Investing for Children?

[Langlo Family]

My daughter is 4 months old and this will be her first Christmas. Since she is so young, she won't need a whole lot for Christmas. My wife and I have already bought her the things she will need. My friends and family keep wanting to get her something for Christmas, but my wife and I are out of ideas. Some of my family have said they want to give us money to put in some sort of account for her. My friends have said they want to contribute as well. My question is, what type of account should I put that money into? It won't be a whole lot. Maybe a couple of hundread dollars. But what should I put the money into that we can help build for her future? Any advice would be great.

[Diolla]

For a couple of hundred I would just open a high yield savings for her, add some more over the year and then if college is important you check out 529 plans (tax advantaged college savings plans)

I once saw a plan where you put away the childs age each month from age 1-18, it turned into a reasonacle amount of savings with compounding over the years.

[MonkeyMama]

529 is good because you don't pay taxes on earnings (now) - and earnings are tax free when you withdraw. Well, if you use it for education. Kind of like some retirement vehicles.

Just keep in mind that with high yield interest or other investments, that you will pay income taxes on the amounts. Due to the kiddie tax rules, generally you will report your children's investment returns on your tax return at your tax rates. maybe less of a concern now but can be a lot as it grows over 20 years.

There are muni bonds and other investments that aim to be tax-free. & also mutual funds that avoid too many dividends and capital gains - so less tax paid. Just FYI.

[Langlo Family]

Does anyone have any info on the 529 plans? Or where I can get the info? This is new to me, so I would definitely like to check it out. Thanks guys for the tips.

[scfr]

It's great that your relatives want to contribute to your daughter's future! By all means, encourage them to keep doing that instead of buying things that she will soon outgrow!

At first, you'll probably just want to put the money in to a money market account until you've accumulated $1,000 or so.

You may want to check out www.savingforcollege.com to compare the different types of plans available.

Also, if you go to MSN Money and type in "college savings" you can find some good articles.

My sister just went through what you are going through, and she decided to go with a Coverdell Education Savings Account

[sweeps]

Originally Posted by scfr

You may want to check out www.savingforcollege.com to compare the different types of plans available.

SavingForCollege.com used to be a really good resource. Now they've made much of the site "premium content" -- you're required to pay $15/month to get all the information. Thumbs down.

I agree with the MSN Money suggestion. There is also a fair amount of information here.

[asmom]

If it's a small amount, you can park it in an Affinity Savings account while you go about setting up a 529. They are paying 10% on balances up to $500. And by all means, look into your states 529 plan, for most states contributions are tax-deductible depending on income.

[scfr]

Originally Posted by Sweepsplayer

SavingForCollege.com used to be a really good resource. Now they've made much of the site "premium content" -- you're required to pay $15/month to get all the information. Thumbs down.

Oh that's terrible. Boo ... hiss. Thank you for letting us know.

[SavedintheCity]

I agree with the others. If it's not enough to open a 529 plan, either stick it in an online MMA, or buy some municipal bonds (to avoid tax on the gains). This is a WONDERFUL start for your daughter. Congrats and good luck. You are on the right track with contributions to college plans so young. Keep it up!

[TBH]

Another vote for the high-yield account for now, and a 529 when it's grown a little. Be aware that most 529s have an annual fee unless you do an automatic monthly deposit of $25 or $50 or so. That's another reason to hold off on opening one--til you're ready to contribute to it monthly.