Investment account for kids

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Topic Author
karmacomes
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Joined: Thu Jan 30, 2020 6:18 pm

Investment account for kids

Post by karmacomes »

Hi there,
I researched a bit about the best way to build money for my kids ages 9 and 11. I have everything in Fidelity right now, so plan to keep this also at Fidelity if I can, unless there are better choices. Few options I see:
- Custodial account
- Roth IRA for kids - but my kids don't really earn much right now other than for small jobs
- Taxable account (hopefully I can make a joint account to be later transferred to him once older)
- 529 plan which I'm keeping as last option, I really am not interested much in this

Are these the only options, and if so what would you recommend as the better option ? I plan to put $100 every month or so and into index funds so it grows into a sizeable amount when they get older. Any feedback on your thought process, and how you went about for your kids would be appreciated. Thanks!
annu
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Re: Investment account for kids

Post by annu »

529.
And working hard putting max in 401k/pretax, dying quickly before I need to spend for helathcare
retire2022
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Re: Investment account for kids

Post by retire2022 »

I told my friend who owned a business around 1996 to hire his two sons (teens) and had on the books income, one is 37 now the other is 31, they both have approx 200K & 100K respectively, and had invested in Vanguard SP500 (VFIAX)

They are pleased and it works, start early, one of them preferred his Traditional IRA should had been Roth.

also see this other thread on this topic before: viewtopic.php?f=1&t=267082
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Watty
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Re: Investment account for kids

Post by Watty »

karmacomes wrote: Thu Jan 30, 2020 6:39 pm Few options I see:
- Custodial account
- Roth IRA for kids - but my kids don't really earn much right now other than for small jobs
- Taxable account (hopefully I can make a joint account to be later transferred to him once older)
- 529 plan which I'm keeping as last option, I really am not interested much in this

Are these the only options, and if so what would you recommend as the better option ?
I would add.

Invest the money in your accounts and you can give it to them later or let them inherit it some day.

This is especially true if you are not already maxing out all your available retirement account and other tax advantaged accounts.

By far one of the best things you can do for your kids is to make sure that they will not have to financially support you even if you run into an unexpected string of health, career, and investing events. I have known people that ended up having to support their parents and it is hard on them and especially their spouses to see a lot of a families resources being used to support the in-laws. This is not just because the parent was irresponsible or poor since things like a car accident or early illness can cost a huge amount even if you have insurance. Unexpectedly getting laid off in your 50s can also derail your retirement plans.

If you cannot easily retire today then it may be too soon to start transferring money to your kids.

If you are already financially set for life then you really should get professional estate planning since when you are dealing with a large amount of money estate planning is too tricky to do it yourself.
BlackDiamond
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Re: Investment account for kids

Post by BlackDiamond »

Is this money for their college fund? Or will it be setup for their own discretion?
Topic Author
karmacomes
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Re: Investment account for kids

Post by karmacomes »

BlackDiamond wrote: Fri Jan 31, 2020 12:18 am Is this money for their college fund? Or will it be setup for their own discretion?
I intend this as their money, not for college fund. I somehow don't find 529 all that appealing, when we can do it via one of the other accounts. 529 is only meant for education expenses, whereas the others can be used for other things incl. education (albeit diff tax implications).
Topic Author
karmacomes
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Re: Investment account for kids

Post by karmacomes »

retire2022 wrote: Thu Jan 30, 2020 9:28 pm I told my friend who owned a business around 1996 to hire his two sons (teens) and had on the books income, one is 37 now the other is 31, they both have approx 200K & 100K respectively, and had invested in Vanguard SP500 (VFIAX)

They are pleased and it works, start early, one of them preferred his Traditional IRA should had been Roth.

also see this other thread on this topic before: viewtopic.php?f=1&t=267082
thanks for the link, i'll go through it today. So your friend setup one kid with Traditional IRA and the other with Roth IRA for kids. I plan on having them both setup the same with equal amounts so there are no problems later on when they grow up and understand things :)
Topic Author
karmacomes
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Re: Investment account for kids

Post by karmacomes »

Watty wrote: Thu Jan 30, 2020 11:43 pm
karmacomes wrote: Thu Jan 30, 2020 6:39 pm Few options I see:
- Custodial account
- Roth IRA for kids - but my kids don't really earn much right now other than for small jobs
- Taxable account (hopefully I can make a joint account to be later transferred to him once older)
- 529 plan which I'm keeping as last option, I really am not interested much in this

Are these the only options, and if so what would you recommend as the better option ?
I would add.

Invest the money in your accounts and you can give it to them later or let them inherit it some day.

This is especially true if you are not already maxing out all your available retirement account and other tax advantaged accounts.

By far one of the best things you can do for your kids is to make sure that they will not have to financially support you even if you run into an unexpected string of health, career, and investing events. I have known people that ended up having to support their parents and it is hard on them and especially their spouses to see a lot of a families resources being used to support the in-laws. This is not just because the parent was irresponsible or poor since things like a car accident or early illness can cost a huge amount even if you have insurance. Unexpectedly getting laid off in your 50s can also derail your retirement plans.

If you cannot easily retire today then it may be too soon to start transferring money to your kids.

If you are already financially set for life then you really should get professional estate planning since when you are dealing with a large amount of money estate planning is too tricky to do it yourself.
Understood, and totally agree. I don't want to be a burden on anyone once we're older. I'm in mid-40s and have maxed my retirement accounts.
retire2022
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Re: Investment account for kids

Post by retire2022 »

karmacomes wrote: Fri Jan 31, 2020 9:54 am
retire2022 wrote: Thu Jan 30, 2020 9:28 pm I told my friend who owned a business around 1996 to hire his two sons (teens) and had on the books income, one is 37 now the other is 31, they both have approx 200K & 100K respectively, and had invested in Vanguard SP500 (VFIAX)

They are pleased and it works, start early, one of them preferred his Traditional IRA should had been Roth.

also see this other thread on this topic before: viewtopic.php?f=1&t=267082
thanks for the link, i'll go through it today. So your friend setup one kid with Traditional IRA and the other with Roth IRA for kids. I plan on having them both setup the same with equal amounts so there are no problems later on when they grow up and understand things :)
No, both kids had traditional IRAs, it is better Roth accounts at low earned income levels.

Tax Rates at earned income $6500 is very little tax on 1040.

Best to do Roth in my opinion on lower incomes esp withdrawals 58 years into future 12+58=67

Assuming Full Retirement Age will stay 58 years into future, remember compound interest will make portfolio a meaningful number.
Grt2bOutdoors
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Re: Investment account for kids

Post by Grt2bOutdoors »

karmacomes wrote: Thu Jan 30, 2020 6:39 pm Hi there,
I researched a bit about the best way to build money for my kids ages 9 and 11. I have everything in Fidelity right now, so plan to keep this also at Fidelity if I can, unless there are better choices. Few options I see:
- Custodial account
- Roth IRA for kids - but my kids don't really earn much right now other than for small jobs
- Taxable account (hopefully I can make a joint account to be later transferred to him once older)
- 529 plan which I'm keeping as last option, I really am not interested much in this

Are these the only options, and if so what would you recommend as the better option ? I plan to put $100 every month or so and into index funds so it grows into a sizeable amount when they get older. Any feedback on your thought process, and how you went about for your kids would be appreciated. Thanks!
Do your children have earned income? If they do not, then an IRA is out. If they are working, then you can fund IRA up to the value of their earnings. If you do an UTMA it is a completed gift, the money belongs to the child and they gain access to it at the age of majority in your state of residence.

If you are planning to file for financial aid for college, the schools will look at the value of the UTMA and declare 20% of it eligible to pay for cost of schooling. Each year! If you do the taxable account in your name, it will have to be declared but the value considered eligible to pay for cost of schooling will be lower under current regulations. The taxable account in your name is most flexible, the UTMA takes second place.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Topic Author
karmacomes
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Re: Investment account for kids

Post by karmacomes »

Grt2bOutdoors wrote: Fri Jan 31, 2020 11:15 am
karmacomes wrote: Thu Jan 30, 2020 6:39 pm Hi there,
I researched a bit about the best way to build money for my kids ages 9 and 11. I have everything in Fidelity right now, so plan to keep this also at Fidelity if I can, unless there are better choices. Few options I see:
- Custodial account
- Roth IRA for kids - but my kids don't really earn much right now other than for small jobs
- Taxable account (hopefully I can make a joint account to be later transferred to him once older)
- 529 plan which I'm keeping as last option, I really am not interested much in this

Are these the only options, and if so what would you recommend as the better option ? I plan to put $100 every month or so and into index funds so it grows into a sizeable amount when they get older. Any feedback on your thought process, and how you went about for your kids would be appreciated. Thanks!
Do your children have earned income? If they do not, then an IRA is out. If they are working, then you can fund IRA up to the value of their earnings. If you do an UTMA it is a completed gift, the money belongs to the child and they gain access to it at the age of majority in your state of residence.

If you are planning to file for financial aid for college, the schools will look at the value of the UTMA and declare 20% of it eligible to pay for cost of schooling. Each year! If you do the taxable account in your name, it will have to be declared but the value considered eligible to pay for cost of schooling will be lower under current regulations. The taxable account in your name is most flexible, the UTMA takes second place.
Earned income: that's the part which kinda throws me off. They get some money for working with our neighbors in packaging marketing goods, doing yard work, walking his dogs etc. But it's all in cash. how do I document that as earnings? I was thinking of using this for their Roth IRA for kids, but I hesitate....
Maybe I should just put it in taxable account each in their name (Joint account to be transferred to them later) and call it a day. There's no limit to how much money I can put if that's the case, right? Since this will be post-tax money being put in.

Thanks to all for the feedback so far, just helps me clarify a few things in mind!
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abuss368
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Re: Investment account for kids

Post by abuss368 »

I would reconsider the College 529 accounts. We opened these accounts and have accumulated a nice amount that will result in that much less being loaned.
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Wiggums
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Re: Investment account for kids

Post by Wiggums »

According to the IRS, Taxable earned income includes:
Wages, salaries, tips, and other taxable employee pay;
Union strike benefits;
Long-term disability benefits received prior to minimum retirement age;
Net earnings from self-employment if:
You own or operate a business or a farm or
You are a minister or member of a religious order (see Special Rules page for more information);
You are a statutory employee and have income. (See definition of statutory employee on our Helpful Definitions and Acronyms for EITC page).
Jack FFR1846
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Re: Investment account for kids

Post by Jack FFR1846 »

If you claim the kids have income, then they're going to have to pay the 15% payroll taxes. So if you're able to set up a Roth (when I asked for my son when he was 17, Schwab and Fidelity both told me that the account would be a custodial Roth), you're essentially paying a 15% front end load.

If instead, you simply set up a 529 or your own brokerage account that you label as for the kids in the future, you don't pay the loads. Sure, the gains aren't tax free.
Bogle: Smart Beta is stupid
Topic Author
karmacomes
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Re: Investment account for kids

Post by karmacomes »

Jack FFR1846 wrote: Fri Jan 31, 2020 1:46 pm If you claim the kids have income, then they're going to have to pay the 15% payroll taxes. So if you're able to set up a Roth (when I asked for my son when he was 17, Schwab and Fidelity both told me that the account would be a custodial Roth), you're essentially paying a 15% front end load.

If instead, you simply set up a 529 or your own brokerage account that you label as for the kids in the future, you don't pay the loads. Sure, the gains aren't tax free.
oh that's right, I didn't quite put it like that in my head. But would the 15% payroll taxes have a minimum income requirement? I'm probably leaning towards a taxable account for each one of them. Maybe a 529 too then...
TwoIdenticalIndexes
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Re: Investment account for kids

Post by TwoIdenticalIndexes »

karmacomes wrote: Fri Jan 31, 2020 12:58 pm
Earned income: that's the part which kinda throws me off. They get some money for working with our neighbors in packaging marketing goods, doing yard work, walking his dogs etc. But it's all in cash. how do I document that as earnings? I was thinking of using this for their Roth IRA for kids, but I hesitate....
Maybe I should just put it in taxable account each in their name (Joint account to be transferred to them later) and call it a day. There's no limit to how much money I can put if that's the case, right? Since this will be post-tax money being put in.

Thanks to all for the feedback so far, just helps me clarify a few things in mind!
My parents had me record all of my earnings, the job, and the date in a checkbook for several years. Documenting should be enough, as I doubt your neighbors will deny in a worst-case scenario audit situation.
retire2022
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Re: Investment account for kids

Post by retire2022 »

Op

If your kids follow IRS rules what consitutes record keeping documentation for Earned Income as long as it is below $6000 for 2019 i would file 1040, if you have 1099 or W2 it would be even better.

You can do it for free https://sites.google.com/site/excel1040/home
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karmacomes
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Re: Investment account for kids

Post by karmacomes »

TwoIdenticalIndexes wrote: Fri Jan 31, 2020 2:47 pm
karmacomes wrote: Fri Jan 31, 2020 12:58 pm
Earned income: that's the part which kinda throws me off. They get some money for working with our neighbors in packaging marketing goods, doing yard work, walking his dogs etc. But it's all in cash. how do I document that as earnings? I was thinking of using this for their Roth IRA for kids, but I hesitate....
Maybe I should just put it in taxable account each in their name (Joint account to be transferred to them later) and call it a day. There's no limit to how much money I can put if that's the case, right? Since this will be post-tax money being put in.

Thanks to all for the feedback so far, just helps me clarify a few things in mind!
My parents had me record all of my earnings, the job, and the date in a checkbook for several years. Documenting should be enough, as I doubt your neighbors will deny in a worst-case scenario audit situation.
got it, thanks.
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karmacomes
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Re: Investment account for kids

Post by karmacomes »

retire2022 wrote: Fri Jan 31, 2020 2:54 pm Op

If your kids follow IRS rules what consitutes record keeping documentation for Earned Income as long as it is below $6000 for 2019 i would file 1040, if you have 1099 or W2 it would be even better.

You can do it for free https://sites.google.com/site/excel1040/home
I have to see what constitutes record keeping documentation for IRS per their rules. but you are right, it will be below $6000.
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guwop
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Re: Investment account for kids

Post by guwop »

I also can't decide which type of account would be best for our child's long term growth. Our goal is to let the account grow for as long as possible (until she is at least 18-21 yrs old). We do not want this account to affect her eligibility or coverage level if and when she applies for college and financial aid.

My understanding is that UTMA/UGMA accounts do hinder an adolescent's eligibility for financial aid. Would it be best to just open a taxable account (under parent(s) names), contribute annually until the child reaches a certain age (or maturity), and then transfer the account to them?
oldfatguy
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Re: Investment account for kids

Post by oldfatguy »

guwop wrote: Fri Jan 31, 2020 4:45 pm I also can't decide which type of account would be best for our child's long term growth. Our goal is to let the account grow for as long as possible (until she is at least 18-21 yrs old). We do not want this account to affect her eligibility or coverage level if and when she applies for college and financial aid.

My understanding is that UTMA/UGMA accounts do hinder an adolescent's eligibility for financial aid. Would it be best to just open a taxable account (under parent(s) names), contribute annually until the child reaches a certain age (or maturity), and then transfer the account to them?
Anyone with enough income and assets to worry about what type of accounts to have and how they should be titled is not going to be eligible for financial aid.

Regardless, if the money belongs to the child, it should be in an account in the child's name. If the money belongs to you, keep it in your name.
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celia
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Re: Investment account for kids

Post by celia »

karmacomes wrote: Thu Jan 30, 2020 6:39 pm - Custodial account
- Taxable account (hopefully I can make a joint account to be later transferred to him once older)
These are the same thing.

- Roth IRA for kids - but my kids don't really earn much right now other than for small jobs
Family chores don't count. They have to have legitimate wages, such as would be reported to the IRS so the IRS sees the income. Summer jobs for others are ok. If they are mowing lawns for neighbors, for example, they can file as self-employed.
- 529 plan which I'm keeping as last option, I really am not interested much in this
You should first study 529 plans as the withdrawals would be tax-free, if used for educational expenses. However, if the account is in the student's name, that will lessen the financial aid for which they are eligible. And one child's 529 can impact the financial aid of another child.
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Watty
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Re: Investment account for kids

Post by Watty »

guwop wrote: Fri Jan 31, 2020 4:45 pm My understanding is that UTMA/UGMA accounts do hinder an adolescent's eligibility for financial aid. Would it be best to just open a taxable account (under parent(s) names), contribute annually until the child reaches a certain age (or maturity), and then transfer the account to them?
A trust would also be worth considering.

One huge risk of putting money in some sort of UTMA/UGMA is that the money will go the the kid at a set age no matter what. Money like this was not involved but I know of several families that had kids with drug problems or other bad situations at about that age and giving them a significant amount of money at that point would have made things a lot worse.
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Re: Investment account for kids

Post by retire2022 »

karmacomes wrote: Fri Jan 31, 2020 4:26 pm
retire2022 wrote: Fri Jan 31, 2020 2:54 pm Op

If your kids follow IRS rules what consitutes record keeping documentation for Earned Income as long as it is below $6000 for 2019 i would file 1040, if you have 1099 or W2 it would be even better.

You can do it for free https://sites.google.com/site/excel1040/home
I have to see what constitutes record keeping documentation for IRS per their rules. but you are right, it will be below $6000.
karmacomes see publication 17, page 44-45 I've included everything here, of course I recommend you do your own research.

https://www.irs.gov/pub/irs-pdf/p17.pdf

Employee Compensation
This section discusses various types of employee compensation, including fringe benefits, retirement plan contributions, stock options, and restricted property.

Form W-2.
If you’re an employee, you should receive a Form W-2 from your employer showing the pay you received for your services. Include your pay on line 1 of Form 1040, even if you don’t receive a Form W-2.In some instances, your employer isn’t required to give you a Form W-2. Your employer isn’t required to give you a Form W-2 if you per-form household work in your employer's home for less than $2,100 in cash wages during the calendar year and you have no federal income taxes withheld from your wages.

Household work is work done in or around an employer's home. Some examples of workers who do household work are:

•Babysitters,
•Caretakers,
•House cleaning workers,
•Domestic workers,
•Drivers,
•Health aides,
•Housekeepers,
•Maids,
•Nannies,
•Private nurses, and
•Yard workers.

See Schedule H (Form 1040), Household Employment Taxes, and its instructions, and Pub. 926 for more information.

If you performed services, other than as an independent contractor, and your employer didn’t withhold social security and Medicare taxes from your pay, you must file Form 8919, Uncollected Social Security and Medicare Tax on Wages, with your Form 1040.

See Form 8919 and its instructions for more information on how to figure unreported wages and taxes and how to include them on your income tax re-turn.

Childcare providers. If you provide childcare, either in the child's home or in your home or other place of business, the pay you receive must be included in your income. If you aren’t an employee, you’re probably self-employed and must include payments for your services on Schedule C (Form 1040), Profit or Loss From Business, or Schedule C-EZ (Form 1040), Net Profit From Business. You generally aren’t an employee unless you’re subject to the will and control of the person who employs you as to what you’re to do and how you’re to do it.

Babysitting.
If you’re paid to babysit, even for relatives or neighborhood children, whether on a regular basis or only periodically, the rules for childcare providers apply to you.

Employment tax.
Whether you're an employee or self-employed person, your income could be subject to self-employment tax. See the instructions for Schedules C and SE (Form 1040) if you're self-employed. Also see Pub. 926 for more information.

Miscellaneous Compensation
This section discusses different types of employee compensation.
Advance commissions and other earnings.If you receive advance commissions or other amounts for services to be performed in the future and you’re a cash-method taxpayer, you must include these amounts in your income in the year you receive them.

If you repay unearned commissions or other amounts in the same year you receive them, reduce the amount included in your income by the repayment. If you repay them in a later tax year, you can deduct the repayment as an itemized deduction on your Schedule A (Form 1040), line 16, or you may be able to take a credit for that year.

See Repayments in chapter 12.

Allowances and reimbursements.

If you receive travel, transportation, or other business expense allowances or reimbursements from your employer, see Pub. 463.

If you’re reimbursed for moving expenses, see Pub. 521, Moving Expenses.

Back pay awards.
If you receive an amount in payment of a settlement or judgment for back pay, you must include the amount of the payment in your income. This includes payments made to you for damages, unpaid life insurance premiums, and unpaid health insurance premiums. They should be reported to you by your employer on Form W-2.Bonuses and awards.If you receive a bonus or award (cash, goods, services) from your employer, you must include its value in your in-come. However, if your employer merely promises to pay you a bonus or award at some future time, it isn’t taxable until you receive it or it’s made available to you.

Employee achievement award.
If you receive tangible personal property (other than cash, a gift certificate, or an equivalent item) as an award for length of service or safety achievement, you generally can exclude its value from your income. The amount you can exclude is limited to your employer's cost and can’t be more than $1,600 for qualified plan awards or $400 for non-qualified plan awards for all such awards you receive during the year. Your employer can tell you whether your award is a qualified plan award. Your employer must make the award as part of a meaningful presentation, under conditions and circumstances that don’t create a significant likelihood of it being disguised pay.

However, the exclusion doesn’t apply to the following awards.
•A length-of-service award if you received it for less than 5 years of service or if you received another length-of-service award during the year or the previous 4 years.
•A safety achievement award if you’re a manager, administrator, clerical employee, or other professional employee or if more than 10% of eligible employees previously received safety achievement awards dur-ing the year.Example. Ben Green received three employee achievement awards during the year: a non-qualified plan award of a watch valued at $250, two qualified plan awards of a stereo valued at $1,000, and a set of golf clubs valued at $500. Assuming that the requirements for qualified plan awards are otherwise satisfied, each award by itself would be excluded from income. However, because the $1,750 total value of the awards is more than $1,600, Ben must include $150 ($1,750 – $1,600) in his income.

Differential wage payments.
This is any payment made to you by an employer for any period during which you’re, for a period of more than 30 days, an active duty member of the uni-formed services and represents all or a portion of the wages you would have received from the employer during that period. These payments are treated as wages and are subject to income tax withholding, but not FICA or FUTA taxes. The payments are reported as wages on Form W-2.Government cost-of-living allowances.

Most payments received by U.S. Government civilian employees for working abroad are taxable. However, certain cost-of-living allowances are tax free. Pub. 516, U.S. Government Civilian Employees Stationed Abroad, explains the tax treatment of allowances, differentials, and other special pay you receive for employment abroad.

Nonqualified deferred compensation plans.
Your employer may report to you the total amount of deferrals for the year under a non-qualified deferred compensation plan on Form W-2, box 12, using code Y. This amount isn’t included in your income. However, if at any time during the tax year, the plan fails to meet certain requirements, or isn’t operated under those requirements, all amounts deferred under the plan for the tax year and all preceding tax years to the extent vested and not previously included in income are included in your income for the current year.

This amount is included in your wages shown on Form W-2, box 1. It’s also shown on Form W-2, box 12, using code Z.Note received for services.If your employer gives you a secured note as payment for your services, you must include the fair market value (usually the discount value) of the note in your income for the year you receive it. When you later receive payments on the note, a proportionate part of each payment is the recovery of the fair market value that you previously included in your income. Don’t include that part again in your income. Include the rest of the payment in your income in the year of payment. If your employer gives you a nonnegotiable unsecured note as payment for your services, payments on the note that are credited toward the principal amount of the note are compensation income when you receive them.

Severance pay.
If you receive a severance payment when your employment with your employer ends or is terminated, you must include this amount in your income.

Accrued leave payment.
If you’re a federal employee and receive a lump-sum payment for accrued annual leave when you retire or resign, this amount will be included as wages on your Form W-2. If you resign from one agency and are reemployed by another agency, you may have to re-pay part of your lump-sum annual leave pay-ment to the second agency. You can reduce gross wages by the amount you repaid in the same tax year in which you received it. Attach to your tax return a copy of the receipt or state-ment given to you by the agency you repaid to explain the difference between the wages on the return and the wages on your Forms W-2.

Outplacement services.
If you choose to accept a reduced amount of severance pay so that you can receive outplacement services (such as training in résumé writing and inter-view techniques), you must include the unreduced amount of the severance pay in income.
Sick pay.
Pay you receive from your employer while you’re sick or injured is part of your salary or wages. In addition, you must include in your income sick pay benefits received from any of the following payers.

•A welfare fund.
•A state sickness or disability fund.
•An association of employers or employees.
•An insurance company, if your employer paid for the plan.

However, if you paid the premiums on an accident or health insurance policy yourself, the benefits you receive under the policy aren’t tax-able. For more information, see Pub. 525.

Social security and Medicare taxes paid by employer.
If you and your employer have an agreement that your employer pays your social security and Medicare taxes without deducting them from your gross wages, you must report the amount of tax paid for you as taxable wages on your tax return. The payment also is treated as wages for figuring your social security and Medicare taxes and your social security and Medicare benefits. However, these payments aren’t treated as social security and Medicare wages if you’re a household worker or a farm worker.

Stock appreciation rights.
Don’t include a stock appreciation right granted by your employer in income until you exercise (use) the right. When you use the right, you’re entitled to a cash payment equal to the fair market value of the corporation's stock on the date of use minus the fair market value on the date the right was granted. You include the cash payment in your income in the year you use the right.
Topic Author
karmacomes
Posts: 14
Joined: Thu Jan 30, 2020 6:18 pm

Re: Investment account for kids

Post by karmacomes »

celia wrote: Fri Jan 31, 2020 5:00 pm
karmacomes wrote: Thu Jan 30, 2020 6:39 pm - Custodial account
- Taxable account (hopefully I can make a joint account to be later transferred to him once older)
These are the same thing.
Custodial account and taxable joint account are the same? I didn't know that, thanks
celia wrote: Fri Jan 31, 2020 5:00 pm
- Roth IRA for kids - but my kids don't really earn much right now other than for small jobs
Family chores don't count. They have to have legitimate wages, such as would be reported to the IRS so the IRS sees the income. Summer jobs for others are ok. If they are mowing lawns for neighbors, for example, they can file as self-employed.
- 529 plan which I'm keeping as last option, I really am not interested much in this
You should first study 529 plans as the withdrawals would be tax-free, if used for educational expenses. However, if the account is in the student's name, that will lessen the financial aid for which they are eligible. And one child's 529 can impact the financial aid of another child.
Right, it's meant only for educational expenses, and for the reasons you mentioned I'm not totally into it...
Topic Author
karmacomes
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Joined: Thu Jan 30, 2020 6:18 pm

Re: Investment account for kids

Post by karmacomes »

retire2022 wrote: Fri Jan 31, 2020 7:44 pm
karmacomes wrote: Fri Jan 31, 2020 4:26 pm
retire2022 wrote: Fri Jan 31, 2020 2:54 pm Op

If your kids follow IRS rules what consitutes record keeping documentation for Earned Income as long as it is below $6000 for 2019 i would file 1040, if you have 1099 or W2 it would be even better.

You can do it for free https://sites.google.com/site/excel1040/home
I have to see what constitutes record keeping documentation for IRS per their rules. but you are right, it will be below $6000.
karmacomes see publication 17, page 44-45 I've included everything here, of course I recommend you do your own research.

https://www.irs.gov/pub/irs-pdf/p17.pdf

Employee Compensation
This section discusses various types of employee compensation, including fringe benefits, retirement plan contributions, stock options, and restricted property.
......
Thank you for posting this in so much detail, I'll go through it and come back with any questions.
StealthRabbit
Posts: 528
Joined: Sat Jun 13, 2009 1:25 am

Re: Investment account for kids

Post by StealthRabbit »

Roth IRAs worked great for our kids... FAFSA did not consider those funds. Kids still got nothing except interest deferred loans, but... They each had enough in Roth's to fund college should they have decided to use it for that. At the time their own loans were 2.7% . They were savvy enough to take that as a good deal. As educated bogleheads, they invested the equivalent of the loans while In college and made far more than pay off amount.

I matched 100% of their earnings into Roth from age 12 to 18. That helped with their incentive to work / earn.

They covered everything past age 16 (when they left for college). Cars , insurance, food, lodging (rents), tuition, books, fees... It was 'their responsibility,' as per the communicated plan from day one. They had plenty of dough & training.

College age was implementation time. Sink or swim... Opportune time to demonstrate that. It is such a good time to get it right. Low stress, little additional responsibility at that time of life. Doesn't ever get easier. (Unless a trust fund baby). Personally, I felt they benefited during that time as they each confronted schools and profs to hold them responsible for providing a better edu deliverable, since it was our kid's $$ that were funding that event / investment of their time and money. I'm glad the kids questioned their U's, as I too was back in grad school at that time and found the U and profs very lax in delivering relevant content. My kids got their money's worth out of college. They grew up a lot and exited magna by age 20. Now 15 yrs beyond college. Doing very well.
User avatar
guwop
Posts: 128
Joined: Thu Mar 10, 2011 6:42 pm

Re: Investment account for kids

Post by guwop »

StealthRabbit wrote: Sun Feb 02, 2020 3:58 am Roth IRAs worked great for our kids... FAFSA did not consider those funds. Kids still got nothing except interest deferred loans, but... They each had enough in Roth's to fund college should they have decided to use it for that. At the time their own loans were 2.7% . They were savvy enough to take that as a good deal. As educated bogleheads, they invested the equivalent of the loans while In college and made far more than pay off amount.

I matched 100% of their earnings into Roth from age 12 to 18. That helped with their incentive to work / earn.

They covered everything past age 16 (when they left for college). Cars , insurance, food, lodging (rents), tuition, books, fees... It was 'their responsibility,' as per the communicated plan from day one. They had plenty of dough & training.

College age was implementation time. Sink or swim... Opportune time to demonstrate that. It is such a good time to get it right. Low stress, little additional responsibility at that time of life. Doesn't ever get easier. (Unless a trust fund baby). Personally, I felt they benefited during that time as they each confronted schools and profs to hold them responsible for providing a better edu deliverable, since it was our kid's $$ that were funding that event / investment of their time and money. I'm glad the kids questioned their U's, as I too was back in grad school at that time and found the U and profs very lax in delivering relevant content. My kids got their money's worth out of college. They grew up a lot and exited magna by age 20. Now 15 yrs beyond college. Doing very well.
How early (age) or other limiting factor, can I open a Roth IRA for our child? She is about to turn 1, so obviously she can’t have any earned income (unless it’s for baby modeling). This is the route I’d choose if possible, giving her several decades of tax free growth (something I never took advantage of).
Topic Author
karmacomes
Posts: 14
Joined: Thu Jan 30, 2020 6:18 pm

Re: Investment account for kids

Post by karmacomes »

StealthRabbit wrote: Sun Feb 02, 2020 3:58 am Roth IRAs worked great for our kids... FAFSA did not consider those funds. Kids still got nothing except interest deferred loans, but... They each had enough in Roth's to fund college should they have decided to use it for that. At the time their own loans were 2.7% . They were savvy enough to take that as a good deal. As educated bogleheads, they invested the equivalent of the loans while In college and made far more than pay off amount.

I matched 100% of their earnings into Roth from age 12 to 18. That helped with their incentive to work / earn.

They covered everything past age 16 (when they left for college). Cars , insurance, food, lodging (rents), tuition, books, fees... It was 'their responsibility,' as per the communicated plan from day one. They had plenty of dough & training.

College age was implementation time. Sink or swim... Opportune time to demonstrate that. It is such a good time to get it right. Low stress, little additional responsibility at that time of life. Doesn't ever get easier. (Unless a trust fund baby). Personally, I felt they benefited during that time as they each confronted schools and profs to hold them responsible for providing a better edu deliverable, since it was our kid's $$ that were funding that event / investment of their time and money. I'm glad the kids questioned their U's, as I too was back in grad school at that time and found the U and profs very lax in delivering relevant content. My kids got their money's worth out of college. They grew up a lot and exited magna by age 20. Now 15 yrs beyond college. Doing very well.
Thank you for posting this. Could you please add a few more details:
- how old were your kids when you added them to Roth IRA for kids?
- how did you keep track of their earnings? what were the typical earnings when kids?
- Can you match 100% of their earnings starting age 12 to 18? This is good information for me to build for my kids
- what did you mean by they exited "magna" by age 20? I don't really follow....sorry.
retire2022
Posts: 1539
Joined: Tue Oct 02, 2018 6:10 pm
Location: NYC

Re: Investment account for kids

Post by retire2022 »

op Tax discussion in regards to filing for child, over this thread which could be of interest to you viewtopic.php?f=1&t=303097
StealthRabbit
Posts: 528
Joined: Sat Jun 13, 2009 1:25 am

Re: Investment account for kids

Post by StealthRabbit »

karmacomes wrote: Mon Feb 03, 2020 9:49 am ...
Thank you for posting this. Could you please add a few more details:
- how old were your kids when you added them to Roth IRA for kids?
- how did you keep track of their earnings? what were the typical earnings when kids?
- Can you match 100% of their earnings starting age 12 to 18? This is good information for me to build for my kids
- what did you mean by they exited "magna" by age 20? I don't really follow....sorry.
Age 12 when they started Roths
Usually $4,000 / yr earnings until about age 15, then ~ $10k annual earnings for kids.
I just added 100% of a 'match' to their Roths (Up to maximum allowable contribution)
Magna exit = Graduated in top 10% of college STEM class, we all wore the gold ropes at graduation in the same yr from different colleges. (I returned to college as well, to encourage kids and to gain more knowledge myself). They tutored me so I didn't mess up the 'family GPA' (homeschool payback).

I filed IRS returns for my kids from age 12 (if income over filing requirement ~$1050 for unearned (which they had in other investment accts) + Earned... qualifying for IRA) until they left home (pre-age 18) .
https://www.irs.gov/publications/p929
https://www.irs.gov/taxtopics/tc553

Side benefits:
Kids did very well as investors during college (*and following)
Kids were well skilled and took very high paying summer jobs. (Wildland firefighting (engine / crew bosses) and Alaska Fishing, and Rope rescue training) all pay about $30k - $40k in 6 weeks (15 yrs ago)
fasteddie911
Posts: 341
Joined: Fri May 16, 2008 3:13 pm

Re: Investment account for kids

Post by fasteddie911 »

Instead of 529 or UTMA, we're doing a taxable in our name to be spent on us, our child and/or passed down to them in the future. I prefer the flexibility that it will provide as opposed to being "locked up" in another account. Anything can happen in the future, job loss, forced retirement, health or other unexpected expenses. As someone else said, we don't want to burden our kids because our finances came up short.
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