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  • Investing for Kids

    I have an 8 and 10 year old.  They each have about 10K in savings accounts that I am watching grow at about 0.05% per year.  What is the best way to invest their money without causing them financial issues in the future, ie tax issues, financial aid for college (realistically will not be an issue with the 529s but you never know), etc...  Thanks in advance.

  • #2
    Do you have separate savings for their education - 529.

    What is this 10K money to be used for? Their first house? Retirement? fund money? That will determine how you want it invested.

    Comment


    • #3




      I have an 8 and 10 year old.  They each have about 10K in savings accounts that I am watching grow at about 0.05% per year.  What is the best way to invest their money without causing them financial issues in the future, ie tax issues, financial aid for college (realistically will not be an issue with the 529s but you never know), etc…  Thanks in advance.
      Click to expand...


      There is no reason that an 8 and 10 year old should be in savings accounts unless they will need the money in 5 years. The money should be put in appropriately-diversified equity index funds, rebalanced annually, and discussed with your children. They are old enough to learn about investing and how the market works.

      Better yet, put them to work mowing lawns, babysitting, delivering papers, working in your office, etc. and set up Roth IRAs for them.

       
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

      Comment


      • #4







        I have an 8 and 10 year old.  They each have about 10K in savings accounts that I am watching grow at about 0.05% per year.  What is the best way to invest their money without causing them financial issues in the future, ie tax issues, financial aid for college (realistically will not be an issue with the 529s but you never know), etc…  Thanks in advance.
        Click to expand…


        There is no reason that an 8 and 10 year old should be in savings accounts unless they will need the money in 5 years. The money should be put in appropriately-diversified equity index funds, rebalanced annually, and discussed with your children. They are old enough to learn about investing and how the market works.

        Better yet, put them to work mowing lawns, babysitting, delivering papers, working in your office, etc. and set up Roth IRAs for them.

         
        Click to expand...


        Can you set up a Roth for a kid if they don't have earned income?  Hard to get that in a 8 and 10 year old.  I don't think allowances count.

        Comment


        • #5
          My baby has an UTMA and Roth IRA with Vanguard, each with a share or two of a commission-free Vanguard ETF, probably a 529 soon too.

          If you are worried about need-based aid then you'll probably have to worry about more than $10k in a savings account.

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          • #6
            Yes, we have 529s they should not need the money for college/grad school.  I think I did not ask my question with enough specificity.  Put differently, I know they will not need the money in 5 years.  I know the savings account is not a vehicle for growing the money.  And yes, I want to introduce them to investing.  Do I call Vanguard or Fidelity and say I want to open an account for each child?  Is my name on the account?  Are there any tax consequences for me opening an account for my kids if my name is on the account?  ie What is the best way to set up the account?

            Comment


            • #7










              I have an 8 and 10 year old.  They each have about 10K in savings accounts that I am watching grow at about 0.05% per year.  What is the best way to invest their money without causing them financial issues in the future, ie tax issues, financial aid for college (realistically will not be an issue with the 529s but you never know), etc…  Thanks in advance.
              Click to expand…


              There is no reason that an 8 and 10 year old should be in savings accounts unless they will need the money in 5 years. The money should be put in appropriately-diversified equity index funds, rebalanced annually, and discussed with your children. They are old enough to learn about investing and how the market works.

              Better yet, put them to work mowing lawns, babysitting, delivering papers, working in your office, etc. and set up Roth IRAs for them.
              Click to expand…


              Can you set up a Roth for a kid if they don’t have earned income?  Hard to get that in a 8 and 10 year old.  I don’t think allowances count.
              Click to expand...


              Allowances don't count - that is why I gave you some examples.
              Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

              Comment


              • #8




                Yes, we have 529s they should not need the money for college/grad school.  I think I did not ask my question with enough specificity.  Put differently, I know they will not need the money in 5 years.  I know the savings account is not a vehicle for growing the money.  And yes, I want to introduce them to investing.  Do I call Vanguard or Fidelity and say I want to open an account for each child?  Is my name on the account?  Are there any tax consequences for me opening an account for my kids if my name is on the account?  ie What is the best way to set up the account?
                Click to expand...


                You will be the custodian on their account, just like their current savings accounts.  The income from the accounts might be subject to a kiddie tax, etc.

                Comment


                • #9


                  I know the savings account is not a vehicle for growing the money. And yes, I want to introduce them to investing. Do I call Vanguard or Fidelity and say I want to open an account for each child? Is my name on the account? Are there any tax consequences for me opening an account for my kids if my name is on the account? ie What is the best way to set up the account?
                  Click to expand...


                  I set up Vanguard UGMA account since out state does not have UTMA account. You can set the UGMA and buy index funds with it and hope they leave it for long term compounding.

                  Comment


                  • #10


                    My baby has an UTMA and Roth IRA with Vanguard,
                    Click to expand...


                    Unless you baby does modelling I am puzzled as to how she gets earned income to qualify for ROTH. But then she might be a 16 year old "baby".  

                    Comment


                    • #11
                      You can set up a custodial account through any brokerage firm -- Vanguard, Schwab, etc.  You are the custodian until the child reaches age of majority.  When the child reaches majority, the account transfers to the child.  You can only contribute $14k per year -- annual gift limit. Two types of accounts:  UTMA or UGMA.  As for taxes, you have to file a tax return for your child.  Earnings and dividends (up to a limit) are based upon the child's tax rate (i.e. Kiddie Tax).  After that, it is taxed at the parent's tax rate.

                       

                      Comment


                      • #12













                        I have an 8 and 10 year old.  They each have about 10K in savings accounts that I am watching grow at about 0.05% per year.  What is the best way to invest their money without causing them financial issues in the future, ie tax issues, financial aid for college (realistically will not be an issue with the 529s but you never know), etc…  Thanks in advance.
                        Click to expand…


                        There is no reason that an 8 and 10 year old should be in savings accounts unless they will need the money in 5 years. The money should be put in appropriately-diversified equity index funds, rebalanced annually, and discussed with your children. They are old enough to learn about investing and how the market works.

                        Better yet, put them to work mowing lawns, babysitting, delivering papers, working in your office, etc. and set up Roth IRAs for them.
                        Click to expand…


                        Can you set up a Roth for a kid if they don’t have earned income?  Hard to get that in a 8 and 10 year old.  I don’t think allowances count.
                        Click to expand…


                        Allowances don’t count – that is why I gave you some examples.
                        Click to expand...


                        Understood, but these kids are in 2nd and 4th grade presumably.  Would those examples apply?  What is a realistic job that a 2nd and 4th grader could have?

                        Comment


                        • #13


                          As for taxes, you have to file a tax return for your child. Earnings and dividends (up to a limit) are based upon the child’s tax rate (i.e. Kiddie Tax). After that, it is taxed at the parent’s tax rate.
                          Click to expand...


                          I have wondered if children who file their own taxes get their own personal exemptions or are they as dependents on their parent's tax returns.

                          With our income we have lost most personal deductions including personal tax deduction for a child. I wonder if the child can claim it on his own tax form.

                          Comment


                          • #14
















                            I have an 8 and 10 year old.  They each have about 10K in savings accounts that I am watching grow at about 0.05% per year.  What is the best way to invest their money without causing them financial issues in the future, ie tax issues, financial aid for college (realistically will not be an issue with the 529s but you never know), etc…  Thanks in advance.
                            Click to expand…


                            There is no reason that an 8 and 10 year old should be in savings accounts unless they will need the money in 5 years. The money should be put in appropriately-diversified equity index funds, rebalanced annually, and discussed with your children. They are old enough to learn about investing and how the market works.

                            Better yet, put them to work mowing lawns, babysitting, delivering papers, working in your office, etc. and set up Roth IRAs for them.
                            Click to expand…


                            Can you set up a Roth for a kid if they don’t have earned income?  Hard to get that in a 8 and 10 year old.  I don’t think allowances count.
                            Click to expand…


                            Allowances don’t count – that is why I gave you some examples.
                            Click to expand…


                            Understood, but these kids are in 2nd and 4th grade presumably.  Would those examples apply?  What is a realistic job that a 2nd and 4th grader could have?
                            Click to expand...


                            Modeling? Seriously, you may have to wait a year or two, but many people who own businesses pay their kids to help with cleaning, looking up information on the computer, and so forth. As they get older, they can help with marketing and SEO. My boys were mowing lawns by 12, but my husband owned a country club and they learned how to handle equipment.

                            Dog walking and helping to mind neighbors' houses when they are out of town is another thought (watering plants, picking up mail, feeding the cats, etc.) I was cleaning my aunt's house for $10/wk at age 12 ($10/wk was a lot in the late 60s   ) and also working in my dad's printing business. I've paid neighbor kids who were as young as 10 to watch things when we were out of town. Your children won't make $5,500 to start, but even a few hundred gets you started.
                            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                            Comment


                            • #15




                              You can set up a custodial account through any brokerage firm — Vanguard, Schwab, etc.  You are the custodian until the child reaches age of majority.  When the child reaches majority, the account transfers to the child.  You can only contribute $14k per year — annual gift limit. Two types of accounts:  UTMA or UGMA.  As for taxes, you have to file a tax return for your child.  Earnings and dividends (up to a limit) are based upon the child’s tax rate (i.e. Kiddie Tax).  After that, it is taxed at the parent’s tax rate.

                               
                              Click to expand...


                              You can put as much money in a custodial utma as you want.  Whether or not you incur gift tax or consume exemption is another story.

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