Best place for children’s money.

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BigTuna
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Best place for children’s money.

Post by BigTuna » Sat Dec 08, 2018 1:22 pm

I have a 3 year old daughter and a 6 month old son. I am wanting to put money that we save for them and money that is given to them from relatives into an investment that they can get out when they are older. (Car,college, etc.). I do not want to do a 529 in case they do not go and then pay fees to get the money out. Index funds seems to be the theme on here, which I am fine with, but which are best. I currently have an account with Schwab and hold a hand full of single stocks with them and a Roth IRA that is held at EJ.

staythecourse
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Re: Best place for children’s money.

Post by staythecourse » Sat Dec 08, 2018 1:33 pm

Don't know if it matters, but 529 plans can be used for private school PRIOR to college as well.

Good luck.
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Flyer24
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Re: Best place for children’s money.

Post by Flyer24 » Sat Dec 08, 2018 1:34 pm

Both of my kids have an online savings account with Ally. I don’t get into market investing with their money. I also have a 529 plan for both. I would not discount the value of a 529 plan. It is tax free growth and often tax deductible for states. Get rid of that Roth with EJ 😏
Last edited by Flyer24 on Sat Dec 08, 2018 1:36 pm, edited 1 time in total.

aristotelian
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Re: Best place for children’s money.

Post by aristotelian » Sat Dec 08, 2018 1:35 pm

If you don't wish to do 529, I would just do a regular brokerage account. You can gift up to $15K tax free.

The other alternative is UTMA, but you give up any control over how the funds are spent. As soon as the kid turns 18, they will be able to spend it on partying if they want. To me, the marginal tax benefit is not worth giving up the control and simplicity.

Personally, I do 529 as I have every expectation that my kids will go to college.

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mhadden1
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Re: Best place for children’s money.

Post by mhadden1 » Sat Dec 08, 2018 1:40 pm

Schwab is good; they have a full array of very inexpensive index funds. I would probably just use US Broad Market, SCHB.
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guliver
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Re: Best place for children’s money.

Post by guliver » Sat Dec 08, 2018 1:48 pm

aristotelian wrote:
Sat Dec 08, 2018 1:35 pm
If you don't wish to do 529, I would just do a regular brokerage account. You can gift up to $15K tax free.

The other alternative is UTMA, but you give up any control over how the funds are spent. As soon as the kid turns 18, they will be able to spend it on partying if they want. To me, the marginal tax benefit is not worth giving up the control and simplicity.

Personally, I do 529 as I have every expectation that my kids will go to college.
Sorry for stepping into this discussion, but I don't understand: can you have a regular brokerage on a minor's name? Or do you mean having the brokerage on the OP's name? I thought the options here are either a 529 or a UTMA (I'm mixing both personally). Regarding UTMA, in NY at least, I got an option between 18yo and 21yo when I opened the account.

aristotelian
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Re: Best place for children’s money.

Post by aristotelian » Sat Dec 08, 2018 3:04 pm

guliver wrote:
Sat Dec 08, 2018 1:48 pm
aristotelian wrote:
Sat Dec 08, 2018 1:35 pm
If you don't wish to do 529, I would just do a regular brokerage account. You can gift up to $15K tax free.

The other alternative is UTMA, but you give up any control over how the funds are spent. As soon as the kid turns 18, they will be able to spend it on partying if they want. To me, the marginal tax benefit is not worth giving up the control and simplicity.

Personally, I do 529 as I have every expectation that my kids will go to college.
Sorry for stepping into this discussion, but I don't understand: can you have a regular brokerage on a minor's name? Or do you mean having the brokerage on the OP's name? I thought the options here are either a 529 or a UTMA (I'm mixing both personally). Regarding UTMA, in NY at least, I got an option between 18yo and 21yo when I opened the account.
If you are against 529, I am proposing to keep the money in your name and gift to the child at a later time.

I do not like the idea of giving a future 18 or 21 year old a large amount of money, no strings attached, when you have no idea what that individual is going to be like in the future.

remomnyc
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Re: Best place for children’s money.

Post by remomnyc » Sat Dec 08, 2018 3:17 pm

We have fully funded 529 accounts, so gift money does not go there. We opened savings accounts for gift money. Once the balance exceeded $1k, we transferred $1k to open UTMA accounts at Vanguard invested in an target index fund. Once the balance in the UTMA reaches $10k, we will stop funding. The kids now request that any gift money be divided between savings and brokerage instead of just excess over $1k. Once they have earned income, we will match into a Roth IRA.

Gill
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Re: Best place for children’s money.

Post by Gill » Sat Dec 08, 2018 3:48 pm

aristotelian wrote:
Sat Dec 08, 2018 3:04 pm
If you are against 529, I am proposing to keep the money in your name and gift to the child at a later time.
The money has already been given to the child and belongs to the child. It should not be put in the parent's name.
Gill

guliver
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Re: Best place for children’s money.

Post by guliver » Sat Dec 08, 2018 4:20 pm

aristotelian wrote:
Sat Dec 08, 2018 3:04 pm
I do not like the idea of giving a future 18 or 21 year old a large amount of money, no strings attached, when you have no idea what that individual is going to be like in the future.
It might have a positive effect, inspiring a sense of financial responsibility. My wife received an account when she was 18, and she felt so overwhelmingly responsible for it, it really had a positive effect on her finances (a bit too much if you ask me :D ). She never took a cent out of it, and most probably she never will. Obviously, it might also end up very differently with a different kid...

aristotelian
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Re: Best place for children’s money.

Post by aristotelian » Sat Dec 08, 2018 4:36 pm

Gill wrote:
Sat Dec 08, 2018 3:48 pm
aristotelian wrote:
Sat Dec 08, 2018 3:04 pm
If you are against 529, I am proposing to keep the money in your name and gift to the child at a later time.
The money has already been given to the child and belongs to the child. It should not be put in the parent's name.
Gill
Good point. This would only be for money that the parent is saving on the child's behalf. Money that goes to the kid has to go to the kid. We have joint minor savings accounts at our credit union.
Last edited by aristotelian on Sat Dec 08, 2018 5:13 pm, edited 1 time in total.

TravelforFun
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Re: Best place for children’s money.

Post by TravelforFun » Sat Dec 08, 2018 4:50 pm

I opened an UTMA account for each of my grandkids, seed it with some money, then add to it at birthday and Christmas. The money is invested in 100% stock. I'll show them how to monitor and manage the account when they're old enough.

TravelforFun
Last edited by TravelforFun on Sun Dec 09, 2018 1:21 am, edited 1 time in total.

NotWhoYouThink
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Re: Best place for children’s money.

Post by NotWhoYouThink » Sat Dec 08, 2018 5:13 pm

guliver wrote:
Sat Dec 08, 2018 4:20 pm
aristotelian wrote:
Sat Dec 08, 2018 3:04 pm
I do not like the idea of giving a future 18 or 21 year old a large amount of money, no strings attached, when you have no idea what that individual is going to be like in the future.
It might have a positive effect, inspiring a sense of financial responsibility. My wife received an account when she was 18, and she felt so overwhelmingly responsible for it, it really had a positive effect on her finances (a bit too much if you ask me :D ). She never took a cent out of it, and most probably she never will. Obviously, it might also end up very differently with a different kid...
That doesn't sound like a healthy relationship with money. Holding on to it too fiercely isn't more commendable than spending too freely.

An 18 or 21 year old might use money for college, or a car, or to start a business. Or maybe to travel the world for a while. Or buy drugs, or support an addict boy/girlfriend, or lie about and game all day.

Flyer24
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Re: Best place for children’s money.

Post by Flyer24 » Sat Dec 08, 2018 5:44 pm

This is why you start giving them some control of their money at a young age. If you wait until they are college age to give them access then they will have never learned. I view any money given to them as a gift is their money. They are free to spend or save as as desired. My kids usually just put all their money from birthdays in their savings account. By giving them a choice, they tend to be more open about saving.

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fortfun
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Re: Best place for children’s money.

Post by fortfun » Sat Dec 08, 2018 5:53 pm


EddyB
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Re: Best place for children’s money.

Post by EddyB » Sat Dec 08, 2018 5:57 pm

NotWhoYouThink wrote:
Sat Dec 08, 2018 5:13 pm

An 18 or 21 year old might use money for college, or a car, or to start a business. Or maybe to travel the world for a while. Or buy drugs, or support an addict boy/girlfriend, or lie about and game all day.
It does seem that at 25 or 30 they’d be less likely to use the money for college.

retiringwhen
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Re: Best place for children’s money.

Post by retiringwhen » Sat Dec 08, 2018 6:05 pm

My thoughts are documented in the link below on why you should have serious reservations regarding the use of UTMA accounts for significant gifts or investments. The idea of UTMA accounts for christmas gifts, etc. is one thing and a good way to teach the value and responsibilities related to money. College money, etc. is a totally different thing...

I strongly prefer 529 accounts or money held in the parent's name in lieu of a trust account. The idea of a joint account with a very young minor is not something I ever considered, but frankly it has all the downside risks of a UTMA as well (and probably none of the tax benefits).

viewtopic.php?f=1&t=265752&p=4247292#p4247292

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ram
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Re: Best place for children’s money.

Post by ram » Sat Dec 08, 2018 6:27 pm

My kids kept this money with "Bank of Dad" which promised a lifetime 5% rate of interest calculated annually. My daughter who has been depositing money in the account since about age 8 just collected a lump sum of about $7500 in her 4th year of med school. She is using that money to travel across the country for her residency interviews. My son who is 2 years younger has not yet collected his deposit.(He knows no other bank is currently paying 5%).

As kids they maintained an old fashioned paper pass book and made the entries themselves and had it signed by me. It was a good way to learn the savings habit and maintaining a financial record. They learned the necessary math fairly early. It was a good way of learning about the wonders of compound interest.

Since the age of 18 they have had their own bank accounts but never took the money from me (till recently) because of the rate of interest that I was paying. (New deposits in Bank of Dad were not allowed after age 18.)

On my part I simply invested the money as part of my usual AA which has ranged from 90/10 to 67/33 currently and have easily made more than 5% on it.
Ram

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