Just received my childs Social Security card. What should I do now to get her set up financially?
September 20, 2011 1:09 PM   Subscribe

I just received the Social Security card for my first child. Please advise me on what I should do now. I plan on talking to my financial advisor to set up a college fund and will start making deposits very soon. Should I set up a bank account, savings account, 401k, etc...?

Is it too early to get her a credit card to start building up her credit score (I do not plan on using it!)? Any other advice, thoughts or suggestions?

I think I remember my advisor saying that Virginia had the best 529 plan but I'm not 100% sure on this. I just really want to be certain that when Caroline hits 17 or 18 she has the finances in place to attend college without Mom & Dad having to go into debt. I'm a finance major with an MBA so I understand some jargon. Thanks guys!!!
posted by Paalen to Work & Money (22 answers total) 10 users marked this as a favorite
 
How old is this child?
posted by EmpressCallipygos at 1:13 PM on September 20, 2011


Way to go for getting this thing started early. That's really the only way to do it.

You probably can't set up a 401(k), as you're not her employer and she presumably won't have one for a good few decades here. So there's that.

But setting up a checking account in her name might actually be a prerequisite for setting up other savings programs like a 529 educational account, just so the money has a place to come from and go to that's in her name. Consult your financial advisor and/or the institution with which you open the account. Note that you probably can't pick your 529 plan based on benefits; it's probably got to be based on where you live.

A savings account is completely unnecessary at this point. The interest sucks and she's got no real use for that particular financial product. Most people don't, when it comes right down to it, as money markets pay slightly better and are almost as safe.

I highly doubt that anyone is going to be willing to give her a credit card on purpose. Sure, sometimes kids and dogs get those junk mail offers, but those are usually sent by mistake.

Other than that, stop sweating the financial details and have fun with your daughter!
posted by valkyryn at 1:14 PM on September 20, 2011 [2 favorites]


You can also set up a roth ira if you want something set up for retirement, but if she's under 5, then that's a long way off.
posted by TheBones at 1:19 PM on September 20, 2011 [1 favorite]


Actually, you can pick your 529 based on benefits. I think it used to be different, but you can use any state's 529 now. Depending on where you live, you may get a break on your state taxes if you use it's 529, but if that's not a factor, find the best one and use it. This page from Kiplinger's is useful for looking at your options. And you don't need a bank account in her name to start a 529 for her. (And, yeah, Virginia is one of their top choices.)

The 529 is all I've done for my kids. Retirement savings seems like more than is reasonable to set your kid up for success--if you can get her college paid for, that's a nice stepping stone that many people don't get. If she's high school age, a credit card might be a good idea, but if this is a baby we're talking about, it's way too early for that.
posted by Pater Aletheias at 1:21 PM on September 20, 2011


My understanding on the 529 is that you can invest in any states plan however, your home state may give you some tax benefits. States where her grandparents reside may give *them* some tax benefits. So they may want to do their own as well.

Of course, before you start investing in her future, ensure that your own retirement is fully funded and that you have a will and life insurance. You don't want to be a financial burden on your child.

Other than that, I really can't imagine doing more until she's ready to handle her own little pile of money. In fact, I'd be cautious about opening up lots of little accounts. Seems to just invite fraud but I don't know if that's realistic.
posted by amanda at 1:25 PM on September 20, 2011


I would start contributing as much as comfortable to a 529 at this point, and call it good, other than having a good savings account for you.
posted by Danf at 1:25 PM on September 20, 2011


You need to have earned income to open an IRA, so that's out until she gets a job.
posted by mr_roboto at 1:28 PM on September 20, 2011


You can also set up a roth ira if you want something set up for retirement, but if she's under 5, then that's a long way off.

Also, legally you cannot set up a Roth IRA and fill it with your own money. A Roth IRA can only be used with earned income, so gifts from parents are not allowed. Otherwise it would be a smart idea.

Is it too early to get her a credit card to start building up her credit score (I do not plan on using it!)?

Yes. First of all, she can't legally have a credit card in her own name until she's 18, because she won't be able to sign contracts on her own until then. But you are on the right track about starting her credit score early, assuming credit scores still work the same way in 10+ years, if you add her as an authorized user on your own credit card when she is a teenager, that will give her a head start.
posted by burnmp3s at 1:31 PM on September 20, 2011 [1 favorite]


I was an authorized user on my parents' credit card from the time I was a was a pre-teen (I could be trusted with it, and they have never carried a balance ever), and it enormously helped my credit score when I became an adult and did things that needed credit, but she probably doesn't need it as an infant.
posted by brainmouse at 1:33 PM on September 20, 2011


Unless you have particular stocks or funds that you're interested in investing in and that you cannot access through one of the many 529 plans, I don't see any reason to open anything other than a 529. In a lot of ways, the tax advantages of a 529 mirror those of a Roth IRA (i.e. tax-free growth of invested funds). The limits on a 529 are much higher than those on an IRA, however; you only need to worry about keeping under the gift tax for each year, so you're limited to like $13k/parent.

Why open a bank account now? Bank accounts are easy to open, so she can do it when she needs to. They're awful investments, and given how retail banks typically behave, you're likely to incur costs by keeping a mostly unused bank account sitting fallow for a decade at a time.

As for which 529 is the best, you have a lot of research to do. If your state offers a tax advantage on contributions, you need to consider that. Otherwise, savingforcollege.com offers a pretty detailed analysis of the various state plans as investments. Note that a lot of the differences come in when you consider load. I went with Utah due to a combination of good investment options and some of the lowest management fees in the country.
posted by mr_roboto at 1:39 PM on September 20, 2011 [1 favorite]


My son is 2. We opened a 529 plan for him.

Clark Howard has a nice Guide on 529 Plans. He is of the mindset that you cannot get scholarships for retirement so it is better that you are completely maxed out with your retirement savings before you save for your child's education.
I agree with him.

However this does not stop my husband and I from putting in money into the 529 plan when we come across some here and there. For instance, we always put money in the plan for our son's birthday and at Christmas. We encourage his grandparents to put money into the plan when asked for birthday present ideas.
posted by BuffaloChickenWing at 1:40 PM on September 20, 2011 [3 favorites]


If you have any debt and/or you're not contributing every penny you can to your own 401k, do not worry about investing in your child's 529 too much.

She can always take out loans for college. You cannot take out loans for retirement.
posted by k8t at 2:00 PM on September 20, 2011 [1 favorite]


If you're fairly certain that she'll go to school in the state that you now reside, consider getting her a 529 in your state.

If you'll probably be moving at some point, go for the 529 that works best for you. Iowa seems to be popular among MeFites.
posted by k8t at 2:01 PM on September 20, 2011


Regarding 529's - if your family's financial situation is such that your daughter could possibly be eligibile for significant financial aid, I would talk to a financial advisor regarding whether the tax advantages of the 529 will offset the potential decrease in aid she's offered.
posted by kickingtheground at 2:03 PM on September 20, 2011


If you're fairly certain that she'll go to school in the state that you now reside, consider getting her a 529 in your state.

This might have certain advantages for some states, but is not a generally applicable guideline.

Regarding 529's - if your family's financial situation is such that your daughter could possibly be eligibile for significant financial aid, I would talk to a financial advisor regarding whether the tax advantages of the 529 will offset the potential decrease in aid she's offered.

A 529 held by a parent with the child as beneficiary will be counted by the FAFSA as a parental asset, assessed at ~5.5% when calculating the Family Contribution. Any accounts held by the child will be assessed at 20%. This is an obvious advantage to making her a benefit of a 529 that you own vis-a-vis opening an account in her name.
posted by mr_roboto at 2:11 PM on September 20, 2011


Following on mr_roboto's point about whose name the 529 is in, you can start a 529 before you have a child/without knowing which child's education the funds will go towards. It's a smart way to save money and get tax benefits for anyone who thinks they'll probably be involved with paying for someone's college education in the future ever.
posted by telegraph at 2:25 PM on September 20, 2011


While you're at it, secure her gmail address and domain name.
posted by carmicha at 2:54 PM on September 20, 2011 [2 favorites]


Consider making sure the college fund can be used for other options. (What if college isn't right for her?) Some funds won't even let you use it for a trade school without taking a major hit.
posted by yb2006shasta at 3:47 PM on September 20, 2011 [2 favorites]


If you have a safe deposit box, put it in there until the kid is able to handle important documents on her own.
posted by brujita at 4:24 PM on September 20, 2011


A 529 held by a parent with the child as beneficiary will be counted by the FAFSA as a parental asset, assessed at ~5.5% when calculating the Family Contribution. Any accounts held by the child will be assessed at 20%.

Consider making sure the college fund can be used for other options. (What if college isn't right for her?) Some funds won't even let you use it for a trade school without taking a major hit.

This, and this. Our oldest child was born before the advent of 529s, so her college fund is in an UGMA account. Pro of that is, if she goes to a less-expensive school (in state, say) she can use what's leftover for something other than school - a car, down payment on first home, travel. It's difficult if not impossible to withdraw or repurpose 529 funds.

Giant con for the UGMA is, we are going to take a huge hit on financial aid (which sucks because our relatively modest income would definitely qualify).
posted by Sweetie Darling at 3:54 AM on September 21, 2011


Thanks everyone! Carline is three weeks old as of yesterday. Our combined income is roughly $90,000. My wife is a teacher and I'm an analyst.
posted by Paalen at 6:19 AM on September 21, 2011


Caroline, even.
posted by Paalen at 6:20 AM on September 21, 2011


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