My parents want to give my new baby some money for a savings account. However, if its just going to sit there for 20 years, I’d prefer for it to gain interest/dividends. Is there any easy way to setup a fund that tracks s&p500 and preferably tax advantaged? Or am I better off just investing in the relevant mutual fund.
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UGMA or UTMA is probably what you’re looking for.
You should talk to a tax pro, to be sure.There’s also 529 accounts for education/vocational training programs. Each state runs their own program. Some will exempt contributions from state income tax. I think the big brokerages all use Nevada for their 529 accounts. Gains are tax free if used for qualifying educational expenses. Non-qualifying withdrawals incur something like a 15% penalty and are taxable. The definition of qualifying expenses is fairly liberal though, things like rent and laptop purchases qualify if attending school full time. Unused funds can be transferred to just about any relative.
Nobody has mentioned this, but you can use up to 35k from a 529 to fund the beneficiaries roth IRA. Normal roth IRA rules still apply. Forbes has a great article covering this.
What this means is 10k deposited into a 529 at birth can become a million tax advantaged dollars come retirement age due to a lifetime of compounding interest.
More importantly for the broader audience, you can open a 529 before you even have the kid, and update the beneficiary later. So if you have the money to spare, and you’ve maxed out at tax advantaged accounts for yourself, this is something to consider.
A 529 account is specific investment account for children’s education. They have specific tax incentives to putting money into it. It also has various investment options. I would look into that
After more digging, I think the 529 is the way to go.
Also it depends on the state. Utah’s 529 looks neat and you can use it out of state.
529 or UGMA/UTMA generally depending on goals then stuff like a normal brokerage in the kids name (but this isn’t tax advantaged) if you want to go further
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