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Mentor
Setup a 529 plan for school expenses
Also add them as an authorized user on a credit card with a long history to build their credit
My parents did that with for high school girlfriend and she's got great credit now.
Do you feel good about your own retirement savings? Best thing you can do for them is to make sure your retirement is secure so they don’t have to worry about you as you age.
Assuming the answer is yes, most people start with a 529. Pretty great start to help pay for college.
Another option can be contributing to a Roth for them. I think they need to have income so this would be more applicable if they are working in high school - they make 5k and you give them 5k to contribute to a Roth so they can still have the money they earned.
You can also contribute to a taxable brokerage for them which you can gift in pieces to them later. For example, you gift them 30k in stock with 15k basis for a grad present/wedding, they sell and recognize the capital gain, but their capital gains rate is likely 0% if they are still in/just finishing school.
Yes, easy to shift assets down a beneficiary generation. Technically the process you go about is making the original beneficiary the owner of the original account, at which point they can start transferring funds to accounts for the third generation.
Those transfers are still subject to the annual gift tax exclusion limits, but there is a special rule that lets you pre fund 529s with up to 5 years of annual exclusions (x2 for each parent) - so could do a one time ~180k transfer to shift assets down.
OP could also use the same rule to prefund the 529 and effectively be done with college savings assuming moderate returns
Bowl Leader
In a very similar situation to you - congrats on your newborn! We had our first a month ago.
We plan to fund a 529 (not sure to what amount yet - but at least to the limit that is transferable to a Roth IRA depending on how important college is in the future)
We are also setting up a separate brokerage account that we will ultimately use to give her a relatively small amount of money on a monthly basis to improve her standard of living once she’s more established in the world after college. Think ~$1200/mo - not enough to really live on alone, but enough extra to get a nicer apartment or do some fun stuff regularly.
Our twins are graduating college this year with zero debt.
Congratulations on the baby! I definitely agree with what everybody else is saying about the 529 and securing your own future. That way they won't have to worry about you. But a huge thing for us with our kids was teaching them how to do it, not just doing it for them. Giving them money to learn the lessons at an early age. Probably even earlier than you might even think.
Subject Expert
Don't sleep on financial education. It's a huge issue.
BTC. Thank me later
Yup…about $90k different 😂
First, congratulations!
Get a fiduciary (this is important!) financial advisor for at least a financial check up and strategy session to make sure you're on the correct road yourself.
Educational savings plans (529 plans) have tempting advantages but are limiting: what if higher education isn't the child's path (you may not know until you've locked up thousands of dollars over many years)? A different type of savings vehicle could allow you to use the savings to help fund their start up or buy real property, or whatever is appropriate. This is where qualified financial advice helps you and your children.
Once your child starts earning money from their first job, consider funding a retirement account for them up to the limit permitted by their age/earnings.
Model good, responsible money management and explain (age-appropriately) what you do and why. Kids don't just learn from explicit instruction.
Start them saving (paying themselves first) with the first birthday cheque (take them to open a savings account at the bank and then log in with them to show them the growth every quarter).
Get the book, "The Richest Man in Babylon" by George S. Clason. You can read it to them at the beginning. Once they're old enough to get substantial monetary gifts, they can read it themselves. The educational content is hidden in an engaging story.
Don't give an allowance that isn't tied to work. Everyone contributes to the family, via chores or careers, because no one rides for free. Make sure there are opportunities for extra, *paid* chores and ensure a portion all earned money is saved.
Teach them how to make financial decisions (can I afford this game system/mobile/car? Should I use my savings for this...? and give them the tools to easily "run the numbers" themselves when they need to make financial decisions: teach them how to use spreadsheets, it will be one of the best lifelong skills they can gain!).
Enjoy your journey!
If you have a business you can add them as employees and contribute to a Roth when they’re kids. I don’t do it but I know people who do.
529s- if the kids don’t use it all they can pass down to grandkids. They’re a good way to pass down wealth. That’s why a lot of people do the max no matter what. And if my kids don’t have kids I figure they can just pay the penalty and who cares- you’re not worried about generational wealthy anymore so doesn’t matter.
We’re funding 529s to fully cover a private education and some grad school. Also funding trusts that will provide them some liquidity in late 20s , early 30s for down payments, weddings or seed capital.
Subject Expert
All of the advice is great.
But ignore most of it for at least a couple of years.
No financial account for a baby will make a significant impact.
Focus on taking care of your family, continuing 401k contributions, keep spending in check.
Make sure you have Term Life Insurance for both parents.