# 20 year savings plan for godchild?



## sudsy9977 (Jun 22, 2016)

Hey everybody....looking for any advice...I wanna save money for my nephew who is very little and give it to him when he gets older....I am thinking of say a few hundred a year at most....should I just stuff it under a mattress or is there a better place to put it for twenty years to accrue some interest?....any thoughts....ryan


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## ecchef (Jun 22, 2016)

Buy a bunch of Kramers and lock 'em away.


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## USC 2012 (Jun 22, 2016)

I would put it in a 529 plan for college. or buy something that will give you enough interest to keep up with inflation. Kramers work, too, though!


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## strumke (Jun 22, 2016)

Put it in a broad based mutual fund with low fees. It will go up, and it will go down, but over 20 years it's way more likely to be higher than today and higher than a savings account at 0.75% interest.

That's what I did for my daughter's UGMA account.

You could also look into opening a 529 plan in their name, but those funds can only be used for education expenses or there is a hefty penalty. You'd also want to communicate with the parents to make sure that there isn't too much money set aside for school (if they don't go, or if the accounts end up being exceptionally large in 16 yrs).


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## Castalia (Jun 22, 2016)

Read this, quick read.

and this site

And agree with something like a 529 plan in the kid's name.:biggrin:


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## lancep (Jun 23, 2016)

1. Whatever you give should be invested in equities (i.e. stocks), without question, if you are looking at a 20 year time horizon. You can do this either by investing with someone like Vanguard Group (e.g. their S&P 500 fund, their Wilshire 5000 fund, and and International index fund). You can also achieve a similar, maybe ever lower cost, solution by opening a stock account and buying similar Exchange Traded Funds from Vanguard or Fidelity. The annual cost of such ETF's is incredibly low. So, if you are only going to be buying for the next 20 years, these are very low-cost options. Many stock trading firms will give a certain number of free trades annually, so you can likely buy without paying a commission.

2. A 529 plan is a good idea. Do a bit of research about low cost states, as each state offers its own 529 plans with associated investment options and expenses. I recommend finding a state that offers funds managed by Vanguard Group, as they are a very low cost operator. Put the money in something like an S&P 500 fund, a total market fund, or some such. Notwithstanding where you or your nephew lives, you can open a 529 in any state. The benefit from opening one in your state is that you may get a state income tax deduction for your contribution. However, that may not offset the higher costs of your state's 529 relative to those of other states.

You probably want to do something in the child's name, so that any income is attributed to him rather than you. A child can earn up to $2000 annually before paying income taxes, so any income generated by the account would be tax free. (529's are inherently tax free, so if you go that direction the 529 stays in your name with the child as the beneficiary.)


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## Pirendeus (Jun 23, 2016)

The ideas already presented are reasonable options. However, with all due respect, if you're serious about this, I think a consultation with a financial advisor may be preferable to asking an internet forum. An advisor can plumb the details of the situation and is likely more knowledgeable about the tax and fee consequences of each option.


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## boomchakabowwow (Jun 23, 2016)

dang..i just sent my godson a card with an outline of my hand.

i might need to up my godfather game. ;(


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## larrybard (Jun 23, 2016)

lancep said:


> 1. Whatever you give should be invested in equities (i.e. stocks), without question, if you are looking at a 20 year time horizon. You can do this either by investing with someone like Vanguard Group (e.g. their S&P 500 fund, their Wilshire 5000 fund, and and International index fund). You can also achieve a similar, maybe ever lower cost, solution by opening a stock account and buying similar Exchange Traded Funds from Vanguard or Fidelity. The annual cost of such ETF's is incredibly low. So, if you are only going to be buying for the next 20 years, these are very low-cost options. Many stock trading firms will give a certain number of free trades annually, so you can likely buy without paying a commission.
> 
> 2. A 529 plan is a good idea. Do a bit of research about low cost states, as each state offers its own 529 plans with associated investment options and expenses. I recommend finding a state that offers funds managed by Vanguard Group, as they are a very low cost operator. Put the money in something like an S&P 500 fund, a total market fund, or some such. Notwithstanding where you or your nephew lives, you can open a 529 in any state. The benefit from opening one in your state is that you may get a state income tax deduction for your contribution. However, that may not offset the higher costs of your state's 529 relative to those of other states.
> 
> You probably want to do something in the child's name, so that any income is attributed to him rather than you. A child can earn up to $2000 annually before paying income taxes, so any income generated by the account would be tax free. (529's are inherently tax free, so if you go that direction the 529 stays in your name with the child as the beneficiary.)



Very sound advice. 529 plan should probably first be considered if you have educational expenses in mind. And you should be sensitive to tax consequences of whichever route you take. One other thing to keep in mind: if you open an UGMA (or UTMA, depending on jurisdiction) account, normally once the child reaches the age of 21 the money becomes theirs legally, so if for example the entire amount had not been already spent on college expenses -- or if the child, for whatever reason, didn't attend college -- then they could do whatever they wished with the money. (How would you feel if they spent it all on a Ferrari and put in a Corvette engine -- or bought multiple sets of Global knives with it?)


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## sudsy9977 (Jun 24, 2016)

Thanks for the input guys....Now all I gotta do is make a decision...which is hard for me to do as usual...I appreciate the help....ryan


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## mark76 (Jun 24, 2016)

ecchef said:


> Buy a bunch of Kramers and lock 'em away.



That's a bad idea, imho. It's like buying stocks when they are pretty expensive already. I bought a Dalman just after he did a pass-around. Just one year later I already consider that a good investment.


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