Investment Account for Nieces and Nephews

[Sarotis]

Hi there - I'm hoping you all can help steer me in the right direction! My husband and I would like to start an investment account for each of our nieces and nephews (we have 10 total) but aren't sure the best way of going about it. We'd like to start each with $1000 and give it to them when they graduate high school, ideally for education expenses. Our oldest nephew just turned 18 so I'm thinking it might be best to give him $1000 cash rather than deal with the hassle of an investment account, but our youngest nephew is one, so there is plenty of time for growth. I vaguely familiar with 529s. However, I don't want to assume all of the kids will have higher education expenses and want to make sure each of the kids gets some money regardless of what adult life they choose. That said, would a regular taxable account in Vanguard in their names make more sense than a 529? Or am I missing another option? We aren't overly concerned about the tax implications as we live in a state with 6% income tax (although I think this only applies to 529s).

[guccigrace]

Good for you, that's a lovely sentiment. An investment account for them to access when older is a good idea, my plan for my nieces and nephews is to invest in a fund they can access only when they get to university, otherwise at age 30 if they don't go to uni. About the 18 year old, I bet he would love $1,000 upfront but not everyone is financially mature at that age, maybe talk to his mum and dad and see the best for him?
Xx

[slappy]

Are you going to give each of them $1000 when they graduate? Or you going to start an account with $1000 and give them the balance of the account when the graduate? Personally I would just set aside money in accounts in my name that I know are designated for the kids. You can nickname them with each kids name. You just have to be aware that each kid will get a different amount, depending on investment performance and how long the money is the in the account. So your 18 year old is getting $1000 now, but a younger child might get $2000 by the time they graduate, if you are giving the balance of the account.

[Rubic]

I have 7 nieces and nephews.  I've offered to provide a $1000 match
to their Roth IRA accounts.  This obviously means they actually have to
first open these accounts, which is usually the first hurdle young people
must overcome.  I'm doing this now -- while they have some earned
income (i.e. working part-time jobs while in school), but before they
have to pay taxes.

Depending on my financial situation, I may extend the IRA match into
future years.

[Sarotis]

Thanks for the feedback, everyone!

I have 7 nieces and nephews.  I've offered to provide a $1000 match
to their Roth IRA accounts.  This obviously means they actually have to
first open these accounts, which is usually the first hurdle young people
must overcome.  I'm doing this now -- while they have some earned
income (i.e. working part-time jobs while in school), but before they
have to pay taxes.

Depending on my financial situation, I may extend the IRA match into
future years.

I think this would be an ideal situation, but you need earned income to open a Roth IRA, correct? Only two of the kids are old enough for jobs.

Have a look at the thoughts shared when I asked a similar question recently: https://forum.mrmoneymustache.com/ask-a-mustachian/planning-for-next-generation's-real-estate-purchases/msg1863282/#msg1863282

While I initially had real estate purchases in mind, the group swayed me from too narrow a focus. As I only have 2 nieces, I've  also recently started funding their RESPs (a Canadian program similar to 529s) by giving the money to their mother. This way they get the matched amount and tax protected growth. If you trust the parents to put the money into a 529, consider giving them the money if there is a tax advantage or government match.

I'll have to look into this. However, the parents of some of the kids aren't reliable and so we'd have to work around the parents to get anything done. But I'll investigate!

Are you going to give each of them $1000 when they graduate? Or you going to start an account with $1000 and give them the balance of the account when the graduate? Personally I would just set aside money in accounts in my name that I know are designated for the kids. You can nickname them with each kids name. You just have to be aware that each kid will get a different amount, depending on investment performance and how long the money is the in the account. So your 18 year old is getting $1000 now, but a younger child might get $2000 by the time they graduate, if you are giving the balance of the account.

The idea is that everyone gets the same starting amount and the final amount is somewhat luck of the draw based on market returns. It isn't entirely fair but since we will be FIRE by the time the youngest graduates from high school, we'd prefer to gift the money now while we have extra cash.

[Rubic]

I have 7 nieces and nephews.  I've offered to provide a $1000 match
to their Roth IRA accounts.  This obviously means they actually have to
first open these accounts, which is usually the first hurdle young people
must overcome.  I'm doing this now -- while they have some earned
income (i.e. working part-time jobs while in school), but before they
have to pay taxes.

Depending on my financial situation, I may extend the IRA match into
future years.

I think this would be an ideal situation, but you need earned income to open a Roth IRA, correct? Only two of the kids are old enough for jobs.

Correct.  I keep a spreadsheet with my IRA match for everyone.  As soon as each
of my relatives qualifies with earned income (can even be baby-sitting, btw), I offer
the match.  This is also for tracking potential multiple matches across years, so
everything is fair for everyone.