Helping secure financial future of my niece?

Question

I would like to do set something up for my newborn niece (and brother and sister-in-law) to help her financially.

What's the best way to do this, what would you suggest? Are there accounts, funds, tools that allow you to contribute pre-tax dollars and not be taxed on the growth?

I am open to setting up a college fund, but leaning to long term goals for my niece i.e., to buy a house or give her headstart on retirement.

Additional Details:
- I make a modest income, but can contribute ~ $20 month.
- I am 40 and figure I have about 25 - 30 years to do this.
- I contribute to 403b retirement accounts

Any help with this is greatly appreciated!

Answer 1

In addition to your 529 state college plan, which allows you to contribute to her college education, you (or her parents) can set up a Roth IRA for her, which will give her a leg up on retirement. A Roth IRA is the most tax advantaged form to contribute to her retirement savings because it will be tax free for her when she eventually takes her deductions

Also, you might consider naming her as your beneficiary of your 403b (if you have no spouse or children of your own).

Answer 2

You can do two things and they are both Great options...

1) Open a 529 plan in her name. A 529 plan is a college savings plan that you contribute to and when she is ready to go to college she can cash it in and pay no tax on the draws. The is a nice option because grandparents who say want to buy savings bonds (which I hope we all know don't mature for 20 years...so they aren't even face value until the child is almsot done with college) can instead contribute to the 529 plan and they will earn much more interest on their investment...anyone with the information can contribute, but you have to be on the plan to draw from it (so like for my kids, my mom set it up...so only she or my daughter can draw from it...she has it in her will if she dies before daughter goes to college, that I then have controll). If she chooses not to go to college the plan can revert to another child in the family or after they reach adulthood it is typically possible to withdraw the money without triggering withdrawal penalties, although taxes will be due on any investment gains in the plan.

http://en.wikipedia.org/wiki/529_plan

2) Purchase a Universal Life insurance policy on your niece...with her parents as the beneficiaries. With universal life it will be acting as a savings account as well, so she will still have money for the future...I have unfortonalty had friends with children that have died (obviously very young and tragiclly), the hardest part is watching them have to borrow money to pay for funeral expenses (the average funeral is about $17,000). I don't know about most people, but I really couldn't afford that if I needed to, and imagine being reminded of your dead child everytime you have to pay the loan to pay for the funeral...

You are a great Uncle!!!

Answer 3

You can set it up in an IRA and keep in in your name and by the time you use it, you will be able to do so without penalties. This might be simplest and keeps you in control at no charge from an attorney.

If you are thinking of some kind of trust, see an attorney because each state is different.

Answer 4

Look into a 529 plan, and set up a upromise account (www.upromise.com)