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Any suggestions for investing for a new great-granddaughter?
I want to start a monthly investment for a new great-granddaughter, and I am presently thinking to keep it simple and just investing in a total stock market fund. Any other suggestions?
Look into your state 529. If state incentives aren't offered, you can use any state 529. You can open 529 after granddaughter gets Social Security Number - probably by 3 months.
Yes, and within that 529 one could choose a total market index fund. Or a growth fund. I'd shy away from the target date or allocation funds, myself. I believe that investing aggressively in a tax-advantaged account, with a long time horizon, is the best approach.
@Yogibb’s link is a great start to invest for college using 529 plan. Follow the link and get information you need.
Should get their social security number immediately, and the child is the beneficiary and you are the owner of the 529 account. That would be a wonderful way to pass on your legacy to your grand child.
We done exactly that for our kids. 18 years of compounding saved enough to fully fund their 4-year tuition.
Since you are the account owner or custodian, you can rename the beneficiary to another child or grandchild in case your child does not wish to attend college, or wanting to spend it on a new car instead.
They cannot access the 529 fund with you being the custodian. The rules on 529 fund is strict and they are use for qualified education expenses such as tuition, books, and room&board. The rules relax a bit recently to include private schooling (high school level). Upon withdrawal, these 529 fund are tax-free in tax reporting.
We put in about 30% of the total sum and the rest was from capital appreciation through compounding. So get start as early as possible and let time works to fund your college education. If you are so lucky to have few remaining fund, they can be use for post-graduate studies.
Edit:. 529 plans typically start with global stock funds and gradually move to a balanced and end with short term bonds and money market when the child enters college. Many options to choose from these days. As the custodian on the account, you have many flexibility. Important thing to remember, start early and let the market do the work for you. Dollar-cost-average investing works very nicely.
529 have improved a lot over the years due to regulatory changes and plan improvements (M* rates them and that may be a reason). Posters who looked at them years ago and didn't like them (then) should take another look.
Now, the education is defined broadly by 529 as almost anything legal/ accredited/ approved beyond high school. So, that may be community colleges, certifications, apprenticeships, 4-yr colleges, graduate schools, even some approved foreign schools.
Actually, limited $amounts are also allowed for K-12 education and student loan payments.
A lifetime max of $35K funds can be transferred to beneficiary's Roth IRA.
If there is money left still, the beneficiary can be changed to a family member.
If the beneficiary has serious disabilities, 529 money can be transferred to 529A or 529 ABLE that can support the kid for lifetime without jeopardizing other government aid.
If all that is exhausted, you can withdraw and pay 10% penalty and tax.
We used a 529. Illinois has state tax benefits. And we bought a few 10K I-Bonds when the fixed rate was 3%. The I-bonds have education benefits, but income restrictions though, so the 529 worked out better.
I just ran a calculation FWIW: $500 invested on your great granddaughter's birth date and allowed to compound over time would be worth $45,490.28 when she reaches age 65. That assumes a one-time initial deposit, quarterly compounding and a modest 7% annual rate of return. Results may vary. But this gives some idea of the power of compounding over long periods. Go for it!
The calculator linked below also accommodates investing equal sums thru monthly contributions which appears to be your preference,
Comments
I track 529 developments at the link below, probably too much info for casual readers, but may be useful if thinking about opening 529.
https://ybbpersonalfinance.proboards.com/thread/18/college-529
Oh, and congratulations on the new family member!
Should get their social security number immediately, and the child is the beneficiary and you are the owner of the 529 account. That would be a wonderful way to pass on your legacy to your grand child.
We done exactly that for our kids. 18 years of compounding saved enough to fully fund their 4-year tuition.
Congratulations, @Bobpa.
I'm not at all familiar with how 529s work. What if the young person does not want to attend university? My 2 cents:
https://www.ishares.com/us/products/239696/ishares-msci-world-etf
https://www.morningstar.com/etfs/arcx/urth/quote
They cannot access the 529 fund with you being the custodian. The rules on 529 fund is strict and they are use for qualified education expenses such as tuition, books, and room&board. The rules relax a bit recently to include private schooling (high school level). Upon withdrawal, these 529 fund are tax-free in tax reporting.
We put in about 30% of the total sum and the rest was from capital appreciation through compounding. So get start as early as possible and let time works to fund your college education. If you are so lucky to have few remaining fund, they can be use for post-graduate studies.
Edit:. 529 plans typically start with global stock funds and gradually move to a balanced and end with short term bonds and money market when the child enters college. Many options to choose from these days. As the custodian on the account, you have many flexibility. Important thing to remember, start early and let the market do the work for you. Dollar-cost-average investing works very nicely.
Now, the education is defined broadly by 529 as almost anything legal/ accredited/ approved beyond high school. So, that may be community colleges, certifications, apprenticeships, 4-yr colleges, graduate schools, even some approved foreign schools.
Actually, limited $amounts are also allowed for K-12 education and student loan payments.
A lifetime max of $35K funds can be transferred to beneficiary's Roth IRA.
If there is money left still, the beneficiary can be changed to a family member.
If the beneficiary has serious disabilities, 529 money can be transferred to 529A or 529 ABLE that can support the kid for lifetime without jeopardizing other government aid.
If all that is exhausted, you can withdraw and pay 10% penalty and tax.
I just ran a calculation FWIW: $500 invested on your great granddaughter's birth date and allowed to compound over time would be worth $45,490.28 when she reaches age 65. That assumes a one-time initial deposit, quarterly compounding and a modest 7% annual rate of return. Results may vary. But this gives some idea of the power of compounding over long periods. Go for it!
The calculator linked below also accommodates investing equal sums thru monthly contributions which appears to be your preference,
Calculator