The Strategy of Siloed Accounts
Because we live in California, we don't get a state tax deduction for 529 contributions. Rather than locking money into a restrictive education-only bucket, we open Custodial Brokerage and Roth IRAs (when they have earned income) for our heirs.
We contribute small amounts here and there, but the real power comes from naming the account . By labeling an account "Child A - Education/Life," we create a psychological silo that prevents us from viewing it as part of our core $4M FIRE portfolio. It has its own mission.
The Power of $100 vs. $500 (18-Year Horizon)
What happens when you consistently buy the S&P 500 (VOO) for an heir? Even small amounts become meaningful over two decades. The chart below assumes a conservative 8% annual return over 18 years.
VOO Growth Projection (18 Years)
At $500/month, you have effectively fully funded a four-year degree at many institutions. At $100/month, you have provided a massive "head start" for a downpayment or a graduate degree.
Flexibility vs. Tax Perks
By using a standard brokerage account, we pay capital gains taxes, but we gain unlimited flexibility . If our heirs decide not to go to college, they can use the funds to start a business, buy a home, or keep it invested for their own retirement. In the $4M framework, we prioritize Optionality over the slight tax edge of a 529.
Final Take
Building wealth for heirs isn't about complex tax shelters; it's about consistency and time. By siloing these accounts and automating small monthly buys into VOO, we ensure that the next generation has the same financial "gravity" that helped us reach our goals. Start early, name the bucket, and let the market do the work.