Investments for Our Grandkids

[Fishindude77]

Several years ago we put $10k each in what are basically mutual fund investments for our grandchildren, used the same outfit that handles our IRA. These kids are 6 & nine years of age. Year to date, those investments have averaged 18.5% growth and 10% over the life of them.
If they can come up with other ways to fund things like college, etc. and keep their hands off that money till their 50's or so, they are going to be in great shape with a dandy retirement nest egg that they didn't even have to contribute to.

The big factor in investing is "time". You can do wonderful, potentially life altering things for young kids by getting them invested early in life.
We didn't have the spare funds (nor much financial sense) when our own kids were that young to do something like this, but thankful we can do it for the grandkids.

[kork13]

That was one of the things we specifically made sure to do for our kids. At birth, we opened both a 529 & UTMA for each of our children. We didn't start with alot (just the $3k minimum), but we add a little bit to it every month -- 529s get $100+(age*$10) per month (so $190/mo for our 9y/o), and just $30/mo for the UTMAs. At this point it's $580/mo total, which definitely is a bit of a drain on our income. But it's still manageable & will serve them very well in the future.

Over time the accounts have each grown pretty well, and our 9y/o has $45k in 529 & $15k in UTMA. 7y/o isn't far behind, and even our 3/yo already has $12k 529 & 7k UTMA. It's a pretty good glide slope that should cover both their higher-ed costs (529) as well as a first car, house DP, or whatever they need (UTMA).

As you said, time & slow growth are the keys to success.

[myrdale]

If they can come up with other ways to fund things like college, etc. and keep their hands off that money till their 50's or so, they are going to be in great shape with a dandy retirement nest egg that they didn't even have to contribute to.

Yes and no.

It is an excellent thing that you've done setting up the college fund. But how does that work if they don't touch the money? My understanding was it can only be spent by them on school cost and if they don't use it, it reverts back to you.

Now you'll still have the money and the growth to pass on to them, but will they be able to roll it over tax free or no?

[disneysteve]

Yes and no.

It is an excellent thing that you've done setting up the college fund. But how does that work if they don't touch the money? My understanding was it can only be spent by them on school cost and if they don't use it, it reverts back to you.

Now you'll still have the money and the growth to pass on to them, but will they be able to roll it over tax free or no?

He didn't mention anything about them being college accounts like 529s. It sounds like just regular investment accounts with a broker.

You're correct with 529 accounts. If not used for education expenses, there are taxes and penalties.

[Fishindude77]

Did not want to do 529's for the reasons mentioned.
The tooth fairy just left us some $$ so we made another deposit yesterday and I was quite impressed by the growth. Thought it was worth sharing.

[Jluke]

In these UTMA investment accounts for kids, consider doing tax gain harvesting so they don’t have to pay taxes on gains.

You have to be very calculated with not exceeding the IRS limits for kids or taxes will kick in on the gains. Applies to
both federal and state taxes.

I haven’t done it……. Yet

I do have to file a PA state tax return for each kid.

[ua_guy]

Time and contributions are the winning ingredients to building an investment nest egg for yourself or someone else. I still maintain that one of the greatest ways to save money is to not have kids, though

[disneysteve]

Time and contributions are the winning ingredients to building an investment nest egg for yourself or someone else. I still maintain that one of the greatest ways to save money is to not have kids, though

You're not wrong, but if too many people adopted that mindset our economy and society would collapse pretty quickly.

[LivingAlmostLarge]

So years ago I did the same as Kork. I did an ESA so maximum $2k/year into it. DK (14) year was 2010 - $71k and DK 2 (12) 2012 $55k. I figured that we could do $2k/year and that would get us good lead into college considering we have another 4-6 years. Would it cover everything? I knew it wouldn't but I figured I would cash flow the rest. I've contributed $28k and $24k respectively to their esas. They also have 529 and UGMA, but it's harder to know what's contributed because its been in lump sums different amounts.

DK1 got 2 shares of apple in either 2010 or 2011. I can't recall and DK2 got it in 2012. Anyway what's that worth now? $14k for the kiddos from a $500 gift of shares from DH's uncle. He said he loved apple from the 80s and though the kids should buy it for future college. He died in 2018, so he can't see that the gift he gave them could make a significant difference in affording college.

If the kids don't touch their UMGA (I tax loss harvested before but not anymore since they are making seriously a lot). They will be set for life. I don't recall how much I think $20kish and they will have a million by the time their retire. VOO all the way. Nothing fancy and no switches.

[srblanco7]

Several years ago we put $10k each in what are basically mutual fund investments for our grandchildren, used the same outfit that handles our IRA. These kids are 6 & nine years of age. Year to date, those investments have averaged 18.5% growth and 10% over the life of them.
If they can come up with other ways to fund things like college, etc. and keep their hands off that money till their 50's or so, they are going to be in great shape with a dandy retirement nest egg that they didn't even have to contribute to.

The big factor in investing is "time". You can do wonderful, potentially life altering things for young kids by getting them invested early in life.
We didn't have the spare funds (nor much financial sense) when our own kids were that young to do something like this, but thankful we can do it for the grandkids.

I celebrate you for doing this. It's very generous of you.

We started a bit later than you, but are working with our kids (now 22 and 20) to make sure that they are identifying and taking advantage of opportunities to stuff $$$ into their Roth IRAs.

The Money Guy podcast talks about the "wealth multiplier". Based on retirement at 65, the multiplier for age 10 is 239 and at age 20 it's 88. Time is an essential ingredient.

[Like2Plan]

He didn't mention anything about them being college accounts like 529s. It sounds like just regular investment accounts with a broker.

You're correct with 529 accounts. If not used for education expenses, there are taxes and penalties.

Although, there is a new wrinkle to the 529 accounts--there is a way to roll funds from the 529 over to Roth accounts. https://www.fidelity.com/learning-ce...llover-to-roth