Am interested to know what kind of investments can be made for kids. What kind of financial tools/concepts exist out there to start putting aside some money for the future of kids?
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Great Prashant to put this article… have heard of some College Plans that work like 401 (non taxable) but the tax benefit is not available in all states. DOnt know much abt them but would be great if someone could throw some light on these. Also for people who do not have kids they can open this account and start contributing….
What Sneha is talking about is the 529 plan
http://www.sec.gov/investor/pubs/intro529.htm
Coverdell Education IRA fomerly known as Education IRA
http://www.statefarm.com/learning/life_stages/college_fund/coverdel.asp
The 529 has no income limits where the IRA has income limits. Correct?
Thanks Sameer That was informational
You can make investment in fixed-term CDs. Upto $850 of investment income is tax-free and the next $850 is taxed at lower kids’ bracket. After that it is taxed at parents’ rate. Hopefully these threshold keep increasing every year to keep up with inflation. The money has to be in the child’s name and can NOT be paid out to parents’ name.
One thing to be aware of – If you put in money in child’s name, it have a big effect on your child’s chances of getting scholarship/aid later. Unless of course you plan to have college expenses fully funded 🙂
These are great ideas. It depends who is contributing and what is the purpose in addition to investing for kids or education. Let’s take the example of 529 plans. It is great tool for wealthy grandparents to shave off some of the taxable estate but that I cannot say for sure for all parents, and returns/features we know among these plans. Now let’s consider IRA. It is possible to withdraw from IRA (Other IRAs besides Coverdell) for Higher Education purpose without penalty (assuming withdrawn prior to age 59½) but one of the many advantages of investing in it is tax-deferred growth of earnings. When withdrawn you may will have to pay regular income tax on the amount withdrawn depending on the type of IRA from which it is withdrawn. If we think of CDs then question we have to ask ourselves is will it be sufficient for the cause or for that matter any other cause? The reason I say so is that average inflation rate is around 3% and that for education cost, medical cost is much higher. If it is done under child’s name / SSN then we run into ‘Kiddie Tax’ issue as well as jeopardizing Financial Aid situation.
As can be seen from other comments posted we touched upon taxes, retirement and education funding, investments, estate, and other financial planning issues. These are all interrelated topics and can’t be thought in isolation. It is important to leverage the resources using the best possible solution from all perspective. Here we haven’t discussed more about various investment options such as stocks, bonds / fixed income, mutual funds, alternative investments, etc. from risk/return, fees, pros and con. I can discuss all that and any other issues more in depth with any of you.
Vijay how about one hour info. session.
http://www.upromise.com/ is another thing that i keep hearing. They have their own 529 plan also. Seems like you can receive college savings when you make eligible purchases (shopping, dining out, gas, etc). You automatically save when you use their card and that savings go into your college account.
Sure, I can do information session. For it to be more informative, meaningful, and interesting to you all I would like to get some inputs from all interested. What are some of the financial issues/concerns that are being faced by you? What are some of the financial topics you want me to cover that you are interested in? Priority of them will be helpful. The feedback will help me to prepare for presentation and to find various topics that I may be able to group them together and provide according to common priority.
An indication of interest would be really helpful for arranging logistics. Please feel free to invite your friends interested in the informative session.
Vijay, would I Bonds be considered one of the good investment vehicles for kids ? IBonds are inflation adjusted bonds ie – they have an annual interest rate that reflects the combined effects of a fixed rate and a semiannual inflation rate. Interest earnings are exempt from State and local income taxes and when used to finance education, interest earnings may be excluded from Federal income tax.
I will address the I Bonds question in our informative session. Let me know who all are interested.
I am interested in attending. I am naive on this subject. Hence whatever basic areas you plan to cover will be informative for me.
I am interested too in an informative session…that will be great
I/we are interested too. – Leena/Rohit