Best investment vehicle for my young nieces?

December 14, 2010 1:29 PM

I have 3 nieces aged 13, 11 and 5, and I'd like to help plan for their future as times are tough for the family in general. What would be the best structure for a savings/investment account that I could contribute to regularly but would be out of reach of other adults until the right time? I've looked into 529 plans but the returns look awful. I'm looking for a reasonably low-cost/low-maintenance solution that will help with college or whatever they'd like to do when they leave high school.
posted by cubedweller to Work & Money (7 answers total)

What do you mean by "I've looked into 529 plans but the returns look awful."? The 529 is just a tax-advantage structure; the underlying investments can vary widely depending on the particular plan. For instance, CA has a plan where your investment choices consist of Fidelity mutual funds. You can do a set of index funds with management fees running at 0.1 - 0.2%. That's not an awful investment, really. Other states have other options. What in particular have you been looking at?
posted by mr_roboto at 1:39 PM on December 14, 2010

A safe deposit box is is fairly cheap secure storage. You'll need someone you can trust to share custody of it until handoff of its contents to the neices.

Add a few Silver Eagles every so often... gold eagles if you have more money.

The dollar continues to fall, so anything that doesn't earn well over the rate of inflation is a loss, the risk is far lower with precious metals, in my opinion.
posted by MikeWarot at 1:43 PM on December 14, 2010

The traditional way of accomplishing this is with a trust fund. A lawyer can set one up for a couple hundred bucks, then you open a brokerage account with it and start contributing. This way you can exercise great control over the money while realizing the tax advantages of this arrangement. As trustee you can change the investment mix as you see fit to maximize growth, protect the assets, generate income etc.
posted by caddis at 1:50 PM on December 14, 2010

I'm on the fence about 529s too. Not necessarily about returns but you can only use it for school. What if that just doesn't happen?

So for now I"m going with EE bonds. At the very least its' a double money guarantee in 18 years and you can sign it where you must get your signature too in order for them to be cashed. ("and" vs "or")

Plus they can use it for school or a down payment on a house. That's all I'm letting my son use it for.
posted by stormpooper at 2:04 PM on December 14, 2010

I have this 529 (a Vanguard product, administered through Nevada) and I think the returns (based mostly on international mutual funds) have been quite good (better than my Fidelity 401K). As mentioned above, there are many variables among 529s. Here is one tool for comparing and rating different 529 plans. You might also set up a UPromise account.
posted by mattbucher at 2:05 PM on December 14, 2010

I'm not sure how much you want to invest, but you may want to look into how 529s and other things in the kids' names affects their eligibility for loans and such. As far as I know (and I haven't dealt with this recently), if you keep this stuff in your name, earmarked for them, then it won't count against them if they want to borrow money for school. Something like that.
posted by bluedaisy at 3:30 PM on December 14, 2010

If school doesn't happen, then you can withdraw the money, play taxes on the gains (which you would normally do anyway) and plus a penalty (10% of the gains, I think) Not the worst scenario in the world. As I understand it, the 529 is in the name of the trustee for the benefit of the recipient so it does not count as an asset of the child for calculating their financial assets. (if the parents are the owner, then only a percentage (5.6% in the example I saw) is expected to be spent on college expenses. Now, each individual school can make up its own rules, so the school might take it into account at a higher rate than the FASFA.

Also, the 529 would be out of the reach of kids - you would maintain control. You can also shift money from one beneficiary to another relative so if one kids goes to private school and another public you can shift the funds around (or give it outright to the beneficiary minus the taxes)

Anything else would also have the added complication that you would have to pay taxes on the dividends and interest. If it is under UGMA or something else reported under the child's social security then you have to make sure that the income gets reported and taxes paid. With 529 there is no tax as long as it is used for school expenses.
posted by metahawk at 11:00 PM on December 14, 2010