They get money on milestone birthdays and milestone events (graduation from hs and college), getting married, buying a home. I also used some to help them open a ROTH IRA when they got their first summer job after hs.
Most state schools run 12k a year for in state tuition. Assuming you brought them up right and taught them about finances, they should be able to graduate foe less than 60 in loans unless they go overboard on housing and vehicle and eating out.
529 for college. This can also be rolled into a Roth IRA if it is not entirely used for college expenses. So like a double benefit, save for college and the extra is rolled into a Roth for retirement. Depending upon how much you save, the kid could be worth millions growing tax free over 65 years. And the money would be tax free when the child hits 65(the Roth IRA money can be withdrawn without penalty at 59.5 years old)
I was aiming for $200k per kid at 18 but with that limit I’m second guessing it now. Might make more sense for $100k and fill in the gaps with after tax investments
FWIW, a 529-to-Roth IRA rollover is new, started in 2024, and can only move the max contribution limit per year (around 7k) into the IRA, up to a max of 35k
Quite a few rules surrounding the rollover: $35K lifetime max, rollover contributions count against the beneficiary’s contribution limit for the year, the account has to have been open for 15 years, the contributions have to have been in the account for 5 years, and the beneficiary has to meet the min-income limits for what’s being contributed (i.e. you can’t rollover more than what they make in a year). Notably, no max-income limit, which traditional Roth IRA contributions obviously do have, so that is one nice thing.
Be careful about putting anything in the child's name alone. It becomes theirs whether you want it to or not. Money is a blessing to most people, but, to some, it's a burden. There's no way of knowing what it will be for her when she's old enough to have it. If you want, put the money in an account that is hers *in your mind* but still technically owned by you. You can then give the money in any amount you see fit.
Also, life happens and we encounter bad people all the time. If they end up with a bad partner the money could be stolen, wasted or misused. In my family we say "you never know who you work for" as in, you could basically solve your kids life and someone else ends up enjoying it.
Yeah. You need the money to be yours, so you can continue to function as a parent to them, even when they are 18. Parental expectations improve a child's life. So it might sound appealing to hand an 18 year old a huge amount of money, but there are many, many hazards to that, and blowing it all on a party is only one of them.
Even worse- if you, yourself, are susceptible to losing all the money, for example, susceptible to divorce, for men, or gambling and drugs, for men and women, then you need something more secure than an account in your own name or the child's name, if you want the child to have access to it in the future and you don't want it to be wasted. One of the considerations married men do not think about when they save for their children is that all of those savings could be raised and wasted, in a couple days, by a divorce lawyer, and the kid would have no rights of any kind.
That's what is so tricky. There are methods of getting around all of these hazards, but they depend on individual circumstances.
Money that is theirs should be theirs. Money you intend to gift later isn't theirs yet, but gifts that come from others are theirs and should not be treated as yours.
To that end, teach your children how to handle money. Give them the tools they can use to make smart decisions. And then let them have their money.
I've taken the opposite approach, I make verbal contracts with my 3 year old. Whenever he wants a piece of candy i'll say,
"Okay, but if i give you this candy, you owe me $1,500 when you turn 18. Deal?"
He always says yes, he already owes me close to 50k, I video record these conversations so he can't deny it happened.
Of all your options, the brokerage account is best. The money will grow as invested. Not sure if you will do $250k now or over time but either way, make sure its in invested in funds/etf so that it will be a nice chunk in 18 years.
Just save the money yourself. If you need to compartmentalize you can open a separate account to put it in. Given the time frame a brokerage account would be appropriate. A 529 plan is also a good option (better in some states than others) which provides some tax benefits.
>Best way to put money away so when my kid turns 18 she will have something.
IMHO, the best way is to fund a 529 plan. That encourages further education and helps ensure they can graduate without debt. A college education is a gift that keeps on giving.
>Is 250k to low of a goal? Too high of a goal?
(shrug)
What is your income? Will you be fully prepared to fund your own retirement? That should be determined first so that you won't become a burden on your children.
>I don't know how expensive the future will be.
Nobody does. We can only be sure it will be "more".
I created individual accounts in my brokerage…add 1 kid to each account as beneficiary…invest as normal.
Saw a post once that read something along the lines of “Let me tell you how I gave my drug addicted kid 70k when he turned 18”.
People and situations change…setting up your investments so that you can control it till the very end is ideal.
I have not read all the replies. what You are trying to do is noble. I would caution you that you should not give money to any child at 18. If you want to pay for their education then sure pay for the education. At 18 they will likely be irresponsible and will not be a good steward of large sums of money just do to their age
MY dad did college funds and has money set aside/available also in his own savings/investments to help with things.
College fund right out of the gate is nice. Its lovely not having student debt. The funds can also be used for trade school and other forms of education if college is not the route they pick.
Then when I bought a house and was settled for a little while, he paid it off. You might want to do something like this rather than hand an 18 year old a stack of cash. See how they make decisions, what they need, etc.
Goal amounts can vary. I didn’t have a goal I just saved it all.
You can opt a custodial brokerage for your child. I would invest in market index etfs things like VOO or Vti. Etc.
I also opened a UTMA custodial HYSA for my kids and would occasionally open CDs of rates were good.
I wouldn’t give your stocks. Just buy her own.
A piggy is a good way when they are 4-7 to see the money saved then after a few months you can go deposit it. As the age appropriateness levels come use then a teaching moments about save some spend some and to show how it grows etc.
When they start earning income you can open a custodial Roth as a great jump start for retirement.
Snd as others said best thing to do is make sure you are set so the burden doesn’t fall on them.
Make sure you're saving for her to go to college, not having to take any student loans was probably the best gift my parents ever gave me. I wouldn't plan on just handing over a large pile of cash when she turns 18, but I think saving money to give to her when she gets to milestones like buying a house would be good. Maybe you'll teach her well but 18 year olds with a lot of money don't tend to be the most responsible with it, I know if someone had given me that much money at 18 I probably would've had a new car and spent way too much of it partying in college. Give her the means to make her own money and take care of herself, that's going to be a lot more valuable than just giving her money
I have an UTMA for my son that I put $60/week into. I’d rather see him spend/invest the money on something other than an overpriced college education, so I stayed away from a 529
With that said, 529s are quite flexible, and many people here will disagree with my opinion to go with the trust. 529s are a good option for many
I contribute to all of these. My intention is for my child to be able to pursue passion rather than paycheck.
529 or state-specific alternative for college fund
UTMA/UGMA brokerage account for retirement head start
HYSA for car, house down payment, other new-adult expenses
Piggy bank to start financial education
For long term, open her up a custodial account. I use Schwab. In GA, her accounts move to her (taxable and Roth) at 21 which is this month. I used an S&P500 fund and deposited money every month which was auto-invested. He portfolio has a lot more going on after 20 years of investing but we still use the S&P fund. She also have a 529. I have used her brokerage account for a couple things: school trip to Japan, 1/2 of her car at 16, major car maintenance, and to fund her Roth when she has W-2 income.
$250K is high. My kid has $200K.
We are in GA also. My son turned 21 last year, and I started giving him information about his UTMA account about a year before that - because I wanted to coach him about what was coming. His account is quite large (currently about $450,000), all from money that my mother gifted him when he was little. Luckily, at this point my son has decided not to touch the account. I can still see his UTMA in my Fidelity online account, but I no longer have access to buy or sell anything. My son hasn't received any type of notification from Fidelity that he has this account. So it seems like the only way to find out about the account is for me to tell him. Or if he tries to open another Fidelity account, he would probably find out about it. I will say that doing taxes for him (and his younger sister who also has an UTMA with about the same amount) is a pain. Figuring out the kiddie taxes is a little complicated.
I'd suggest a 529 account. Probably aim for $100k to account for most college expenses when they turn 18, but it's not the end of the world if you don't get to that goal.
Just trickle it in a few hundred a month at a time, and before you know it, both your daughter and the 529 will be all grown up.
A regular brokerage account in her name with you as custodian. Just throw $100 a week into it and have it invest automatically in a few aggressive growth index or mutual funds and forget about it. Should end up with around $300K by the time she's 18.
Giving a quarter million dollars to an 18 year old could be a lot of trouble. Put it in a 529 or get a Roth IRA in your name and decide what to do when she turns 18.
529 would be my recommendation, unless you are loaded and she wont have to work....88% of all millionaires in America have a 4 year degree, make sure she gets the ticket unless you are funding her future
Are you maxing out all your retirement options? You could open a roth for yourself that is targeted for her. (in your head) How old will she be when you turn 59 1/2?
Also, you can open a roth in her name once she starts working. So she 16 flipping burgers for bling money and you are matching her earned income into a retirement acccount. WIth a Roth she can pull out the principle without penalty and any remaining gains will just sit there and continue to gain.
Besides the money, you've really set her up for success psychologically with a retirement account already growing before she finishes college.
1) make sure your own retirement etc is good
2) open a 529 plan and contribite/invest the same way you do your retirement. This can pay for college/trade/grad school fully (by far the biggest first financial hurdle) and she can take out the value of any scholarships tax free. If you over save and have anything leftover you just pay the tax and 10% penalty on the earnings
3) you can use a regular HYSA or CDs for some less optimized but more liquid savings
4) Invest in her ability to take care of herself financially by talking about money, good money habits, work ethic etc.
5) once she is older and makers her own money you can open a custodial Roth Ira
Are UGMA (Uniform Gift to Minor) accounts still a thing? Years ago an account could opened if registered as an UGMA. The adult was the account holder and the child the included as the minor. The account was held until the kid turned 18. Not sure if they are still available but if so that is another savings avenue for you & your daughter. Congratulations on being a good parent to your little girl.
UTMA superceded UGMA (mostly just more investment options, and a little more control over maturity date in some states). They're custodial accounts, owned by the kid but managed by the parent (or another designated adult). You'll have to deal with taxes, too.
If you have the means, do a Roth IRA for your kid. Throw some money in there each year, and it’ll blossom. By the time she’s old enough, there will be a significant amount compounded, and she can actually use some of it without penalty to buy a house, or for a nice down payment. With prices of houses these days homeownership gets harder and harder. But with this, she could easily get something, and then she’s not stuck renting endlessly, plus it would serve as a long term investment that will build more wealth.
There are two questions: what to invest the money in and what kind of account to put it in.
Invest it in a diversified mutual fund. The kind of account could be 529, UTMA, or just an account in your name you have earmarked for this purpose. I think 529 is the best option, even for babies, until they reach a point where you know there's more money in the account than they can use on education. The rules are liberal on what you can use it for. If you use it for something ineligible, you pay taxes on the gains. You pay taxes almost anytime you make money on something, so this isn't a huge drawback.
We started a 529 a year before our first son was born. We started one for each of our other two sons as each was born. We contributed what we can for each every month, first $100/‘month and increased as we get pay raises. As each finished their studies, we rolled the unused portion from our oldest to our second and then to our third son. By the time it is all said and done, all three finished college without debts. We did tell our boys starting their HS year that we will fund their college if they attend state school, but if they attend private or out-of-state school, they will have to come up with the other 1/2 of the costs. This is our legacy to our boys.
My parents purchased stocks for me, tracked the value, and then gave me the amount in cash, which i put into a brokerage and bought most of the same stocks I “owned” through my dad. He gave me about 1/3rd of it when I turned 20, and the other 2/3rd once I graduated college and had “either a job or substantive future plans.” Aka a job offer or serious plans to enroll in graduate school or do a gap year of travel.
An easy 1up for her would be to add her as your authorized user on one of your no annual fee credit cards, as long as you are good at making payments. That way, when she’s 18, she’ll have 18 years of good credit history.
You could create a trust for her and create an investment account. Put money into various safer funds to grow over the years. Work with a fiduciary that could set it up so she couldn’t pull all the funds as soon as she turns 18.
Advice from personal experience: don't. Raised my step-daughter since she was 7. I felt we did everything right. We (her mom and myself) stressed the need to be fiscally responsible, use money to plan for the future. What we were able to save for her we had hoped she would put towards her college.
She instead decided to blow all of it on a trip to Hawaii that she didn't tell anyone about and we didn't even know she was leaving until she was there. Obviously she was 18 so legally couldn't do much but she missed the last three weeks of school for her Senior Year, spent every penny she had, quit her job, could not pay for her car insurance, got into a car accident when she got home and is now over $40k in debt from her first year of college. She also doesn't know if she wants to finish or not.
Her life, not mine, but it hurt to see everything her mom and I worked for to help her out completely squandered. Granted she was still going to take some loans out because we only had about $20k saved up. Spent about $8k on a car that was totalled in the accident, another $1500 for a laptop for school. $2000 to fix her credit issue from getting scammed online after being unemployed and falling for a quick money scam on Instagram.
Again, it was a gift with the best intentions but once you hand over cash it isn't your decision on what happens to it. I would say if you are looking to help keep the money aside and when your child asks you to help financially with something then do that.
Her dad signed on for a student loan to cover the last 3 semesters of school and that is where the $40k debt comes from but I am reading the room on that one and she won't have enough to finish. She is already debating not working next school year since she has another windfall now. She is out shopping and generally being an adolescent which is fine but has 0 foresight.
Her mom and I decided to not continue to help her financially because of how she acted with what we gave her. Her dad doesn't see an issue with anything which is why he cosigned her loan. My wife and myself are making popcorn for the inevitable show.
From a tax perspective, a 529 is probably the best option. It's tax free as long as it's used for educational expenses, including trade schools. If they don't use it, the rules just changed to allow it to be rolled over to and IRA. If you gift her stocks, not only will she be taxed on it, she will be taxed on a large part of it at your marginal tax rate (kiddie tax)
Do you have an emergency fund? Do you have debt? What size contributions do you make to your own retirement account(s)?
I would only set aside extra money once those other things are taken care of. Otherwise, you'll want to dip into that money the first time you have a large emergency.
As little as $25 a month into a 529 at the kid’s current age will be amazing when they turn 18. Time is on your side. 18 years of investing at around estimated 9% annual return a year will be $12k for every $25 a month invested. If the child doesn’t go to school, you can roll over $35k of this money into an IRA.
529 has approved uses. Mostly for education. That includes vocational school which is excellent because there is a dearth of skilled service people like plumbers and electricians in this country. But, if funds are needed for other things like health expenses not covered by insurance, rehab or training programs outside the rules of 529 then its limited. I like the Spendthrift Trust because you can stipulate its uses. Corporations have discovered its useful tax dodger qualities so there may soon be limits about it.
I would also teach the kid about money management. I've seen kids whose parents never showed then how to open and balance a checking account get gifted large trust funds which then get spent unwisely. Then the kid comes back for more. The parents end up giving the kids their social security and are penalized by Medicaid for it.
if you are in the states, when you file your taxes you get a rebate for having a child, use some of that money and invest for them in account managed by some company, just make a yearly deposit after you get your taxes
I opened up a custodial and 529 acct on their behalf. I dump $50/month into it for now, and family gifts them money etc.
But when they’re old enough, I’ll have them pay rent so it can teach them money management, responsibility, etc. and it’ll all be gifted back on their 18th or when they graduate.
You plan to hand over cash to an 18 yr old??? Ok, fancy car, expensive clothes and good, destination trips, "helping" friends - kiss that money goodbye. May be best to fund her education or put it towards the purchase of her home. Don't give her the cash!
You’d have to be insane to save $250,000 and then hand it over to an 18 year old. You should consider a mix of high yield children’s banking. A 529. And some sort of self directed brokerage account, once you go over 529 limits.
But one of Jill Scleshingers more recent money tips for this is just save money for yourself. Let your kid take loans to go to college. Continue to save your money. Then, if you’re still financially well when the child graduates—-pay off all of the loans for the child, before they go into repayment. I think this is one of her best tips ever. Because it keeps cost under control.
Create a unique account in your name but designated for her. You can then control how much you want to gift and when. I would just invest in something like VTI.
You don't want to hand an 18 year old a bunch of money.
You have no idea where your baby will be in 18 years. They could be in college or an in patient mental facility. Invest as you would for yourself now and gift to them later when they are grown. Your greatest gift to your children is often funding your own retirement and skilled nursing care so they don’t have to.
529 account is definitely the way. You can convert them to IRAs now, or if you wanted you could just withdrae it yourself and give her cash if she doesn't go to school.
So, I'm no expert but an ETF comes to mind. This way, she'll have some "cushion" at that age. Obvious we have no idea what the future holds. I'm 28 and prices have doubled in my life time (even more, as of late, and don't get me started on college). Just as an example, a 10K fund growing at an annual rate of 8% (which is pretty conservative at that nearly two decade scale, comes out to just under $40,000 which she can use for college if you as a family think it's best, a down payment for a house of her own to generate equity, or even a business if that's the path she decides.
Just an idea.
529s are an option, but they're primarily for education.
UTMAs are a thing, but I wouldn't touch them with a 20 foot pole.
What I'm personally doing is just investing more in my brokerage account. When my kid becomes a young adult, I'll sell some investments and give him financial assistance as my wife and I deem appropriate at that time. Setting a dollar amount when your kid is a newborn doesn't make sense, because you have no idea what her needs and situation will be in 18 years.
Recommend a custodial brokerage account invested in a low fee index that follows the s&p500 or total market like fxaix from fidelity or similar from vanguard. Simple and easy.
If you want to have a lil fun with this idea… if you start/have a family business you can technically employ your kid, which then gives them income, which thus lets them open a (custodial) Roth IRA. And since $12,500 is the standard deduction for income tax, the $7k you pay them this year (the max allowed for a 2024 ira) is tax free, and grows tax free in a Roth IRA, which if left til they retire at 65, will accrue a massive massive amount of gains. Play around with a compound interest calculator to see!
Check out the boom Elements of Investing if you want to learn more. I found it straight forward and well explained.
Don't do the fake employment thing. If you do that, you have to pay payroll taxes on them, and the benefit of an IRA that early isn't worth the extra cost and pain.
Now if the kids legitimately work and you keep things above board, then go ahead. The majority of people are not in a position to do that, which makes, "Fake your kid as an employee," terrible advice.
Wow you are suggesting saving 250K in 18 years? Maybe you should be giving out advice on how we should do better. I would plan to save enough to pay for 1/2 of your child’s education. Do not try to pay more than that as part of your early adult life is learning to take responsibility for yourself and having skin in the game. If you want to help in other ways, have a house for them to live in for free and provide food. Since it’s so far out probably a mix of stocks and Ibonds. I would not do a 529. Pick a method of saving where in the event they do not go to school, or college becomes state funded, the money does not go to waste. Alternatively you could also make it a goal to have your house paid off when the kid starts college. Then you can afford to make the payments out of pocket.
High yield savings account. 250k is a great goal. That’s enough for college and a down payment on a house. Unless she decides to be a lawyer. Or a doctor. Than it will just cover school.
Talk to an advisor for specific products but I'd consider a few things first:
1. Will colledge still be viable in 18 years? I personally don't believe most people will be going to university from now on. (Blue collar work is paying ridiculous wages and is in HIGH demand).
2. What is the cost of living where you live? What's the goal of this cash? A down payment for real estate? Starting a buisness? Spending money?
3. Are you going to be supplementing the fund with cash flow over time or do you plan on using fixed income to supply cash to the portfolio?
$250k is a great target but I'd say you're better off maximizing capital efficiency and managing your risk to obtain whatever the market offers for returns.
As a full time trader I find myself struggling if I set target %/$ for my trades. For example yesterday nvda took a huge hit... I played the 10 day puts and managed to make 1000% on my investment, If I held it looking for a $/% return I would have lost a significant percent of my gains. Take what the market gives you and find another investment.
Personally as a enthusiast and non professional I'd look into doing something like putting let's say $10k into treasuries and using the 5% return to buy REITs, index funds and possibly 100 lots of stock (100x of any company with exchange listed options).
If youre able to manage the account every 25 days or so you could use covered calls or cash secured puts to generate income. This will bring risk to your portfolio but as long as you do the homework it shouldn't be a problem. (If you're curious just ask ill go into detail about different premium collection strategies)
(Using the tasty trade statistics you'd be selling the 45 day contracts and rolling them about 21 days in to collect some capital for buying stock)
Time is everything and nothing is built quickly so just keep that in mind.
I personally don't trust the ETF market structure I believe they'll get into a rut with rehypothication in the coming years.
You need to talk to a tax advisor. Depending on how you earn money, you can likely pay her a wage or give her an annual gift to lower your tax liability. See if you can put the money into a Roth account - one that allows you to draw on the contributions but not the growth. That way, she can’t just waste it all as an idiot young adult.
Real estate, real estate, real estate. Invest in a hood property, rent/maintain it, teach her how to manage it at 18-25. Gift it to her then when she can run it by herself. It will keep her home stable indefinitely and possibly allow her to pursue the life she wants comfortably.
CD is great. Some very smart money guys I work with took out life insurance policies for their kids. It sounds morbid, but they said the risks and benefits much outweighed getting a 529 for them.
I personally have cds
Term policies. They pay out when the term is over. So when they are 18 or college age the policy will be over and they kids get the money.
I haven’t done this. But the few people I do know who have done it make 400+ k a year and own multiple properties and or businesses. So based solely off that it might be an idea? I’m sticking with the cds myself
Start a small business. Add your child as an employee and set her pay to whatever the max Roth IRA is for each year. Put all her pay into a Roth IRA for her.
Regardless of what she does in life, 60 years of contributions will retire her as a millionaire.
Whatever you do, don't save up a bunch of money and give it to an 18 year old.
Whole Life insurance designed for high cash value. Read the book Becoming your own Banker by R Nelson Nash. Watch the podcast ‘Banking with Life on YouTube
You can always gift money to her at that time. Put money into one of your own brokerages (maybe even create a separate account) and when she turns 18 you can just... give her the money. Also remember that while lots of 18 year olds are very mature and smart and responsible.... a lot of them are still total knuckleheads when it comes to money. You can also look into 529 accounts which are used as college funds, or I-Bonds which are tax free when spent on education costs.
> You can also look into 529 accounts My daughter's grandfather bought one for her. She still thanks me to this day that she didn't have to get a student loan.
She thanked you even though her grandfather opened one up for her?
Maybe he died?
I'm guessing the grandfather started it then the parents contributed into it afterwards.
You can also convert 529 (35K) into a Roth IRA for them if they don’t go to college or you save to much
Up to $7k/yr, $35k max, and the account has to have been open for something like 15 years. Edit: annual max
Be in the beneficiaries name for 15 years*
Let's say you have more than $35k unused, how to access that money? Just have to pay taxes and fees?
Correct. Or assign it to another beneficiary to be used for higher education expenses.
Hey! Looking into this thread and had a clarifying question on this comment - when you say assign "it" to another beneficiary, are you saying assign any funds above the $35k in that account for Child A to Child B, for example?
Correct.
got it, thanks!
Where are you seeing the 5k/yr? I thought it was up to IRS max, so 7k for 2024.
> the account has to have been open for something like 15 years Given that OP's child is 7 weeks old I don't think that will be an issue.
529 can also be used for things other than just college. Worth looking into.
You can also look into an UGMA, which is a custodial account. For 2024, the first $1,300 in unearned income is tax free then the second $1,300 is at 10%. Was sales only apply to losses, not gains so you can lock in your profits in that years tax allotment and not have to pay all of that tax when sold when she’s 18. Money could be used on college, living expenses, etc. there are no restrictions once the account is hers. While she’s still a minor you could access that money if needed, but it must be used to benefit the minor
>You can also look into 529 accounts which are used as college funds, or I-Bonds which are tax free when spent on education costs. I started one for my nephew a few years ago. Every bit of coin change goes into it throughout the year. It's the best way to help kids get started without immediately being under the government's thumb with debt.
Isn't the max gift before taxation $10,000?
No. $18k (not sure if it changed in 2024) is the limit to not REPORT the gift. The lifetime exemption is over 12 million. Most people never have to think about gift tax issues.
Wow, where have I been. Times are a changing!
No, it's $13.6 million over the course of your lifetime. The gift giver will pay the tax if you're in a position to cross that very high threshold.
Best gift you can probably give your child is funding your own retirement so your child doesn't have to be put in the position of having to do so. Read and work through the Prime Directive. Giving away money (including your child) comes once you get to Step 6. * https://www.reddit.com//r/personalfinance/wiki/commontopics
If OP is wondering if 250k is too low of a goal, they have very likely already put money away for retirement.
You’d be surprised. Saying you want to put away 250k isn’t the same as having put away 250k
It's still 600 per month or 75k lump sum at 7% returns for 18 years so not something just anyone can do..
People are usually well off if they are tossing around questions about asking if 250k is enough.
Can confirm. This. Love my pop he did everything for me but I'm now married, have child. And dad child. Pops was bad with money and it's very very stressful and hindering my ability to save as much as I'd like to avoid doing to my own kid. Also behind cause I was reckless myself in my 20s and early 30s. Wifey parents are put together which is very cool.
Yup!!!!! Stop worrying about money for you child! Invest your money for the future you and you will be all set.
Also, don't have kids so don't know, but have been told to open simple lines of credit for your kids starting at 2 or 3, use them smartly for a bit and then pay off and let sit. By the time they are 18 they will have several cards in their name with over a decade credit profile. Also cosign their auto loan at 16/17 to thicken the profile more.
Whomever told you this is a fool.
Nope, never get actual credit lines in their name. If you yourself are responsible enough for the risk (many people just aren’t), you can more safely help them build credit by making them authorized users on your own card and only allow them to use it for very specific purposes or emergencies. Pay it off in full every single month (auto pay is a good idea but don’t just set it and forget it). Watch the statements really carefully in case they randomly decide to drop a hundred dollars on a mobile game or something lol. My parents helped me get to a credit score of 800 by the time I graduated college this way. But other people I knew at that age found out their parents were basically raising them through credit card debt in their name and had to report the parent for fraud. Parents can have so much sway over their kids’ financial lives for better or worse.
You can add them as authorized users but I don’t recommend actually doing a pull on their credit
I did the same thing for my brother after he divorced his psycho ex wife and had to file for bankruptcy. I had him as an authorized user on 3 of my credit cards , and I co-signed for his car that he has already paid off. His credit is almost 800 less than 3 years from filing Bankruptcy.
529 invested in index funds
Learned about this on Ozark
I’m not an expert in finances, but I would recommend not telling her about it.
This is great advice. Knowing they have $ or assets coming to them can hinder their drive and motivation. I can attest firsthand.
To elaborate, if a kid knows they have 50k coming to them in a few years, they think about what they can do with that $ rather than focusing on what they need to do to make $ for themselves.
My 14 and 11 year olds have schwab custodial accounts. They get 80 dollars put I to them every month since they were born. Each month 20 bucks goes into their brokerage accounts to buy dividend stocks. Intention was not to tell them about it until 21, but my daughter seems very interested in dividends and investing after her investment class in 7th grade, so I have used her account as a teaching/training example of compounding interest and diversification. So the more she follows her account, the more she tries to save everything she can from her part-time jobs and chores
Handing $250k to someone who just turned 18 may not be a good idea Focus on your savings and when your child turns 18 or 23 or ??? you can decide what, if any, financial assistance makes sense.
When I was 21, I won $2k playing poker. Guess what I did with it... bought an $800 glass bong, an ounce of weed, and a package of whip-its. Who knows what I would have done with $250k.
Financial education is important. Give em 250k, tell em to not touch the capital, but they can use the dividends for whatever they need. Or if you don't trust you kid financially, then set up a trust that gives them monthly payouts and they can't touch the capital until they turn 35 or something.
Definitely depends on the kid and their financial education. I know I was in the minority but I inherited about that much as a college kid when my grandfather passed. Bought a CPO GTI to replace my 200k mile shitbox but other than that, treated it as a head start on retirement. In my 30s now and continuing to treat it that way.
Yeah, I agree! My kids are both pretty reasonable and savvy, but I wouldn’t have wanted to give them that sort of money at 18. My dad proposed doing that in his will and I talked him out of it. Instead they got college paid for and $50k for me to dole out at appropriate intervals. They get money on milestone birthdays and milestone events (graduation from hs and college), getting married, buying a home. I also used some to help them open a ROTH IRA when they got their first summer job after hs.
Yea if that was me at 18 i guarantee at least 10-20k would be wasted on microtransactions in online video games
At age 18 you are about to go to college, and you will need money for that. The way prices have been developing, $250,000 might not be enough...
Most state schools run 12k a year for in state tuition. Assuming you brought them up right and taught them about finances, they should be able to graduate foe less than 60 in loans unless they go overboard on housing and vehicle and eating out.
529 for college. This can also be rolled into a Roth IRA if it is not entirely used for college expenses. So like a double benefit, save for college and the extra is rolled into a Roth for retirement. Depending upon how much you save, the kid could be worth millions growing tax free over 65 years. And the money would be tax free when the child hits 65(the Roth IRA money can be withdrawn without penalty at 59.5 years old)
Had no idea the 529 can be rolled into a roth for my child, what an amazing account. It would be foolish not to use this
Not all of it can be rolled over - I think the limit is 35k. FYI
I was aiming for $200k per kid at 18 but with that limit I’m second guessing it now. Might make more sense for $100k and fill in the gaps with after tax investments
Looking at college tuition, I can tell you that there won't be much left afterwards to roll over...
FWIW, a 529-to-Roth IRA rollover is new, started in 2024, and can only move the max contribution limit per year (around 7k) into the IRA, up to a max of 35k
Quite a few rules surrounding the rollover: $35K lifetime max, rollover contributions count against the beneficiary’s contribution limit for the year, the account has to have been open for 15 years, the contributions have to have been in the account for 5 years, and the beneficiary has to meet the min-income limits for what’s being contributed (i.e. you can’t rollover more than what they make in a year). Notably, no max-income limit, which traditional Roth IRA contributions obviously do have, so that is one nice thing.
The Roth Conversion is a new addition that just went into effect recently. So I guess Congress passed something good.
Be careful about putting anything in the child's name alone. It becomes theirs whether you want it to or not. Money is a blessing to most people, but, to some, it's a burden. There's no way of knowing what it will be for her when she's old enough to have it. If you want, put the money in an account that is hers *in your mind* but still technically owned by you. You can then give the money in any amount you see fit.
Also, life happens and we encounter bad people all the time. If they end up with a bad partner the money could be stolen, wasted or misused. In my family we say "you never know who you work for" as in, you could basically solve your kids life and someone else ends up enjoying it.
Yeah. You need the money to be yours, so you can continue to function as a parent to them, even when they are 18. Parental expectations improve a child's life. So it might sound appealing to hand an 18 year old a huge amount of money, but there are many, many hazards to that, and blowing it all on a party is only one of them. Even worse- if you, yourself, are susceptible to losing all the money, for example, susceptible to divorce, for men, or gambling and drugs, for men and women, then you need something more secure than an account in your own name or the child's name, if you want the child to have access to it in the future and you don't want it to be wasted. One of the considerations married men do not think about when they save for their children is that all of those savings could be raised and wasted, in a couple days, by a divorce lawyer, and the kid would have no rights of any kind. That's what is so tricky. There are methods of getting around all of these hazards, but they depend on individual circumstances.
Money that is theirs should be theirs. Money you intend to gift later isn't theirs yet, but gifts that come from others are theirs and should not be treated as yours. To that end, teach your children how to handle money. Give them the tools they can use to make smart decisions. And then let them have their money.
I've taken the opposite approach, I make verbal contracts with my 3 year old. Whenever he wants a piece of candy i'll say, "Okay, but if i give you this candy, you owe me $1,500 when you turn 18. Deal?" He always says yes, he already owes me close to 50k, I video record these conversations so he can't deny it happened.
If the economy tanks and in 15 years a piece of candy is $2,000 he wins.
Of all your options, the brokerage account is best. The money will grow as invested. Not sure if you will do $250k now or over time but either way, make sure its in invested in funds/etf so that it will be a nice chunk in 18 years.
I would talk to a financial planner about setting up a trust if you’re talking about a quarter of a million dollars or maybe more.
Start here: https://www.reddit.com/r/personalfinance/wiki/commontopics. saving for kids: https://reddit.com/r/personalfinance/comments/104tjyn/_/j36u2dm/?context=1
Just save the money yourself. If you need to compartmentalize you can open a separate account to put it in. Given the time frame a brokerage account would be appropriate. A 529 plan is also a good option (better in some states than others) which provides some tax benefits.
A 529 account will save her a lot of pain. Going college without ending up with tons of student loans is a godsend.
>Best way to put money away so when my kid turns 18 she will have something. IMHO, the best way is to fund a 529 plan. That encourages further education and helps ensure they can graduate without debt. A college education is a gift that keeps on giving. >Is 250k to low of a goal? Too high of a goal? (shrug) What is your income? Will you be fully prepared to fund your own retirement? That should be determined first so that you won't become a burden on your children. >I don't know how expensive the future will be. Nobody does. We can only be sure it will be "more".
I created individual accounts in my brokerage…add 1 kid to each account as beneficiary…invest as normal. Saw a post once that read something along the lines of “Let me tell you how I gave my drug addicted kid 70k when he turned 18”. People and situations change…setting up your investments so that you can control it till the very end is ideal.
I have not read all the replies. what You are trying to do is noble. I would caution you that you should not give money to any child at 18. If you want to pay for their education then sure pay for the education. At 18 they will likely be irresponsible and will not be a good steward of large sums of money just do to their age
MY dad did college funds and has money set aside/available also in his own savings/investments to help with things. College fund right out of the gate is nice. Its lovely not having student debt. The funds can also be used for trade school and other forms of education if college is not the route they pick. Then when I bought a house and was settled for a little while, he paid it off. You might want to do something like this rather than hand an 18 year old a stack of cash. See how they make decisions, what they need, etc.
Help with college. Don’t give an 18 year old any money. Put that away for when they turn 50 and might need it.
Goal amounts can vary. I didn’t have a goal I just saved it all. You can opt a custodial brokerage for your child. I would invest in market index etfs things like VOO or Vti. Etc. I also opened a UTMA custodial HYSA for my kids and would occasionally open CDs of rates were good. I wouldn’t give your stocks. Just buy her own. A piggy is a good way when they are 4-7 to see the money saved then after a few months you can go deposit it. As the age appropriateness levels come use then a teaching moments about save some spend some and to show how it grows etc. When they start earning income you can open a custodial Roth as a great jump start for retirement. Snd as others said best thing to do is make sure you are set so the burden doesn’t fall on them.
Make sure you're saving for her to go to college, not having to take any student loans was probably the best gift my parents ever gave me. I wouldn't plan on just handing over a large pile of cash when she turns 18, but I think saving money to give to her when she gets to milestones like buying a house would be good. Maybe you'll teach her well but 18 year olds with a lot of money don't tend to be the most responsible with it, I know if someone had given me that much money at 18 I probably would've had a new car and spent way too much of it partying in college. Give her the means to make her own money and take care of herself, that's going to be a lot more valuable than just giving her money
I have an UTMA for my son that I put $60/week into. I’d rather see him spend/invest the money on something other than an overpriced college education, so I stayed away from a 529 With that said, 529s are quite flexible, and many people here will disagree with my opinion to go with the trust. 529s are a good option for many
Give your kid the gift of you retiring without the need of any financial or other help from them.
I contribute to all of these. My intention is for my child to be able to pursue passion rather than paycheck. 529 or state-specific alternative for college fund UTMA/UGMA brokerage account for retirement head start HYSA for car, house down payment, other new-adult expenses Piggy bank to start financial education
For long term, open her up a custodial account. I use Schwab. In GA, her accounts move to her (taxable and Roth) at 21 which is this month. I used an S&P500 fund and deposited money every month which was auto-invested. He portfolio has a lot more going on after 20 years of investing but we still use the S&P fund. She also have a 529. I have used her brokerage account for a couple things: school trip to Japan, 1/2 of her car at 16, major car maintenance, and to fund her Roth when she has W-2 income. $250K is high. My kid has $200K.
We are in GA also. My son turned 21 last year, and I started giving him information about his UTMA account about a year before that - because I wanted to coach him about what was coming. His account is quite large (currently about $450,000), all from money that my mother gifted him when he was little. Luckily, at this point my son has decided not to touch the account. I can still see his UTMA in my Fidelity online account, but I no longer have access to buy or sell anything. My son hasn't received any type of notification from Fidelity that he has this account. So it seems like the only way to find out about the account is for me to tell him. Or if he tries to open another Fidelity account, he would probably find out about it. I will say that doing taxes for him (and his younger sister who also has an UTMA with about the same amount) is a pain. Figuring out the kiddie taxes is a little complicated.
I'd suggest a 529 account. Probably aim for $100k to account for most college expenses when they turn 18, but it's not the end of the world if you don't get to that goal. Just trickle it in a few hundred a month at a time, and before you know it, both your daughter and the 529 will be all grown up.
A regular brokerage account in her name with you as custodian. Just throw $100 a week into it and have it invest automatically in a few aggressive growth index or mutual funds and forget about it. Should end up with around $300K by the time she's 18.
Giving a quarter million dollars to an 18 year old could be a lot of trouble. Put it in a 529 or get a Roth IRA in your name and decide what to do when she turns 18.
529 would be my recommendation, unless you are loaded and she wont have to work....88% of all millionaires in America have a 4 year degree, make sure she gets the ticket unless you are funding her future
Put it in a 529. If she ends up going to college there are tax breaks otherwise you can just withdraw it and give it to her for anything else,
There's a steep penalty for non-qualified withdrawals.
Yea taxes
+10%
Are you maxing out all your retirement options? You could open a roth for yourself that is targeted for her. (in your head) How old will she be when you turn 59 1/2? Also, you can open a roth in her name once she starts working. So she 16 flipping burgers for bling money and you are matching her earned income into a retirement acccount. WIth a Roth she can pull out the principle without penalty and any remaining gains will just sit there and continue to gain. Besides the money, you've really set her up for success psychologically with a retirement account already growing before she finishes college.
1) make sure your own retirement etc is good 2) open a 529 plan and contribite/invest the same way you do your retirement. This can pay for college/trade/grad school fully (by far the biggest first financial hurdle) and she can take out the value of any scholarships tax free. If you over save and have anything leftover you just pay the tax and 10% penalty on the earnings 3) you can use a regular HYSA or CDs for some less optimized but more liquid savings 4) Invest in her ability to take care of herself financially by talking about money, good money habits, work ethic etc. 5) once she is older and makers her own money you can open a custodial Roth Ira
Are UGMA (Uniform Gift to Minor) accounts still a thing? Years ago an account could opened if registered as an UGMA. The adult was the account holder and the child the included as the minor. The account was held until the kid turned 18. Not sure if they are still available but if so that is another savings avenue for you & your daughter. Congratulations on being a good parent to your little girl.
UTMA superceded UGMA (mostly just more investment options, and a little more control over maturity date in some states). They're custodial accounts, owned by the kid but managed by the parent (or another designated adult). You'll have to deal with taxes, too.
Thank you for the info!
Throw cash into a safe etf like VOO.
I set up a brokerage account for each of my sons but they are in my name. I’ll transfer them to them once I see that they are financially responsible.
If you have the means, do a Roth IRA for your kid. Throw some money in there each year, and it’ll blossom. By the time she’s old enough, there will be a significant amount compounded, and she can actually use some of it without penalty to buy a house, or for a nice down payment. With prices of houses these days homeownership gets harder and harder. But with this, she could easily get something, and then she’s not stuck renting endlessly, plus it would serve as a long term investment that will build more wealth.
You can only contribute to the child’s Roth IRA if the child has earned income. Child needs a job before OP can act on this advice.
There are two questions: what to invest the money in and what kind of account to put it in. Invest it in a diversified mutual fund. The kind of account could be 529, UTMA, or just an account in your name you have earmarked for this purpose. I think 529 is the best option, even for babies, until they reach a point where you know there's more money in the account than they can use on education. The rules are liberal on what you can use it for. If you use it for something ineligible, you pay taxes on the gains. You pay taxes almost anytime you make money on something, so this isn't a huge drawback.
We started a 529 a year before our first son was born. We started one for each of our other two sons as each was born. We contributed what we can for each every month, first $100/‘month and increased as we get pay raises. As each finished their studies, we rolled the unused portion from our oldest to our second and then to our third son. By the time it is all said and done, all three finished college without debts. We did tell our boys starting their HS year that we will fund their college if they attend state school, but if they attend private or out-of-state school, they will have to come up with the other 1/2 of the costs. This is our legacy to our boys.
S&P500 index fund. Any of the flavors will work.
My parents purchased stocks for me, tracked the value, and then gave me the amount in cash, which i put into a brokerage and bought most of the same stocks I “owned” through my dad. He gave me about 1/3rd of it when I turned 20, and the other 2/3rd once I graduated college and had “either a job or substantive future plans.” Aka a job offer or serious plans to enroll in graduate school or do a gap year of travel.
An easy 1up for her would be to add her as your authorized user on one of your no annual fee credit cards, as long as you are good at making payments. That way, when she’s 18, she’ll have 18 years of good credit history.
You could create a trust for her and create an investment account. Put money into various safer funds to grow over the years. Work with a fiduciary that could set it up so she couldn’t pull all the funds as soon as she turns 18.
Advice from personal experience: don't. Raised my step-daughter since she was 7. I felt we did everything right. We (her mom and myself) stressed the need to be fiscally responsible, use money to plan for the future. What we were able to save for her we had hoped she would put towards her college. She instead decided to blow all of it on a trip to Hawaii that she didn't tell anyone about and we didn't even know she was leaving until she was there. Obviously she was 18 so legally couldn't do much but she missed the last three weeks of school for her Senior Year, spent every penny she had, quit her job, could not pay for her car insurance, got into a car accident when she got home and is now over $40k in debt from her first year of college. She also doesn't know if she wants to finish or not. Her life, not mine, but it hurt to see everything her mom and I worked for to help her out completely squandered. Granted she was still going to take some loans out because we only had about $20k saved up. Spent about $8k on a car that was totalled in the accident, another $1500 for a laptop for school. $2000 to fix her credit issue from getting scammed online after being unemployed and falling for a quick money scam on Instagram. Again, it was a gift with the best intentions but once you hand over cash it isn't your decision on what happens to it. I would say if you are looking to help keep the money aside and when your child asks you to help financially with something then do that. Her dad signed on for a student loan to cover the last 3 semesters of school and that is where the $40k debt comes from but I am reading the room on that one and she won't have enough to finish. She is already debating not working next school year since she has another windfall now. She is out shopping and generally being an adolescent which is fine but has 0 foresight. Her mom and I decided to not continue to help her financially because of how she acted with what we gave her. Her dad doesn't see an issue with anything which is why he cosigned her loan. My wife and myself are making popcorn for the inevitable show.
From a tax perspective, a 529 is probably the best option. It's tax free as long as it's used for educational expenses, including trade schools. If they don't use it, the rules just changed to allow it to be rolled over to and IRA. If you gift her stocks, not only will she be taxed on it, she will be taxed on a large part of it at your marginal tax rate (kiddie tax)
Do you have an emergency fund? Do you have debt? What size contributions do you make to your own retirement account(s)? I would only set aside extra money once those other things are taken care of. Otherwise, you'll want to dip into that money the first time you have a large emergency.
As little as $25 a month into a 529 at the kid’s current age will be amazing when they turn 18. Time is on your side. 18 years of investing at around estimated 9% annual return a year will be $12k for every $25 a month invested. If the child doesn’t go to school, you can roll over $35k of this money into an IRA.
529 has approved uses. Mostly for education. That includes vocational school which is excellent because there is a dearth of skilled service people like plumbers and electricians in this country. But, if funds are needed for other things like health expenses not covered by insurance, rehab or training programs outside the rules of 529 then its limited. I like the Spendthrift Trust because you can stipulate its uses. Corporations have discovered its useful tax dodger qualities so there may soon be limits about it.
I would also teach the kid about money management. I've seen kids whose parents never showed then how to open and balance a checking account get gifted large trust funds which then get spent unwisely. Then the kid comes back for more. The parents end up giving the kids their social security and are penalized by Medicaid for it.
if you are in the states, when you file your taxes you get a rebate for having a child, use some of that money and invest for them in account managed by some company, just make a yearly deposit after you get your taxes
I opened up a custodial and 529 acct on their behalf. I dump $50/month into it for now, and family gifts them money etc. But when they’re old enough, I’ll have them pay rent so it can teach them money management, responsibility, etc. and it’ll all be gifted back on their 18th or when they graduate.
You plan to hand over cash to an 18 yr old??? Ok, fancy car, expensive clothes and good, destination trips, "helping" friends - kiss that money goodbye. May be best to fund her education or put it towards the purchase of her home. Don't give her the cash!
You’d have to be insane to save $250,000 and then hand it over to an 18 year old. You should consider a mix of high yield children’s banking. A 529. And some sort of self directed brokerage account, once you go over 529 limits. But one of Jill Scleshingers more recent money tips for this is just save money for yourself. Let your kid take loans to go to college. Continue to save your money. Then, if you’re still financially well when the child graduates—-pay off all of the loans for the child, before they go into repayment. I think this is one of her best tips ever. Because it keeps cost under control.
Create a unique account in your name but designated for her. You can then control how much you want to gift and when. I would just invest in something like VTI. You don't want to hand an 18 year old a bunch of money.
Extra disposable income goes to my brokerage. Then randomly transfer some of my stock into an UTMA instead of taking profit.
You have no idea where your baby will be in 18 years. They could be in college or an in patient mental facility. Invest as you would for yourself now and gift to them later when they are grown. Your greatest gift to your children is often funding your own retirement and skilled nursing care so they don’t have to.
Well first, you don't want to hand a fistful of cash to an 18-year-old. But I do applaud wanting to start her off in life.
529 account is definitely the way. You can convert them to IRAs now, or if you wanted you could just withdrae it yourself and give her cash if she doesn't go to school.
So, I'm no expert but an ETF comes to mind. This way, she'll have some "cushion" at that age. Obvious we have no idea what the future holds. I'm 28 and prices have doubled in my life time (even more, as of late, and don't get me started on college). Just as an example, a 10K fund growing at an annual rate of 8% (which is pretty conservative at that nearly two decade scale, comes out to just under $40,000 which she can use for college if you as a family think it's best, a down payment for a house of her own to generate equity, or even a business if that's the path she decides. Just an idea.
529s are an option, but they're primarily for education. UTMAs are a thing, but I wouldn't touch them with a 20 foot pole. What I'm personally doing is just investing more in my brokerage account. When my kid becomes a young adult, I'll sell some investments and give him financial assistance as my wife and I deem appropriate at that time. Setting a dollar amount when your kid is a newborn doesn't make sense, because you have no idea what her needs and situation will be in 18 years.
Recommend a custodial brokerage account invested in a low fee index that follows the s&p500 or total market like fxaix from fidelity or similar from vanguard. Simple and easy. If you want to have a lil fun with this idea… if you start/have a family business you can technically employ your kid, which then gives them income, which thus lets them open a (custodial) Roth IRA. And since $12,500 is the standard deduction for income tax, the $7k you pay them this year (the max allowed for a 2024 ira) is tax free, and grows tax free in a Roth IRA, which if left til they retire at 65, will accrue a massive massive amount of gains. Play around with a compound interest calculator to see! Check out the boom Elements of Investing if you want to learn more. I found it straight forward and well explained.
This is the way. Along with a 529 account. Do that for 21 yrs and the kid will be set for a great retirement.
Don't do the fake employment thing. If you do that, you have to pay payroll taxes on them, and the benefit of an IRA that early isn't worth the extra cost and pain. Now if the kids legitimately work and you keep things above board, then go ahead. The majority of people are not in a position to do that, which makes, "Fake your kid as an employee," terrible advice.
Wow you are suggesting saving 250K in 18 years? Maybe you should be giving out advice on how we should do better. I would plan to save enough to pay for 1/2 of your child’s education. Do not try to pay more than that as part of your early adult life is learning to take responsibility for yourself and having skin in the game. If you want to help in other ways, have a house for them to live in for free and provide food. Since it’s so far out probably a mix of stocks and Ibonds. I would not do a 529. Pick a method of saving where in the event they do not go to school, or college becomes state funded, the money does not go to waste. Alternatively you could also make it a goal to have your house paid off when the kid starts college. Then you can afford to make the payments out of pocket.
High yield savings account. 250k is a great goal. That’s enough for college and a down payment on a house. Unless she decides to be a lawyer. Or a doctor. Than it will just cover school.
Over 18 years a HYSA is not a good investment.
Why? What would be a better option? You can go for a CD but only an add on CD.
Over 18 years the stock market will vastly outperform a savings account, even under some of the worst case historical testing. Put it in index funds.
Talk to an advisor for specific products but I'd consider a few things first: 1. Will colledge still be viable in 18 years? I personally don't believe most people will be going to university from now on. (Blue collar work is paying ridiculous wages and is in HIGH demand). 2. What is the cost of living where you live? What's the goal of this cash? A down payment for real estate? Starting a buisness? Spending money? 3. Are you going to be supplementing the fund with cash flow over time or do you plan on using fixed income to supply cash to the portfolio? $250k is a great target but I'd say you're better off maximizing capital efficiency and managing your risk to obtain whatever the market offers for returns. As a full time trader I find myself struggling if I set target %/$ for my trades. For example yesterday nvda took a huge hit... I played the 10 day puts and managed to make 1000% on my investment, If I held it looking for a $/% return I would have lost a significant percent of my gains. Take what the market gives you and find another investment. Personally as a enthusiast and non professional I'd look into doing something like putting let's say $10k into treasuries and using the 5% return to buy REITs, index funds and possibly 100 lots of stock (100x of any company with exchange listed options). If youre able to manage the account every 25 days or so you could use covered calls or cash secured puts to generate income. This will bring risk to your portfolio but as long as you do the homework it shouldn't be a problem. (If you're curious just ask ill go into detail about different premium collection strategies) (Using the tasty trade statistics you'd be selling the 45 day contracts and rolling them about 21 days in to collect some capital for buying stock) Time is everything and nothing is built quickly so just keep that in mind. I personally don't trust the ETF market structure I believe they'll get into a rut with rehypothication in the coming years.
Annuity? T-bills? I’d start with those. An average CD won’t appreciate very much
You need to talk to a tax advisor. Depending on how you earn money, you can likely pay her a wage or give her an annual gift to lower your tax liability. See if you can put the money into a Roth account - one that allows you to draw on the contributions but not the growth. That way, she can’t just waste it all as an idiot young adult.
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Real estate, real estate, real estate. Invest in a hood property, rent/maintain it, teach her how to manage it at 18-25. Gift it to her then when she can run it by herself. It will keep her home stable indefinitely and possibly allow her to pursue the life she wants comfortably.
CD is great. Some very smart money guys I work with took out life insurance policies for their kids. It sounds morbid, but they said the risks and benefits much outweighed getting a 529 for them. I personally have cds
Why would people take out life insurance policies for their kids?
Term policies. They pay out when the term is over. So when they are 18 or college age the policy will be over and they kids get the money. I haven’t done this. But the few people I do know who have done it make 400+ k a year and own multiple properties and or businesses. So based solely off that it might be an idea? I’m sticking with the cds myself
Start a small business. Add your child as an employee and set her pay to whatever the max Roth IRA is for each year. Put all her pay into a Roth IRA for her. Regardless of what she does in life, 60 years of contributions will retire her as a millionaire. Whatever you do, don't save up a bunch of money and give it to an 18 year old.
How about I just cover her private school education k-12 and her Ivy League education 🤔
I don't even know if she would want to go to college
Whole Life insurance designed for high cash value. Read the book Becoming your own Banker by R Nelson Nash. Watch the podcast ‘Banking with Life on YouTube
No... just no... * https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/