Need Advice: Savings Bonds for Kids?
Savvy Saver's Question of the Day leads me to ask...
What is the best way for me to give (or set aside) money to my nephew and nieces if I want it:
- to be used toward their higher education
- and would prefer to do so without my siblings or their spouses knowing?
Do I get them savings bonds until they are 11 (since they take 7 years to mature) or do I set up some sort of fund for them or something else? Your advice is greatly appreciated!
posted by Andi @
4:30 PM
3 comments
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3 Comments:
Hi Udandi,
Saving bonds are great! They are safe and secure and are exempt from state tax. However, while EE and I bonds can be Fed tax free if used to pay for education expenses, that only works if the person using them is your dependant (since you would be purchasing them, keeping them in your name and designating the niece or nephew as the beneficiary?)
A better idea might be a 529 plan. It is more flexible. You can set one up, contribute to it, direct the investments, etc. and later transfer money out of it for the college bound niece or nephew.
Here was a good link I found about the accounts - http://www.babycenter.com/refcap/baby/babyfinance/1263733.html
You can also just set-up a savings account and ear mark it for nieces and nephews. You have to have control not to raid it yourself over the years. But if you are disciplined and willing to pay the taxes on the interest over the years, you can accumulate the cash and write checks as you see fit when attending the nieces or nephews high school graduation parties :)
Good Luck!
I think the 529 would be best because then you own the assets. If the kid gets a scholarship, runs away to the circus, or whatever, you pay a 10% penalty and get to keep the money, or you can just transfer it to another neice or nephew.
One problem is you might need the kid's SSN to set it up. Can you get the SSNs from a discreet grandparent? If not, maybe this year you buy all the kids small bonds and use that as an excuse to ask the parents for the SSNs. Then next year you open the 529s and the parents don't have to know.
This may be obvious, but you might want to tell the kids themselves when they're going into, say, their junior year of H.S. so they know they have a little money from Aunty Andi to count on when they're planning where they can afford to go.
Keep in mind that most savings bonds can be cashed anytime after they are six months old - so a pesky maturity date won't stop anyone. I think the 529 is a good idea, since the money gets tax benefits and isn't poof if they get a full scholarship.
You could also help the kids set up savings accounts of their own and put money in there - see if you could set up an ING account for them which isn't linked to their regular bank account (ie can't be withdrawn).
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