advice on Investing instead of giveing gifts for young Niece and Nephew

[MichelleD1977]

Hi MMM group,

I am hoping to establish a small investment fund for my niece (currently 9 months) and nephew (currently 3) instead of constantly buying them toys for every holiday that they don't need.  I've tried to eliminate a lot of gift giving from my life to reduce consumerism, but as it is right now it is not socially acceptable in my family to not purchase gifts for these kids. I figure I can do this instead. But I am not sure what avenue to go with. I plan on making the contributions relatively small ($100-200/year) but over a period of 18 years hopefully it can grow. Then they can get a nice check on their High School graduation or something like that.

I have a Vanguard account and was thinking of just opening something up in that account that is separate for each of them, but is there a better idea?

[Del Griffith]

My DH and I are in the same boat with my two nephews. They have more toys than they know what to do with and we didn't want to add to the pile at each birthday/holiday. Like you, we figured we'd start early to give the accounts some time to grow -- not to mention a 6 month old won't know the difference if we show up seemingly empty handed. And bonus, my clutter-averse BIL was all for this idea, and family members have asked about getting in on it.

We opened a custodial brokerage account at Schwab for both of the boys. I'd imagine Vanguard has something similar. DH and I are the named custodians on the account. Funds can be withdrawn at any time (by us) but they must be used for the benefit of the child. At age 18, full ownership of the account transfers to the child and they can do whatever they want with it. We figure they'll appreciate it much more later when they have a pile of cash from us rather than another toy now when they are babies/toddlers.

[Beriberi]

I believe you can open a 529 with the niece and nephew as the named beneficiary.  It may even have positive tax consequences for you. It allows the money to grow tax free.

[brooklynmoney]

Opened a 529 for my niece. I just tell my brother and SIL around holidays oh I added $ into the account for her again. She's too young to even realize I didn't give her a present. When she gets older I will explain what I'm doing.

[MichelleD1977]

Thanks, that is great.

[frugalmom]

As the kids get older you may wish to do something "tangible".  My daughter is 5.  She has a savings account she regularly contributes to at a local bank. (She actually has a passbook)  She likes to go see "business boy" the teller; and hand over her cash.  Plus she likes getting the cookies, the bank has in the lobby.  The account has less than $400 so I don't feel she is losing investment gains and is learning how to do transactional banking.  Yes, she fills out her own deposit slips; no the teller can not read it.  He just writes out a new one.  My daughter is only 5. 

As a kid I remember getting physical US savings bonds.  Not sure if you can still do this, but I enjoyed those too.

[LiveLean]

My dad didn't want to give our sons stuff either. When they were 0-6, he bought them good-old fashioned US savings bonds (big denominations). After that, he just reverted to cash. I love my dad who, like my wonderful late mom, is mustachian.

Dad's actions are especially helpful to counteract the in-laws, who have bought mountains of crap for every occasion for years. My one sister faces the same avalanche of crap for her kids from her husband's side of the family. Which is why she and I eliminated cousin gifts -- having eliminated our sibling gifts many years ago.

[Rubic]

In the past I gave out US savings bonds, then later switched to
shares of Berkshire Hathaway.

Once they're old enough, I'm considering offering my nieces and
nephews a "match" (of sorts) on funding their IRA's, similar to
an employer 401K match, in an effort to prime their investment
futures.

[Pigeon]

I would go for the 529s.  It will help them and in some cases, it will help reduce your state taxes.  Win-win.

[katsiki]

This is a great idea!  I might do this for my nieces and nephews.

Can someone comment on the financial aid impact for a non-child beneficiary?  ie nephew or niece.

Vanguard says (https://investor.vanguard.com/529-plan/):

If the 529 account is owned by someone else (such as a grandparent), it doesn't count as an asset for federal financial aid purposes. However, when withdrawals are made from the account to pay for college expenses, they'll generally count as income for the student and, therefore, have a much greater impact on his or her financial aid the following year.