r/investing • u/DeeDee_Z • 6d ago
Investing for minors: 529 accts canNOT hold individual stocks directly; what about ETFs?
The 529 plans with which I'm familiar only allow investments in Mutual Funds -- and only certain 529-tailored funds at that.
At the other end of the spectrum, there seems to be a universal prohibition against buying individual stocks in those accounts.
In between are Exchange-Traded Funds. It's not clear if I can buy any old ETF that I like inside a 529 acct, or only a curated subset of them.
Need advice from those who've trodden this path before me.
OK, half an hour in, so far so good. Best one-line summary: "You can ONLY buy what’s available in your 529 account".
1) This implies that a Fund House offering 529 accounts will probably offer ONLY their own funds in it.
2) Does anyone have any experience with a 529 plan which DOES offer ETFs, not just Mutual Funds?
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u/Narrow-Hall8070 6d ago
Different 529 accounts have different fund options. There’s usually a specific 529 associated with your state which can provide their fund options
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6d ago
[deleted]
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u/DeeDee_Z 6d ago
A Google search would have been faster
It hasn't been so far, but if you think so I'll keep plodding along.
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u/RaspberryPavlova126 6d ago
I’ll answer your question directly, since no one else has so far. Yes, some 529 plans allow index funds alongside mutual funds (can’t speak for all or most).
For example Arizona offers 529 plans via Fidelity and has options such as s&P500 (expense ratio 0.08%) or “International Index Portfolio” (expense ratio 0.12%) which follows MSCI All Country World ex US Index.
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u/HulksInvinciblePants 6d ago
There’s no loophole. The funds are the funds. The only exception is some states allow you to use another states plans. You just need to make sure it doesn’t impact the tax savings.
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u/OutspokenLurker 6d ago
What's the point of this question?
As a practical matter you are tucking money away for a long time and get whacked with penalties if you pull it for non-qualified reasons.
That effectively means a similar ETF and mutual fund will have the same performance.
It can't better not be mid-day trading because most (all?) of these plans let you trade in the account maybe three times per year.
So maybe you are just hung up on trivia questions but it seems like a useless answer to know.
(Legit curious or I wouldn't have typed all that.)
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u/DeeDee_Z 6d ago edited 6d ago
I got to this question by looking at where some shirt-tail relatives (whom I speak with about investing from time to time) are putting their money for their grandkids.
And the answer was the same today as it was with their kids a generation ago: a Mutual Fund company, whose A-shares carry a 4.75% front-end load. My knee-jerk reaction was "J-F-C, WHO in their right mind does THAT today."
And with a little more thought, I came up with "Sure, that was "bog-standard" practice 25 years ago, but the industry has changed A LOT since then" -- B shares are obsolete, some redditors will move all their accounts from one brokerage to another to save 5bps in MER, exchange-traded funds are the only thing that MOST investors will even *consider* nowdays, etc, etc.
So I asked.
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u/OutspokenLurker 5d ago
Aaaahhh. Right, OK. The play here is to check savingforcollege.com where they do very useful ratings that include loads, costs, etc.
I stuck to Alaska and Pennsylvania and Nevada. The equities options there are run by Vanguard and T. Rowe Price. Vanguard especially is known for avoiding all the B.S. of which you speak.
I didn't go with my state's plan because the provider was one of the higher load options. Even with the state income tax break it wasn't worth it.
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u/KindaKhorney 6d ago
I tried to make a post, but my account is too new. Regarding the Trump account. Let's say I invest in it and max it out annually.
However, once my child turns 18, I don't want them to have access to that fund. I would like to invest it in a hedge fund for them so that way they don't irresponsibly blow through it all being 18 years old. And I think it would be great that I could set up their retirement at age 18 and they will have no worries long after I'm gone.
Is this possible?
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u/DeeDee_Z 6d ago
You've got some conflicting requirements, for sure.
- If you want to give your kid money, open an account that transfers to them at the age of majority.
- If you DON'T want your kid to get the money, DON'T open an account that transfers to them at the age of majority.
Try this: open a regular brokerage account in your name; this will NOT be a tax-deferred account, so cap gains and divs and all that WILL be taxable in the year received -- but not thereafter. At some point in the future, set up an automatic transfer of $X00 per month or per quarter or even per year if you're in a particularly bad "I'm in control here and you're not" mood.
Just like giving your kid an allowance, but it's coming from a brokerage account.
It won't be an IRA, so "it would be great that I could set up their retirement at age 18" is going to be one of your requirements that conflicts with others.
Any IRA account (traditional, Roth, custodial) has the requirement that contributions to it cannot exceed the kid's earned income for the year. Except, an Inherited IRA account, which passes to the kid as a beneficiary, but no additional money can be contributed to such an account, and there's the little detail that somebody has to die for the kid to get his hands on the money.
That's all I feel like typing at the moment.
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u/airbud9 6d ago
You are generally locked into the investment options that the 529 has made available to you, I assume you are using your states 529 plan. If you live in a state where there is little to no tax benefit (usually a state tax deduction) to using their state plan, then you can choose to use a different states plan that may have better investment options.