I’m 32, unmarried and without children. I work full time, earn a solid salary and contribute to retirement and an emergency fund — the usual basics. I want to tuck away a little something to help my niece down the road, but I’m unsure which route is best. Her college expenses should be covered by the G.I. Bill, so a 529 plan doesn’t seem essential. I’ve thought about life insurance, though I’m unsure if it’s worth buying at my age.
I’d also like the money to be something she can use when she turns 18 — or perhaps after college. I’ve started putting a small amount into a mutual fund; by then it’ll only be a few thousand dollars. Are there other options I haven’t considered?
Thanks for the guidance!
I Believe Your Children Are Our Future
Dear Believe,
Being the Cool Aunt is one of the best titles. It sounds like you’ve earned it. I once came home from shopping to my nephews asking, “Aunt Lisa, is there any money left?” I’m fairly sure my laugh sounded forced when I said, “Don’t worry, I’ve got plenty.”
(A perk of nieces and nephews is they don’t need to know about your perpetual student loan debt. But you don’t seem to have that issue, so I’ll move on.)
Like you, I’ve often thought about the smartest ways to save for these kids. I personally give cash gifts for birthdays that go into savings accounts and plan to leave retirement assets to them for emergencies. But there are other possibilities worth weighing.
I asked Stephanie McCullough, founder and CEO of Sofia Financial, for a few pointers.
One factor to remember, she said, is that the G.I. Bill might not cover every college expense. If your niece attends a private or out-of-state institution, a 529 savings account could still be useful.
“You get tax-deferred growth and tax-free withdrawals when used for qualified educational expenses, which can include items like laptops and internet service,” McCullough told me via email. She added that a 529 typically won’t heavily impact your niece’s financial aid application.
An alternative is a Uniform Transfers to Minors Act (UTMA) account, sometimes called a Uniform Gifts to Minors Act (UGMA) in certain states. “It’s a way to gift assets to a minor while an adult holds custody of the funds for the child,” McCullough explained. “When your niece reaches the age of majority — often 18 or 21 depending on the state — she gains control of the money and can use it as she chooses.”
No matter which vehicle you pick, McCullough emphasized you still need to decide what investments to hold inside the account. “Watch fees and expenses and consider how much risk you’re comfortable taking,” she advised.
Regarding life insurance, you could buy a policy on yourself or even a small policy for your niece, but either approach requires ongoing premium payments. “If you want maximum flexibility in yearly contributions, an investment account might be the better choice,” McCullough said.
Whichever route you select, you’ll likely keep your Cool Aunt status without issue.
If you have a thorny money question, write to Dear Penny at [email protected].
Alex Hart is a personal finance writer and senior contributor at Savinly, where she pens the Dear Penny column. For additional practical money advice, visit www.savinly.com.
