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New Child Financial Planning

My wife and I are expecting our first born any day now. Some relatives have asked about Child investment accounts they could contribute to. What options are there? Just 529s? How exactly do they work? Any advice or resources would be appreciated. Though I may be very busy very soon.


  • @jlev: Congratulations! For your information, I've link an article from Schwab, "Baby Makes Three." In addition, I'm linking, "How 529s Work?" from Saving For College.Com

    Saving For College.Com
  • Congratulations! We had our first a year ago, so I've done a bit of research... The 529 is IMHO the best deal around. You pay with after tax dollars, then it's all tax free (like a Roth IRA), plus in many states, you can deduct your contribution from state taxes. And, should your child decide to apply for financial aid, the 529 counts as the child's assets, not the parents', so it's not weighted much.

    Super easy for relatives to donate to it, but they don't get the tax break--only the account owner does for donations he/she make.

    Of course, see what options your state's 529 offers... You can also use other states, though then you won't get the tax break. I started one in NY, which uses Vanguard index funds, and now that I'm in NM, which uses higher cost Oppenheimer funds (and has very low state taxes) I plan to keep adding to the NY 529, rather than an opening a new one here.
  • In our case, we used both 529's and Uniform Gift to Minors Act brokerage accounts, although the latter are more useful as the child gets older. The 529's are the best for college savings, the UGMA's for teaching kids how to save and invest.
  • Ted. Thanks for the excellent links.
  • Thank you for the links I will start on them soon! The other wrinkle I'm trying to think through is that I'm applying for tenure track jobs at colleges, in which case the kid might be able to get free tuition at some places. What happens to the 529 then?
  • goes to grad school, or to others

    the thing to keep in mind is to invest the money as aggressively as the plan will allow, since we are talking about well over a decade hence for need
  • I use both 529 and UTMA accounts. I contribute up to the limit of my state's tax deduction limit, and any extra money the kids gets through birthdays, gifts, etc... get deposited to it as well. Any extra money that we decide to invest for the kids gets placed into the UTMA (we decided to give them a lump sum $10K at birth, and just let that ride). The advantage with an UTMA is that you can gift any appreciated securities to the UTMA, and then sell it at the child's (now Trust with the TCJA) tax brackets, therefore saving significant capital gains tax if you do the math right.
  • @jlev
    The 529 can pay for any college expenses, including room and board and (if well documented) books, computer, etc. So, if you have tuition assistance available, you can still use it for all the other college expenses.
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