Adding to a growth fund?

Question

I have an American Funds Growth Funds that my parents setup for each of their children. It has grown well, up and down. I get access to the money when I am 21. Can I add to it to and have it pretty much function as a high interest savings account til 21. (I'm 20 now). It seems to be making over 10% interest, and I wonder if adding to it, could accelerate it's growth. Also, how much tax can I expect to pay on it? I had thought my parents set it up to help out with big buys in in my mid twenties. Can I expect big taxes on it, when I choose to liquify it?

Answer 1

Since you have never seen this money, you'll never miss it, right?

Let it grow until it doubles, and doubles again, so by the time you're old like me, at 44, you can use it as collateral to buy a house!

Add to your savings whenever you can, but never invest a penny you can't afford to lose. You always want to be satisfied you are building something for the future.

An old African proverb-
Never eat the children of your money...

Look up compound interest, and see the power of compounding over time. Early investing makes later investing more profitable, and less painful.

Check out Fidelity. They have some awesome no load funds that ROCK!

Also, where you work, get in on the new Roth 401(K) plan. You will be very pleased with the tax deferred savings.

Answer 2

You can probably add to it, and with that rate, it could be your best bet. It depends on how much you take out to see how much taxes you will have to pay. My guess is 28% on the high end. I would take $6,000 out of it a year, and reinvest $4000 a year back into the growth fund through a Roth IRA. That $2,000 difference should cover your taxes. There is no limit on how long you can hold a Roth IRA before you have to withdrawl from it (unlike a normal IRA). So if it gives you the money to do it (I don't know how much is in your account), you will have to pay less than $88,000 in taxes till you are 65 on an investment that could give you $3.1 million which is otherwise tax free (and if that 10% return holds). In the future, the cap on the Roth is going to raise, but i don't know how much (something like $500 every two years) so you could make even more tax free money.

Answer 3

a couple of things....
you probably don't want to have the $$$$ "function as a high interest savings account".....the stock market traditionally returns approximately 10% per year...whereas interest rates are at about 3%...you'd be losing a lot of $$$$
don't think in terms of "interest"
American Funds has many different funds...
you can diversify your holdings and possibly increase your returns by checking out other available funds ...
maybe an International growth, or a small-mid cap growth or a tech/telecom sector....investigate your choices

as to adding to this account...and the tax burden....
whose name is the fund registered under?
is it in trust?
joint tenant?
under a 529 ?

since you don't know about the tax liabilities thus far, I would surmise that it is not in your name [as primary owner]...
unless it is under a "special " case, anyone can add to it
the owner pays taxes on the amount withdrawl as determined by its 1099 category....expect to lose approximately 15% on cap gains and 28% on interest...plus whatever state tax rate is applicable...

Answer 4

ASK AMERICAN FUNDS TO COVERT IT TO A ROTH AND NEVER PAY TAXES AGAIN ON ANY GAINS

I HAVE A 21 YEAR OLD SON AND I MOVED HIS MUTUAL FUNDS INTO A ROTH IRA

YOU CAN HOLD THE SAME FUNDS BUT IN A ROTH ACCOUNT THEY WILL GROW TAX FREE FOREVER EVEN WHEN YOU WITHDRAW THE FUNDS YOU WILL NOT HAVE TO PAY ANY TAX