Account for an infant?

[meerkat]

Deleted

[nvmama]

For my 3 kids (8,5, and 9 months) we just have the saving account at the local bank in my name and the childs. Until the child is 22 they would require my signature yo withdraw any money.  Actually i haven't set this up for the 9 month old yet.  Due to the low interest there is only a small amount in them.  $200 or so.  I also set up seperate savings accounts at capital ones360, all in my name.  Each account is nicknamed with the kids name so i keep them staight.  These get a little bit more interest but nothing crazy.  When the kids are older i can then transfer between accounts when they need money. 

My kids do not have much only small gifts they may get.  I may open an investment account in my name, again earmarked for the kid, once they have enough.  I worry about the investments losing money, so if it does lose money I may make up the difference so that they at least are bo worse off then if i only had it in a savings account. 

[~Ari~]

We had our first LO in August of 2015 and had the same thoughts. We concluded to doing an UTMA account for all of his gift money and money that we personally set aside for him. He cannot touch it until he is at least 18 years old and has our permission. We also opened a regular children's savings account in his name. This is for any money he makes in the future that he wants to save and or spend. These accounts are both through our local credit union earning 2% interest. It's not a lot, but better than most saving accounts.

[little_brown_dog]

I went with the NY 529 actually even though I had similar reservations at first. I know there are penalties if you take money out for unqualified expenses, but once I factored in our plan to have multiple kids, I changed my mind. Chances are at least one of them will use the money, so we can always move funds between kids if needed. I find it doubtful that all of our kids will completely eschew the associates/bachelors route, and think it is more probable given our family that they will each get some sort of qualifying degree. Absolute worst case scenario we get hit with taxes and a penalty, but that is unlikely.

[Beriberi]

Agree with little_brown_dog. Also, don't forget that you can change the beneficiary - to yourself, a grandkid, a niece or nephew (among others). While I don't believe that college is the right choice for everyone, I do think that almost everyone would benefit from some kind of post-secondary education - HVAC school, culinary school, or other professional programs. 529s are not just for college.

Additionally, if your precious snowflake joins the military and/or gets scholarships, you can take out an equivalent from the 529 without penalty.  (You may still pay tax, but no penalty on the withdrawal). 

529s can be a great way to avoid tax on investment gains if your horizon is pretty far in the future.

[TomTX]

Ing (CapOne360) subaccount.

[smella]

529, all the way.    If you don't want to put a huge amount of money in it, fine, but your child will not be able to survive in in the 2036 economy without some kind of post-secondary trade school or college.

[fuzzy math]

Ing (CapOne360) subaccount.

This. Most 4th of Julys they have an account opening bonus for kids too...

[NorCal]

I would still do the 529 plan.  I just did the math on what a portfolio would look like after 18 years assuming $1,000 contributed per year, 5% capital growth and 2% dividend yield.  I assumed a 15% tax rate on dividends and capital gains.

In 18 years, the difference between taking the penalty and paying taxes on dividends in all the intervening years is about $400.  Taxes saved if your kid goes to college is about $4,600.

The upside is pretty good, and the downside of the penalty isn't so bad.

(Disclaimer:  I'm not a tax expert on 529 plans.  I could be missing something fundamental in the taxes owed.  This is my own 5 minute arithmetic)

[b4laura]

My understanding is a 10% penalty if not used for college and then tax on growth.  Depending on income rate you'd be hit with a great deal of penalty if using a 529 over a standard investment.  If the child can gain income (tax return) an IRA would be the best way but that wouldn't be until later on. I am currently in limbo of what to do with some cash my children have (3 and 18 months).  I'm considereing a custodial investment account that will allow them to let the money sit for 16 years or 50 years if they so choose.  Taxes suck...

[letired]

I'm not exactly sure how it worked, but my grandfather set up what was basically mini trusts for all his grand kids. I had to be over 21 to access the money without my parents help/permission (I think, I didn't try b/c I didn't need it when I turned 21). If you are dead set against the 529, I'm sure a bank or brokerage would love to help you set something up.

[NorCal]

I used to think the same thing about 529's, but then I did the math.  The taxes are the same taxes you'd owe on a taxable account, except you'd still get to defer taxes on interest and dividends.

The size of the penalty actually worked out to be pretty small compared to the potential upside.

Everyone's tax situation is different.  I encourage you to run a spreadsheet on 529 vs. taxable account to decide for yourself.