Kids Investment Account

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nighthawk75
Posts: 7
Joined: Thu Jan 18, 2018 8:56 pm
Location: Philadelphia, PA

Kids Investment Account

Post by nighthawk75 » Wed Oct 02, 2019 5:25 pm

Hi fellow Bogleheads!

Looking for words of wisdom on starting a savings and investment account for my daughter.

She is 11. We have her 529 pretty much taken care of and invest $8,400 a year into it.
Gifts she receives from Aunts, Uncles, Grandparents currently do not gain any interest because they are just sitting in a piggy bank. I'm aiming to change that as soon as I possibly can. Not sure what the right approach is. Saving accounts are basically a joke these days.

I want her to be actively involved and see what it's like to save, invest, and watch things grow for herself, and be sure to go for the long haul. We want this to be a learning mechanism where she understands to save as much as she can or at least a percentage.... TO PAY HERSELF FIRST. And since she's so young she has 50+ years to see what this does.

I have read all or portions of the threads that touch on this subject but since everyones situation is unique I thought I'd post.So, thank you to all in advance. I know how great this community is and am looking forward to hearing what you all have to say. It's greatly appreciated.

I'm against UTMA because I do not want her to gain access to the funds until I KNOW she can handle an influx of money. Not all kids mature at the same rate. Especially on a financial responsibility basis. Maybe she will be fine but I want to control when she gets it and I don't want the government to decide that. I think once she is of age she gets access no matter what in a UTMA situation.

My daughter most likely will not quality for FA when she gets to college age. Not too worried about UTMA in that regard.

Unfortunately, we don't qualify for a Roth because of our household income. However, once she begins working... maybe she could throw everything in there since she will be in a low tax bracket.

What I'm thinking of doing is opening an IRA in my name holding a Target 2065 fund just to keep it simple. She can save to that for now, as well as her mom and I. Once she is of age and financially responsible I would transfer it over to her. Or maybe just wait until her mom and I pass. She would just inherit it. Being that it's later in life, hopefully it's a time where she is stable and anything unexpected is clear. It also would protect assets on the event of divorce. Heaven orbit that ever happened. Those rates are pretty high these days to so anything to put a hedge is good I'm thinking for precautionary measures.

The other approach could be a backdoor Roth. Although, admittedly, I'm little more fuzzy on this topic.

Thanks again everyone,
nighthawk75
Last edited by nighthawk75 on Wed Oct 02, 2019 8:36 pm, edited 1 time in total.

CedarWaxWing
Posts: 746
Joined: Sun Nov 02, 2014 12:24 pm

Re: Kids Investment Account

Post by CedarWaxWing » Wed Oct 02, 2019 6:19 pm

You cannot give your IRA to your daughter if you are alive.


If you want to help your daughter start an ira:

1. Her having making a contribution to a traditional IRA or a Roth IRA is not affected by your income, but does require that she have earned income of her own.

https://www.irs.gov/retirement-plans/pl ... ion-limits

If she has earned income typical of an 11 year old she can put money from any source up to the contribution limits in the link above into a tIRA or a Roth IRA depending on her income and the contribution limits. For an average youngster with earned income it is usually a good idea to open a roth ira.

2. If she has no earned income, she can still open a taxable account with unearned income from any source.

Grt2bOutdoors
Posts: 21747
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Kids Investment Account

Post by Grt2bOutdoors » Wed Oct 02, 2019 7:40 pm

nighthawk75 wrote:
Wed Oct 02, 2019 5:25 pm
Hi fellow Bogleheads!

Looking for words of wisdom on starting a savings and investment account for my daughter.

She is 11. We have her 529 pretty much taken care of and invest $8,400 a year into it.
Gifts she receives from Aunts, Uncles, Grandparents currently do not gain any interest because they are just sitting in a piggy bank. I'm aiming to change that as soon as I possibly can. Not sure what the right approach is. Saving accounts are basically a joke these days.

I want her to be actively involved and see what it's like to save, invest, and watch things grow for herself, and be sure to go for the long haul. We want this to be a learning mechanism where she understands to save as much as she can or at least a percentage.... TO PAY HERSELF FIRST. And since she's so young she has 50+ years to see what this does.

I have read all or portions of the threads that touch on this subject but since everyones situation is unique I thought I'd post.So, thank you to all in advance. I know how great this community is and am looking forward to hearing what you all have to say. It's greatly appreciated.

I'm against UTMA because I do not want her to gain access to the funds until I KNOW she can handle an influx of money. Not all kids mature at the same rate. Especially on a financial responsibility basis. Maybe she will be fine but I want to control when she gets it and I don't want the government to decide that. I think once she is of age she gets access no matter what in a UTMA situation.

My daughter most likely will not quality for FA when she gets to college age. Not too worried about UTMA in that regard.

Unfortunately, we don't qualify for a Roth because of our household income. However, once she begins working... maybe she could throw everything in there since she will be in a low tax bracket.

What I'm thinking of doing is opening an IRA in my name holding a Target 2065 fund just to keep it simple. She can save to that for now, as well as her mom and I. Once she is of age and financially responsible I would transfer it over to her. Or maybe just wait until her mom and I pass. She would just inherit it. Being that it's later in life, hopefully it's a time where she is stable and anything unexpected is clear. It also would protect assets on the event of divorce. Heaven orbit that ever happened. Those rates are pretty high these days to so anything to put a hedge is good I'm thinking for precautionary measures.

The other approach could be a backdoor Roth. Although, admittedly, I'm little more fuzzy on this topic.

Thanks again everyone,
ZP
Regarding your personal situation - "you can't open a Roth due to income". Income is not the barrier unless you mean you don't have enough funds to be able to open one up. Otherwise, you should research BackDoorRoth in the wiki. That is where you open a traditional non-deductible IRA and subsequently convert it to a Roth IRA account. However, if you already hold a Traditional IRA, then the conversion noted above can muck things up, as the IRS would view the conversion against the entire balances held in a Traditional IRA, leading to a pro-rata taxable situation. Please clarify what you mean by "not able to open a Roth IRA".

Since you don't like the idea of a UTMA, why not open a traditional mutual fund account and give the child the funds when they are ready?
As already noted, you can not fund an IRA for a child who has no earned income, nor can you simply transfer an IRA when you are living. However, there is nothing to say that you can't hand your child a check for the full amount as a gift at some point in the future.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

dbr
Posts: 31236
Joined: Sun Mar 04, 2007 9:50 am

Re: Kids Investment Account

Post by dbr » Wed Oct 02, 2019 7:50 pm

If you don't want to just hold a brokerage account of your own to give to your child when you want to, then an alternative is to set up a trust. That would probably not be justified unless there was a lot of money and it was done as part of your estate plan.

I am a little unclear on the idea that gifts that have been made to the child and are being held at "piggy bank" level would be taken away and held until well into the child's middle age at your discretion. Are you talking about $100 Christmas presents or $10,000 gifts for investment? What are the intentions of the relatives regarding what they think the money might be used for?

oldfatguy
Posts: 444
Joined: Tue Feb 27, 2018 1:38 pm

Re: Kids Investment Account

Post by oldfatguy » Wed Oct 02, 2019 8:26 pm

Is this your child's money or yours? Putting her money in your account is a terrible idea.

Also, as I've stated in other threads, having children investing money before they are able to support themselves seems ridiculous to me. It doesn't teach them anything at all about reality.
Last edited by oldfatguy on Wed Oct 02, 2019 9:13 pm, edited 1 time in total.

lakpr
Posts: 3460
Joined: Fri Mar 18, 2011 9:59 am

Re: Kids Investment Account

Post by lakpr » Wed Oct 02, 2019 8:39 pm

oldfatguy wrote:
Wed Oct 02, 2019 8:26 pm
Is this your child's money or yours? Putting her money in your account is a terrible idea.

Also, as I've stated in other threads, having children investing money before they are able to support themselves seems ridiculous to me. It doesn't teach them anything at all reality.
Agree with your first sentence. When kids receive birthday gifts etc. from relatives, it should be treated as the kids' money and handled as such. It can be invested of course, but it must be done so in a UTMA account.

Do not agree with your second sentence though. Assuming kids are reasonably old and understand some basic concepts -- explaining that with his money he bought a tiny share of every public US company (or a tiny share of every public company in the world), is easy enough. One can also get quarterly statements from the fund house, and show the fluctuations from quarter to quarter. That investing in companies can be both a money maker, and a money loser. One can explain the value of diversification, and explaining that since we bought 3500+ companies in one go, one of those 3500 companies going bankrupt means almost nothing for OUR investment ==> leading to the concept of risk reduction via diversification. Also explain the rationale of buying the entire market instead of single stocks or sectors or any other 'slices' of the market.

It can be as educational to the kids as you want and as much effort you are willing to put into. Kids have to be at least 10 years or so, though, to be able to grasp the concepts we are teaching.

stilllurking
Posts: 75
Joined: Mon Jun 16, 2014 10:44 am

Re: Kids Investment Account

Post by stilllurking » Wed Oct 02, 2019 8:43 pm

Nighthawk,

I hijacked an old thread with some good info. viewtopic.php?t=229903&view=unread#unread

oldfatguy
Posts: 444
Joined: Tue Feb 27, 2018 1:38 pm

Re: Kids Investment Account

Post by oldfatguy » Wed Oct 02, 2019 9:15 pm

lakpr wrote:
Wed Oct 02, 2019 8:39 pm

Do not agree with your second sentence though. Assuming kids are reasonably old and understand some basic concepts -- explaining that with his money he bought a tiny share of every public US company (or a tiny share of every public company in the world), is easy enough.
I'm not saying they can't understand the concept, just that it doesn't make sense to invest before you can even support yourself.

NMBob
Posts: 253
Joined: Thu Apr 23, 2015 8:13 pm

Re: Kids Investment Account

Post by NMBob » Thu Oct 03, 2019 1:14 am

oldfatguy wrote:
Wed Oct 02, 2019 9:15 pm
lakpr wrote:
Wed Oct 02, 2019 8:39 pm

Do not agree with your second sentence though. Assuming kids are reasonably old and understand some basic concepts -- explaining that with his money he bought a tiny share of every public US company (or a tiny share of every public company in the world), is easy enough.
I'm not saying they can't understand the concept, just that it doesn't make sense to invest before you can even support yourself.
I totally disagree. you may be dead or miles away before that happens. it is about teaching them to invest , not making significant relevant investing amounts etc. i remember opening a blue passbook savings account when i was about 7 years old. only probably made a few deposits but i learned you were supposed to save money. as a small kid, i saved small bits of money in an old green purse that was kept on top of the refrigerator. when i was in high school, a friends parents showed me a t rowe price money market prospectus about 1980 when interest rates were very high. Talked to mom and dad and then filled it out and put in the 1k minimum which was all i had. and just realized, actually my dad then did die 4 years after that which was before i could support myself entirely. Also played the 3m bookshelf game called stocks and bonds with my dad when about 12/13. when i did get paid, it was thus not the first time then when i filled out mutual fund applications to save money, it was something i had done before for the money market. its about ingraining the idea that you are supposed to save. never talk about it or pseudo do it and maybe they have no since of urgency to even figure out they can support themselves and should be saving. it will then be something they haven't heard much about. perhaps they then start years later than they should.

mortfree
Posts: 1977
Joined: Mon Sep 12, 2016 7:06 pm

Re: Kids Investment Account

Post by mortfree » Thu Oct 03, 2019 5:14 am

Gifts she receives is HER money.

I wouldn’t deposit that in your account.

While you may not prefer an UTMA the money belongs to her and that is why those accounts exist.

Maybe the piggy bank is the way to go then in your situation.

bampf
Posts: 403
Joined: Thu Aug 04, 2016 6:19 pm

Re: Kids Investment Account

Post by bampf » Thu Oct 03, 2019 5:38 am

Each of my kids have a UTMA that transfers at 21. Each of my kids has been required to give me 25% of their salary until they turn 16. We called it taxes and explained that since we had to drive them, wait for them, fund their classes etc this was their give back. We took that 25% matched it and invested it. When they turn 16 we show them what we have done with that money, explain that it is their money and tell them it is no longer a tax, but, for every dollar they contribute to their account, we will match it. We show them investment choices and involve them. I explain dividends and growth. I match until they turn 18. When they turn 21 it will be up to them to do with it as they see fit. I hope it teaches a life time of investing. If not, not much I can do about it.

I was terrible with money when I was young. I am better now. No one taught me about this stuff (until you guys) and you do your best as you can....

Agree that they need their own account. If they can fly a plane, drive a car, vote, invest and buy a house why would you want to control their finances?

--bampf

aristotelian
Posts: 6676
Joined: Wed Jan 11, 2017 8:05 pm

Re: Kids Investment Account

Post by aristotelian » Thu Oct 03, 2019 5:59 am

I agree with you about UTMAs. Our kids have minor savings accounts (I am joint owner) at our local credit union. That's where their birthday checks and allowance go. I also just started a brokerage account in my name at M1 Finance where I offer a 25% match on any funds they invest. Both kids went with index funds rather than individual stocks.

rkhusky
Posts: 7850
Joined: Thu Aug 18, 2011 8:09 pm

Re: Kids Investment Account

Post by rkhusky » Thu Oct 03, 2019 6:17 am

If the amount is only a few thousand, then opening a savings account at the local bank is fine.

NotWhoYouThink
Posts: 2804
Joined: Fri Dec 26, 2014 4:19 pm

Re: Kids Investment Account

Post by NotWhoYouThink » Thu Oct 03, 2019 8:31 am

mortfree wrote:
Thu Oct 03, 2019 5:14 am
Gifts she receives is HER money.

I wouldn’t deposit that in your account.

While you may not prefer an UTMA the money belongs to her and that is why those accounts exist.

Maybe the piggy bank is the way to go then in your situation.
Exactly.

Kids can learn a lot by budgeting and saving and spending and even wasting their own money. Games, clothes, gifts, entertainment. If you can't manage that investing is hopeless.

One step at a time. Talk her through what you are doing to save and invest for the family, but let her manage her own spending account with gift money.

If the gifts run into the thousands you may need more involvement, but when I give a niece a gift I mean for the niece to decide how to spend or save it.

Spirit Rider
Posts: 12235
Joined: Fri Mar 02, 2007 2:39 pm

Re: Kids Investment Account

Post by Spirit Rider » Thu Oct 03, 2019 8:41 am

There may be some validity (though I disagree) to the reluctance for some parents to make "their" substantial contributions to UTMA accounts.

However, as pointed out, gifts from third parties are your children's money as soon as it is received. If you do not contribute it to a UTMA you are still acting as a parental custodian while they are a minor. You have a moral, ethical and legal responsibility to turn it over to them at age 18. Except for 2-3 states that are still 18, the UTMA age of termination can be selected at a minimum age of 21. There are eight states and counting that allow selecting age 25.

While it might be reasonable to delay terminating your custodianship unti after they graduate college. The onus is on you as parents to financially educate your children, so they are responsible with money at that point. If not, well it is still their money.

finfire
Posts: 188
Joined: Tue Aug 14, 2018 1:52 pm

Re: Kids Investment Account

Post by finfire » Thu Oct 03, 2019 8:51 am

Open a bank account. Ally or similar. Your kid will see compounding in action. Involve/Show her your bills and investments as a real-life example of (hopefully) good practices. That's enough for a kid.

I think there's more incentive to learn more about finance when she starts earning her own money.

Other than that, let her be a kid. They've enough to deal with.

Flyer24
Moderator
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Re: Kids Investment Account

Post by Flyer24 » Thu Oct 03, 2019 9:00 am

To me, I am teaching my kids how to manage and budget money first. There is plenty of time later on to get them into the heart of investing. I keep it simple. Their gifts are theirs. I encourage them to at least save a portion. One kid actually saves all her money. Both of my kids have savings accounts (custodial) at Ally.

lakpr
Posts: 3460
Joined: Fri Mar 18, 2011 9:59 am

Re: Kids Investment Account

Post by lakpr » Thu Oct 03, 2019 9:06 am

finfire wrote:
Thu Oct 03, 2019 8:51 am
Open a bank account. Ally or similar. Your kid will see compounding in action. Involve/Show her your bills and investments as a real-life example of (hopefully) good practices. That's enough for a kid.

I think there's more incentive to learn more about finance when she starts earning her own money.

Other than that, let her be a kid. They've enough to deal with.
I tried this with $300 in each of my kids accounts. When they received the statements, they saw the interest credited of a whopping 45 cents, and made fun of me for recommending depositing their funds in this credit union.

I think stocks investing is a lot more interesting.

Broken Man 1999
Posts: 3738
Joined: Wed Apr 08, 2015 11:31 am

Re: Kids Investment Account

Post by Broken Man 1999 » Thu Oct 03, 2019 9:21 am

lakpr wrote:
Thu Oct 03, 2019 9:06 am
finfire wrote:
Thu Oct 03, 2019 8:51 am
Open a bank account. Ally or similar. Your kid will see compounding in action. Involve/Show her your bills and investments as a real-life example of (hopefully) good practices. That's enough for a kid.

I think there's more incentive to learn more about finance when she starts earning her own money.

Other than that, let her be a kid. They've enough to deal with.
I tried this with $300 in each of my kids accounts. When they received the statements, they saw the interest credited of a whopping 45 cents, and made fun of me for recommending depositing their funds in this credit union.

I think stocks investing is a lot more interesting.
Think of their ridicule if interest rates go negative! :oops:

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

finfire
Posts: 188
Joined: Tue Aug 14, 2018 1:52 pm

Re: Kids Investment Account

Post by finfire » Thu Oct 03, 2019 10:55 am

lakpr wrote:
Thu Oct 03, 2019 9:06 am
finfire wrote:
Thu Oct 03, 2019 8:51 am
Open a bank account. Ally or similar. Your kid will see compounding in action. Involve/Show her your bills and investments as a real-life example of (hopefully) good practices. That's enough for a kid.

I think there's more incentive to learn more about finance when she starts earning her own money.

Other than that, let her be a kid. They've enough to deal with.
I tried this with $300 in each of my kids accounts. When they received the statements, they saw the interest credited of a whopping 45 cents, and made fun of me for recommending depositing their funds in this credit union.

I think stocks investing is a lot more interesting.
Individual stocks or mutual funds? (Seriously) Curious, would u use it to teach them that money could be lost and gained with stocks? It would be a lesson of sorts, I suppose if their $50 became $25 overnight because of a bad stock pick....would they take a loss on board?

finfire
Posts: 188
Joined: Tue Aug 14, 2018 1:52 pm

Re: Kids Investment Account

Post by finfire » Thu Oct 03, 2019 10:57 am

Broken Man 1999 wrote:
Thu Oct 03, 2019 9:21 am
lakpr wrote:
Thu Oct 03, 2019 9:06 am
finfire wrote:
Thu Oct 03, 2019 8:51 am
Open a bank account. Ally or similar. Your kid will see compounding in action. Involve/Show her your bills and investments as a real-life example of (hopefully) good practices. That's enough for a kid.

I think there's more incentive to learn more about finance when she starts earning her own money.

Other than that, let her be a kid. They've enough to deal with.
I tried this with $300 in each of my kids accounts. When they received the statements, they saw the interest credited of a whopping 45 cents, and made fun of me for recommending depositing their funds in this credit union.

I think stocks investing is a lot more interesting.
Think of their ridicule if interest rates go negative! :oops:

Broken Man 1999
Ridicule maybe but it could be also a lesson of sorts?

My kids know we have family that are broke because they didn't save ( in a bank or otherwise) and they bought into some bad investments. Again, good lessons for all of us.,.the bad and the good.

lakpr
Posts: 3460
Joined: Fri Mar 18, 2011 9:59 am

Re: Kids Investment Account

Post by lakpr » Thu Oct 03, 2019 12:11 pm

finfire wrote:
Thu Oct 03, 2019 10:55 am
Individual stocks or mutual funds? (Seriously) Curious, would u use it to teach them that money could be lost and gained with stocks? It would be a lesson of sorts, I suppose if their $50 became $25 overnight because of a bad stock pick....would they take a loss on board?
Mutual funds. I work in finance industry, and if we buy individual stocks without prior permission from our Compliance Office, we could be fired from our job. Mutual funds and ETFs do not have that restriction. The “WE” in the previous statement includes both myself and close family relatives.

Secondly, with $300, I can take that risk. Not a huge deal. Even if it becomes $150 overnight, I can absorb the loss. Yes, that can be a teachable moment too, as how stocks behave.

Megamill
Posts: 65
Joined: Sun Feb 11, 2018 10:44 am

Re: Kids Investment Account

Post by Megamill » Thu Oct 03, 2019 3:14 pm

fwiw...My DS at 17 is a little older than your DD, but he has a PT job and is averaging about $150 - $200 per week in earnings. I talked to him about a Roth IRA and that if he wanted me to open one for him, I would match all of his contributions (up to his total gross income or the $6k limit). He agreed so I opened the custodial Roth over the phone and just have to wait for the signature page to arrive in the mail at which time I will sign and send back, then soon after that we'll be good to go. I'm leaning toward throwing all contributions into S&P 500 index for him.

Mtangler25
Posts: 172
Joined: Mon Jul 10, 2017 7:44 pm
Location: Montana

Re: Kids Investment Account

Post by Mtangler25 » Thu Oct 03, 2019 3:33 pm

Not to beat a dead horse but I think that starting with budgeting, and saving is a great start. Once she understands that concept and has an established "emergency fund" and get how to stick with a budget. Then a basic taxable brokerage account would be great, a target date fund will be simple and easy to manage. Also teaches her about AA.

I started a brokerage account in my early years and made lots of mistakes but learned from them. Looking back I wish someone would have taught me more about personal finance and the importance of savings/budgeting before investing.

i think that it is great that you and your wife are teaching your daughter about money, very cool! She will be light years ahead of her peers!

Topic Author
nighthawk75
Posts: 7
Joined: Thu Jan 18, 2018 8:56 pm
Location: Philadelphia, PA

Re: Kids Investment Account

Post by nighthawk75 » Thu Oct 03, 2019 5:15 pm

CedarWaxWing wrote:
Wed Oct 02, 2019 6:19 pm
You cannot give your IRA to your daughter if you are alive.


If you want to help your daughter start an ira:

1. Her having making a contribution to a traditional IRA or a Roth IRA is not affected by your income, but does require that she have earned income of her own.

https://www.irs.gov/retirement-plans/pl ... ion-limits

If she has earned income typical of an 11 year old she can put money from any source up to the contribution limits in the link above into a tIRA or a Roth IRA depending on her income and the contribution limits. For an average youngster with earned income it is usually a good idea to open a roth ira.

2. If she has no earned income, she can still open a taxable account with unearned income from any source.
Thanks for the advice. She only has a few years before she can legally get a part time job. Once she gets there that changes the game a bit. But, I was wanting to get her started early. I'm probably overthinking it. Once she is paying taxes and making her own income then yes I'd recommend her getting a Roth. I wish my parents had told me to do that when I got my first job. I'd be lightyears ahead of my peers. But, I'm not so sure they knew I could or what the benefit would have been at the time. Thanks for the input!

-Cheers

Topic Author
nighthawk75
Posts: 7
Joined: Thu Jan 18, 2018 8:56 pm
Location: Philadelphia, PA

Re: Kids Investment Account

Post by nighthawk75 » Thu Oct 03, 2019 5:31 pm

Grt2bOutdoors wrote:
Wed Oct 02, 2019 7:40 pm
nighthawk75 wrote:
Wed Oct 02, 2019 5:25 pm
Hi fellow Bogleheads!

Looking for words of wisdom on starting a savings and investment account for my daughter.

She is 11. We have her 529 pretty much taken care of and invest $8,400 a year into it.
Gifts she receives from Aunts, Uncles, Grandparents currently do not gain any interest because they are just sitting in a piggy bank. I'm aiming to change that as soon as I possibly can. Not sure what the right approach is. Saving accounts are basically a joke these days.

I want her to be actively involved and see what it's like to save, invest, and watch things grow for herself, and be sure to go for the long haul. We want this to be a learning mechanism where she understands to save as much as she can or at least a percentage.... TO PAY HERSELF FIRST. And since she's so young she has 50+ years to see what this does.

I have read all or portions of the threads that touch on this subject but since everyones situation is unique I thought I'd post.So, thank you to all in advance. I know how great this community is and am looking forward to hearing what you all have to say. It's greatly appreciated.

I'm against UTMA because I do not want her to gain access to the funds until I KNOW she can handle an influx of money. Not all kids mature at the same rate. Especially on a financial responsibility basis. Maybe she will be fine but I want to control when she gets it and I don't want the government to decide that. I think once she is of age she gets access no matter what in a UTMA situation.

My daughter most likely will not quality for FA when she gets to college age. Not too worried about UTMA in that regard.

Unfortunately, we don't qualify for a Roth because of our household income. However, once she begins working... maybe she could throw everything in there since she will be in a low tax bracket.

What I'm thinking of doing is opening an IRA in my name holding a Target 2065 fund just to keep it simple. She can save to that for now, as well as her mom and I. Once she is of age and financially responsible I would transfer it over to her. Or maybe just wait until her mom and I pass. She would just inherit it. Being that it's later in life, hopefully it's a time where she is stable and anything unexpected is clear. It also would protect assets on the event of divorce. Heaven orbit that ever happened. Those rates are pretty high these days to so anything to put a hedge is good I'm thinking for precautionary measures.

The other approach could be a backdoor Roth. Although, admittedly, I'm little more fuzzy on this topic.

Thanks again everyone,
ZP
Regarding your personal situation - "you can't open a Roth due to income". Income is not the barrier unless you mean you don't have enough funds to be able to open one up. Otherwise, you should research BackDoorRoth in the wiki. That is where you open a traditional non-deductible IRA and subsequently convert it to a Roth IRA account. However, if you already hold a Traditional IRA, then the conversion noted above can muck things up, as the IRS would view the conversion against the entire balances held in a Traditional IRA, leading to a pro-rata taxable situation. Please clarify what you mean by "not able to open a Roth IRA".

Since you don't like the idea of a UTMA, why not open a traditional mutual fund account and give the child the funds when they are ready?
As already noted, you can not fund an IRA for a child who has no earned income, nor can you simply transfer an IRA when you are living. However, there is nothing to say that you can't hand your child a check for the full amount as a gift at some point in the future.
I began researching it last night. I meant to take the mentioning of the Roth IRA out of the OP. Because it doesn't really apply to my daughter. But, in terms of my personal account, I'm thinking of doing a Backdoor. My wife and I do not meet the criteria for Roth due to .https://www.irs.gov/retirement-plans/am ... e-for-2019 I originally was thinking I could start one and my daughter could inherit it but there's other modes to give her the money instead as you pointed out. Thanks for your response!

Topic Author
nighthawk75
Posts: 7
Joined: Thu Jan 18, 2018 8:56 pm
Location: Philadelphia, PA

Re: Kids Investment Account

Post by nighthawk75 » Thu Oct 03, 2019 5:39 pm

dbr wrote:
Wed Oct 02, 2019 7:50 pm
If you don't want to just hold a brokerage account of your own to give to your child when you want to, then an alternative is to set up a trust. That would probably not be justified unless there was a lot of money and it was done as part of your estate plan.

I am a little unclear on the idea that gifts that have been made to the child and are being held at "piggy bank" level would be taken away and held until well into the child's middle age at your discretion. Are you talking about $100 Christmas presents or $10,000 gifts for investment? What are the intentions of the relatives regarding what they think the money might be used for?
Thanks for your input! I didn't quite say this. At least I didn't mean to come across like I did.

I believe in teaching her to save a portion / spend a portion. To clear some things up, they are gifts of $100 or $50 here and there but occurs during multiple times of year. Her grandparents intentions are for her not to spend it on frivolous things. For example, if I let her, she would rush right out and spend it all on stickers, Hydro Flasks, clothes, etc. She's a lot like I was when I was a kid. Things burned a hole in my pocket. I'm still trying to control this as an adult. :D But, I'm hoping she learns earlier than I did and gets a better grip on taking care of money now. How to make it go to work for her. Compounded interest is a great thing especially if you've started when you were 12-15.

Topic Author
nighthawk75
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Location: Philadelphia, PA

Re: Kids Investment Account

Post by nighthawk75 » Thu Oct 03, 2019 5:41 pm

stilllurking wrote:
Wed Oct 02, 2019 8:43 pm
Nighthawk,

I hijacked an old thread with some good info. viewtopic.php?t=229903&view=unread#unread
haaaa haaaaa! that was awesome! Good stuff. Thanks for the link. I did see this earlier and started reading through it about a week or two ago.

:sharebeer

Topic Author
nighthawk75
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Location: Philadelphia, PA

Re: Kids Investment Account

Post by nighthawk75 » Thu Oct 03, 2019 6:01 pm

lakpr wrote:
Wed Oct 02, 2019 8:39 pm
oldfatguy wrote:
Wed Oct 02, 2019 8:26 pm
Is this your child's money or yours? Putting her money in your account is a terrible idea.

Also, as I've stated in other threads, having children investing money before they are able to support themselves seems ridiculous to me. It doesn't teach them anything at all reality.
Agree with your first sentence. When kids receive birthday gifts etc. from relatives, it should be treated as the kids' money and handled as such. It can be invested of course, but it must be done so in a UTMA account.

Do not agree with your second sentence though. Assuming kids are reasonably old and understand some basic concepts -- explaining that with his money he bought a tiny share of every public US company (or a tiny share of every public company in the world), is easy enough. One can also get quarterly statements from the fund house, and show the fluctuations from quarter to quarter. That investing in companies can be both a money maker, and a money loser. One can explain the value of diversification, and explaining that since we bought 3500+ companies in one go, one of those 3500 companies going bankrupt means almost nothing for OUR investment ==> leading to the concept of risk reduction via diversification. Also explain the rationale of buying the entire market instead of single stocks or sectors or any other 'slices' of the market.

It can be as educational to the kids as you want and as much effort you are willing to put into. Kids have to be at least 10 years or so, though, to be able to grasp the concepts we are teaching.
Thanks for the responses. But, per the OP yes.... this is her money but not necessarily in my account. Just depends on what we decide to do. The money is for a minor being cared for/stewarded by her parents. Knowing my daughter is like me at her age, the possibility of her getting access to a large UTMA is a bit SCAREY!! However, by starting her out early maybe she will learn early, be way ahead and a step above her peers. They don't teach this stuff in schools. My dad tried starting early with me and some things were hit or miss. But, I want to go a few steps beyond what he did in hopes of helping more things stick.

@Lakpr exactly, my dad tried teaching me that EARLY. I walked away from childhood understanding the important of actually investing in a 401k. Didn't know I could do a Roth IRA at 16. Didn't know the concept or benefits of it either. Thanks for your comments.

petulant
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Re: Kids Investment Account

Post by petulant » Thu Oct 03, 2019 6:43 pm

Honestly for children who are not teenagers, some of the more advanced ideas like diversification may be unintelligible. I would pick a board game with the relevant concept and see if the children understand rather than do so with real money.

For example, in Settlers of Catan, players get resources depending on dice rolls. The dice are a pair of six-sided dice, which means the most probable outcome is 7, then 6 and 8, then 5 and 9, etc. A single game involves many dice rolls but is not a large enough sample size to match the normal distribution. Therefore, the optimal strategy is to concentrate on probable dice rolls like 5, 6, 8, and 9 but to also diversify across these numbers. This game is immediately analogous to portfolio theory.

Only when the child matures would I start to work on the life lessons in real terms.

Topic Author
nighthawk75
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Location: Philadelphia, PA

Re: Kids Investment Account

Post by nighthawk75 » Thu Oct 03, 2019 8:51 pm

Thanks everyone. You left a lot for us to think about.
We truly appreciate all of your comments and the time and effort it took to leave them.

NHK75

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