Author Topic: Saving for nephew  (Read 2871 times)

rockstache

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Saving for nephew
« on: May 18, 2015, 10:34:30 AM »
I have a 4 year old nephew. When he was born, we put a little money aside for him (just in a savings account under my name) and have been adding to it since. I am now on the verge of having another niece/nephew to save for, and want to think it through a little more before opening up another account for them.

I definitely want this money in my name only, with the child as the beneficiary so that I have control over it, and they don't have to pay taxes on it or have it count against them for FAFSA. I thought I would do this in Vanguard, because I already use them and really like them, but they don't allow designation of separate beneficiaries for each account. I would like it to be in stocks, and I think probably a taxable account is my best option. Does anyone have any suggestions for this? Would Betterment allow this? If so, what would I be looking at for a minimum investment?

I welcome any suggestions, or comments about my ideas above. Thank you!

Chrissy

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Re: Saving for nephew
« Reply #1 on: May 18, 2015, 10:47:42 AM »
Yes, taxable account.  I think I would keep the money for both children in one account, but in different funds per child, with their parents as beneficiaries.  Try Fidelity.  Minimum $2,500.

rockstache

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Re: Saving for nephew
« Reply #2 on: May 18, 2015, 10:59:05 AM »
Thanks Chrissy.  I would like to keep control of it until I am dead, or see fit to give it to them.
« Last Edit: November 14, 2016, 11:52:04 AM by rockstache »

pdxbator

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Re: Saving for nephew
« Reply #3 on: May 18, 2015, 11:18:26 AM »
How about a 529 plan?
http://en.wikipedia.org/wiki/529_plan

This is a good tax advantaged account and you can have control over it.

Chrissy

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Re: Saving for nephew
« Reply #4 on: May 18, 2015, 11:28:52 AM »
Thanks Chrissy. Also, not sure if it makes any difference but these are kids from different sides of the family, both with sets of parents that aren't great with money, which is why I would like to keep control of it until I am dead, or see fit to give it to them.

Ah, I see.  Well, you might need to go with different institutions then.

The only way I know of to ensure the parents have limited access to the money in the event of your death is to put the funds in a trust, or make a trust the beneficiary(?).  Half my grandfather's estate was held in trust for 20 years for my cousins to prevent their mother spending it all.  It worked.  Consult a lawyer about it.

Chrissy

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Re: Saving for nephew
« Reply #5 on: May 18, 2015, 11:46:44 AM »
How about a 529 plan?
http://en.wikipedia.org/wiki/529_plan

This is a good tax advantaged account and you can have control over it.

Tricky to keep this from impacting their financial aid. 

1)  Change the owner.  It is best to wait until after the FAFSA has been filed to change the account owner, so that the 529 plan is not reported as an asset on the FAFSA. After the account owner is changed, the distributions will not be reported as untaxed income on the subsequent yearís FAFSA.

2)  Wait to take qualified distributions. If the student is not planning on enrolling in graduate or professional school, the family could wait until after the FAFSA is filed for the studentís senior year in college to take distributions from the 529 plan, when thereís no subsequent yearís FAFSA to be affected.

3)  Take non-qualified distributions after graduation. The family could also wait until after the student graduates to take non-qualified distributions to pay down any debt the student might have incurred.  [I think this means the child will pay income tax on the distribution, though.]

Source:  https://www.edvisors.com/plan-for-college/saving-for-college/529-college-savings-plans/financial-aid/


Dunno if it's worth the hassle just to avoid 15% capital gains on what will probably be a relatively small amount.  How much are you hoping to give per child, rockstache?

sisto

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Re: Saving for nephew
« Reply #6 on: May 18, 2015, 11:56:25 AM »
I'm doing the exact same thing. How I get around the issue is by having a living trust. My trust then says which account goes to which kid as well as when. I want full control over it and not either of their parents. If something were to happen to me the trust states they can have the money when reaching 25.

rockstache

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Re: Saving for nephew
« Reply #7 on: May 18, 2015, 12:04:34 PM »
I am definitely not going to go the 529 route. I have no idea if any or all of them will want to go to school, and would much rather give them money as a gift that they don't need, rather than something they are counting on.

The amount will probably depend on how many nieces and nephews we end up having, as well as whether or not we decide to have our own kids (leaning towards no, but not 100% decided).

The trust is probably the best option.

One thing I am still wrestling with (internally) is whether all amounts should be equal. I started with the first kid just because he is older, so today his account has more than the kids who haven't been born yet. I don't really want to take "his" money away to be divided, now that there is another one coming, but if we somehow end up with 23 nieces and nephews, those last few kids would probably get the major shaft just because of our limited resources. If we don't have kids, the whole thing will be a moot point since probably everything we have will be split between them anyway.