Investment account for my niece

[frugalnacho]

When I was young a couple of my aunts and uncles bought me US savings bonds.  When I was about 18 years old I was able to cash them in and it helped pay for college.  It was very helpful and i'm glad they had the forethought to help me like this rather than give me shit I didn't need when I was younger.

Now I have a young niece and she has everything provided for her, so I don't want to waste money buying her xmas and birthday presents on crap.  I don't want to buy her savings bonds either because the rates are terrible.

Can I open an investment account and put the money in the stock market, but have it all be in her name so I don't pay taxes on the dividends or capital gains when she cashes it in?  Seems somewhat unfair for me to just keep it in my name and pay taxes at my current tax bracket when really the money is meant to be gifted to her right now (and I already paid income tax on it).  It also seems silly to invest in anything other than stocks when she has a long time ahead of her before she will cash it in.  She can tolerate the risk for the next 15-20 years I think.

[nereo]

Frugalnacho

I like your mustache in your picture.
Regarding your niece, if you are intending the funds to be used for college (like what you used the money from your aunt and uncles for) then I would check out the 529 college savings plans.
As I understand it, anyone can open an account for your niece, and she can use the proceeds tax free for tuition, fees, and some living expenses while attending an accredited university or college.

[aneel]

I actually just did this for my niece!  After much research I went with a custodial brokerage account.  This allowed me to do more than just put it in savings, i could invest it also.  When she comes of legal age (18 in most states) the money is hers.  There is a pretty good tax umbrella here where the first $950 in earnings is tax free, then the rest gets a little muddled with the "kiddie tax" (I'm no tax expert).  I chose this account because I don't feel like earmarking "college money" (like a 529) for a 1 year old makes much sense.  I want her to be able to use it on whatever she needs to further herself as a person.  Here's the info on what Schwab offers: http://www.schwab.com/public/schwab/investing/accounts_products/accounts/college_savings/custodial_account

[frugalnacho]

Yea I don't want it to be specifically college money, just HER money.  I just want to teach her the value of long term investing, and give her a head start on life when she turns 18.  She may not go to college, or she may get a full ride scholarship.  She might need some money for a car, or she might just want to cash it in and invest in something she wants to invest in.  Or she may want to spend it on her wedding, or blow it all on faberge eggs.  I will impart my wisdom on her, and advise her the best I can, but ultimately it's her life and her money.

[nereo]

I just want to teach her the value of long term investing, and give her a head start on life when she turns 18. 

Sounds good.  Hopefully her parents are also trying to teach her the importance in saving.
Since what you hope to do teach her the value of long-term investing, I'd say the best thing you can do is talk to her about it.  Even at young as age 5 kids can learn the basics of delayed gratification and savings.  Personally, my best lesson came when my parents showed me that for every $ I saved, my older brother would need to save twice as much just to stay even with me (a version of compound interst - my brother is almost 8 years older than I am).

Maybe you can do this by telling her things like "I'm putting $X away for you now, but by the time you are in college it'll be closer to $2X. And if you don't touch it until you are as old as your parents', it'll be $32X!" Since she won't be able to touch it anyway until she's 18, hopefully by then she'll realize that you were right, and long-term saving is a great strategy. Just my suggestion....

[Thegoblinchief]

I believe custodial accounts will require you to know her SSN. I know 529s do, but I don't like assuming kids will do college.

I recently started a shared investment account intended for all of my kids. The initial funding was through a Roth under my name, and probably will continue that way for a couple years. We won't have enough to fully max out Roths for a few years, since debt repayment is our priority right now.

[Joel]

I'm a big fan of the 529 accounts. They are a good nudge in the right direction for a kid. And if they don't go to college it can always go to their kids.

[MgoSam]

Hey,

Can you help me with setting something up for my nieces and nephews? Their parents are wicked smart and I know that they have started saving for their college expenses, but I would like to help and would rather open an account for them and let it grow rather than buy them a gift that they will quickly outgrow. I think this provides them with a spark when they reach a level of maturity, like when they are 18 years old and I am able to show them a bank account with ____ in it and tell them that it sprung from _ invested today.

Was Schwab the best way to set this up?

[rescuedog]

You could give them silver bullion coins to hold on to over the years.  Make an embroidered pouch as a keepsake.

You could open a Vanguard account in the child's names, but it has a $1,000 minimum.  STAR fund.

Set up a 529, there could be a tax credit in your state
https://investor.vanguard.com/what-we-offer/college/overview
https://www.nysaves.org/content/investors_friendsandfamily.html

You could set up a custodian account with Schwab, etc if you don't want to restrict it to educational use.  $100 to open, no monthly fee, no load mutual funds
http://www.schwab.com/public/schwab/investing/accounts_products/accounts/college_savings/custodial_account
http://www.schwab.com/public/schwab/investing/investment_help/investment_research/mutual_fund_research/mutual_funds.html?path=%2FProspect%2FResearch%2Fmutualfunds%2Foverview%2Fschwabfunds.asp%3Ftype%3Dindexfunds

I-bonds?

[frugalnacho]

I just want to teach her the value of long term investing, and give her a head start on life when she turns 18. 

Sounds good.  Hopefully her parents are also trying to teach her the importance in saving.
Since what you hope to do teach her the value of long-term investing, I'd say the best thing you can do is talk to her about it.  Even at young as age 5 kids can learn the basics of delayed gratification and savings.  Personally, my best lesson came when my parents showed me that for every $ I saved, my older brother would need to save twice as much just to stay even with me (a version of compound interst - my brother is almost 8 years older than I am).

Maybe you can do this by telling her things like "I'm putting $X away for you now, but by the time you are in college it'll be closer to $2X. And if you don't touch it until you are as old as your parents', it'll be $32X!" Since she won't be able to touch it anyway until she's 18, hopefully by then she'll realize that you were right, and long-term saving is a great strategy. Just my suggestion....

That's a negatory.  Her dad is dead beat reprobate and barely in the picture.  Her mom is about as unmustachian as you can get (along with everyone else in my family).  By the time she is ready for college her mom, dad, and grandparents won't have a dime to give her.  In fact I predict they will be even further in debt than they are today.  All the more reason good ol uncle nacho needs to look out for her best interest and teach her some valuable financial lessons. 

I have talked to her about it before, and i've been setting aside money for her, but as of now it is still sitting in a savings account as I am unsure how to proceed.

[frugalnacho]

You could give them silver bullion coins to hold on to over the years.  Make an embroidered pouch as a keepsake.

You could open a Vanguard account in the child's names, but it has a $1,000 minimum.  STAR fund.

Set up a 529, there could be a tax credit in your state
https://investor.vanguard.com/what-we-offer/college/overview
https://www.nysaves.org/content/investors_friendsandfamily.html

You could set up a custodian account with Schwab, etc if you don't want to restrict it to educational use.  $100 to open, no monthly fee, no load mutual funds
http://www.schwab.com/public/schwab/investing/accounts_products/accounts/college_savings/custodial_account
http://www.schwab.com/public/schwab/investing/investment_help/investment_research/mutual_fund_research/mutual_funds.html?path=%2FProspect%2FResearch%2Fmutualfunds%2Foverview%2Fschwabfunds.asp%3Ftype%3Dindexfunds

I-bonds?

Thanks for the suggestions I will check into them.