Saving and investing for kids

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Topic Author
Mario2222
Posts: 23
Joined: Mon Dec 24, 2018 12:16 am

Saving and investing for kids

Post by Mario2222 » Tue Feb 11, 2020 10:47 pm

Is it a good idea to invest kids money in a balanced fund ? I'm thinking about vbiax vanguard balanced fund or one of the life strategies funds. I'm talking about a brokerage account.

EHEngineer
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Joined: Sat Feb 28, 2015 4:35 pm

Re: Saving and investing for kids

Post by EHEngineer » Tue Feb 11, 2020 11:01 pm

It's fine to do that. I'm not a FAFSA expert, but I understand that money in kid's name will most severly affect FAFSA aid. more severly than money in a parent's name, money in a 529 (with parent owner) or money in a retirement account. If child has earned income I recommend putting the money in a roth. it's better for student aid and for tax treatment.
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

Topic Author
Mario2222
Posts: 23
Joined: Mon Dec 24, 2018 12:16 am

Re: Saving and investing for kids

Post by Mario2222 » Wed Feb 12, 2020 9:22 am

I want to open a brokerage account on my name. I think that any accounts on their names will effect their chances of getting students aid packages.
Last edited by Mario2222 on Wed Feb 12, 2020 9:40 am, edited 1 time in total.

oldfatguy
Posts: 547
Joined: Tue Feb 27, 2018 1:38 pm

Re: Saving and investing for kids

Post by oldfatguy » Wed Feb 12, 2020 9:24 am

Mario2222 wrote:
Wed Feb 12, 2020 9:22 am
I want to open a brokerage account on my name.
If it is your money that you are investing to give to your kids at some point in the future, open the account in your name. If the money belongs to your child(ren), then the account(s) should be in their name.

dukeblue219
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Re: Saving and investing for kids

Post by dukeblue219 » Wed Feb 12, 2020 9:28 am

There's many ways to do this, and philosophies differ on whether you want to bless/curse your kids with a large balance of cash at a young age.

However, consider taxes in your decision. A newborn has 16-22 years ahead in which capital gains can be harvested with no tax due (just watch out for kiddie tax limits).

As to the original question, when my youngsters receive checks made out to them in name, I don't go to the 529 or anything. My philosophy is that is their money. It goes into a UTMA investment account where I do exactly as you suggest. I put it all in FFNOX as a set it and forget it, not super aggressive, cheap mutual fund. Something even less aggressive would be fine if you don't feel that it is your place to be aggressive with someone else's money.

mega317
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Re: Saving and investing for kids

Post by mega317 » Wed Feb 12, 2020 9:31 am

Depends on the goal. For now while my kids are young I'm putting birthday money in VTSAX with the idea that it will go towards a car or school trip or something like that. When they are old enough to understand money, I imagine my goal will be more teaching about saving than investing for gain in which case I'll start with a savings account. Then when they're old enough and interested to learn investing we'll probably do something else.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

mega317
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Re: Saving and investing for kids

Post by mega317 » Wed Feb 12, 2020 9:31 am

Depends on the goal. For now while my kids are young I'm putting birthday money in VTSAX with the idea that it will go towards a car or school trip or something like that. When they are old enough to understand money, I imagine my goal will be more teaching about saving than investing for gain in which case I'll start with a savings account. Then when they're old enough and interested to learn investing we'll probably do something else.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

Topic Author
Mario2222
Posts: 23
Joined: Mon Dec 24, 2018 12:16 am

Re: Saving and investing for kids

Post by Mario2222 » Wed Feb 12, 2020 9:43 am

Any accounts on kids names will impact their ability from getting scholarships and students aid.
Last edited by Mario2222 on Wed Feb 12, 2020 9:51 am, edited 1 time in total.

oldfatguy
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Re: Saving and investing for kids

Post by oldfatguy » Wed Feb 12, 2020 9:49 am

Mario2222 wrote:
Wed Feb 12, 2020 9:43 am
Any accounts on kids names will effect their chances of getting students aid.
You aren't suggesting that you want to defraud the financial aid system, are you?

Kids with money invested generally don't need financial aid. And even if the parent tries to "hide" the money in their own name, anyone with enough income and assets to be worried about that isn't going to be eligible for financial aid anyway.

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Wiggums
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Re: Saving and investing for kids

Post by Wiggums » Wed Feb 12, 2020 10:01 am

My kids both have the balanced fund for 17+ years.

Courtesy of Fidelity website
Image
Last edited by Wiggums on Wed Feb 12, 2020 10:04 am, edited 3 times in total.

EnjoyIt
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Re: Saving and investing for kids

Post by EnjoyIt » Wed Feb 12, 2020 10:02 am

oldfatguy wrote:
Wed Feb 12, 2020 9:49 am
Mario2222 wrote:
Wed Feb 12, 2020 9:43 am
Any accounts on kids names will effect their chances of getting students aid.
You aren't suggesting that you want to defraud the financial aid system, are you?

Kids with money invested generally don't need financial aid. And even if the parent tries to "hide" the money in their own name, anyone with enough income and assets to be worried about that isn't going to be eligible for financial aid anyway.
I would gladly do everything in my power to decrease the cost of higher eduction and feel morally justified to do so.

[Distracting image removed by admin LadyGeek]

medic
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Re: Saving and investing for kids

Post by medic » Wed Feb 12, 2020 11:25 am

Mario2222 wrote:
Wed Feb 12, 2020 9:43 am
Any accounts on kids names will impact their ability from getting scholarships and students aid.
depends on what the purpose of the money is. as long as you spend down the account before they're applying for college aid, there's no impact. Children are expensive and more so as the grow. Trips to visit colleges, car, summer camps, etc can all be paid for from the UTMA. Depending on the child's age, that can be over a decade of growth.

If the child actually starts working at some point, you can put the money from the UTMA into an IRA for them up to the contribution limits. Money in IRAs don't impact FAFSA calculations, but they may impact other aid packages (haven't looked at them closely).

Note: If you haven't taken care of all your retirement needs first by maximizing all the tax free and tax deferred options, skip investing for the child and get your financial situation in order.

NotWhoYouThink
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Re: Saving and investing for kids

Post by NotWhoYouThink » Wed Feb 12, 2020 11:42 am

Mario2222 wrote:
Wed Feb 12, 2020 9:43 am
Any accounts on kids names will impact their ability from getting scholarships and students aid.
Only if they would have received aid without those accounts. Most won't, so the accounts won't affect anything.

Spirit Rider
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Re: Saving and investing for kids

Post by Spirit Rider » Wed Feb 12, 2020 3:37 pm

There are two considerations with UTMA accounts:
  • Kiddie Taxes
  • Financial Aid
The choice of investments are impacted by the size of the UTMA account, generation of ordinary income and starting again in 2020 the parents marginal tax rates.

In 2020 with only unearned income, the first $1100 is tax free, the next $1100 is subject to the dependent's tax rates* and everything else is subject to the parent's marginal tax rates.

With earned income >= $750, only $350 is tax free, $1850 is subject to the dependent's tax rates* and everything else is subject to the parent's marginal tax rates.

*Ordinary income tax rate = 10% and capital gains tax rate = 0%.

The problem with large enough UTMA balances, high parental marginal tax rates and a balanced fund or other tax ineficient investments. Is they will cause excessive taxation

Even though the change back to parental marginal rates eliminated the extra tax free trust tax bracket. It is almost always better to invest in a total stock market fund and tax gain harvest up to the top of the 0% capital gains tax bracket. The latter is critical to not generate substantial income when distributing from the UTMA.

Under the new FAFSA rules implemented for the 2017/2018 school year. Income is reported for the prior prior tax year and assets are reported as of the day you sign the FAFSA.

This means if you were to file your FAFSA today. The relevant tax return for the parents and student would be 2018 and your assets as of 2/12/20.

This means you have until the winter of the student's senior year to spend down* or move UTMA balances to an UTMA 529. A UTMA 529 balance is considered a parental asset assessed at a maximum rate of 5.64%. A UTMA balance is a student asset assessed at a maximum rate of 20%.

You can use the UTMA to buy them a car, a better computer and other electronics for college, pay for academic and extra curricular activities, college tests and study, an international trip, etc...

These latter two steps are only necessary and beneficial if there is any possibility of financial aid.

oldfatguy
Posts: 547
Joined: Tue Feb 27, 2018 1:38 pm

Re: Saving and investing for kids

Post by oldfatguy » Thu Feb 13, 2020 9:24 am

EnjoyIt wrote:
Wed Feb 12, 2020 10:02 am
oldfatguy wrote:
Wed Feb 12, 2020 9:49 am
Mario2222 wrote:
Wed Feb 12, 2020 9:43 am
Any accounts on kids names will effect their chances of getting students aid.
You aren't suggesting that you want to defraud the financial aid system, are you?

Kids with money invested generally don't need financial aid. And even if the parent tries to "hide" the money in their own name, anyone with enough income and assets to be worried about that isn't going to be eligible for financial aid anyway.
I would gladly do everything in my power to decrease the cost of higher eduction and feel morally justified to do so.

[Distracting image removed by admin LadyGeek]
Your sense of morality is your own business, but parents attempting to "hide" money to increase financial aid does nothing to decrease the cost of providing the education, it merely shifts the cost to someone else. Just as with taxes, there are legal and ethical ways to reduce income and assets considered for financial aid. There are also fraudulent ways to do it, and moving a child's assets to an account in someone else's name is one of them.

mega317
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Joined: Tue Apr 19, 2016 10:55 am

Re: Saving and investing for kids

Post by mega317 » Thu Feb 13, 2020 9:31 am

I didn't read anyone suggest fraud. I read spend the money in legitimate ways, move it to a Roth, or never put the money in their name.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

oldfatguy
Posts: 547
Joined: Tue Feb 27, 2018 1:38 pm

Re: Saving and investing for kids

Post by oldfatguy » Thu Feb 13, 2020 9:37 am

mega317 wrote:
Thu Feb 13, 2020 9:31 am
I didn't read anyone suggest fraud. I read spend the money in legitimate ways or never put the money in their name.
The OP suggesting investing "the kids money" in an account "in my own name" because "any accounts on their names will effect their chances of getting students aid " That's fraud.
Mario2222 wrote:
Tue Feb 11, 2020 10:47 pm
Is it a good idea to invest kids money in a balanced fund ?
Mario2222 wrote:
Wed Feb 12, 2020 9:22 am
I want to open a brokerage account on my name. I think that any accounts on their names will effect their chances of getting students aid packages.
As I initially stated. If you are investing your own money to give to your kids at some point in the future, it should be in your name. If the money already belongs to your kids, it should be in their name.

3Fund4Life
Posts: 46
Joined: Sat May 04, 2019 10:53 pm

Re: Saving and investing for kids

Post by 3Fund4Life » Thu Feb 13, 2020 9:41 am

Spirit Rider wrote:
Wed Feb 12, 2020 3:37 pm
There are two considerations with UTMA accounts:
  • Kiddie Taxes
  • Financial Aid
The choice of investments are impacted by the size of the UTMA account, generation of ordinary income and starting again in 2020 the parents marginal tax rates.

In 2020 with only unearned income, the first $1100 is tax free, the next $1100 is subject to the dependent's tax rates* and everything else is subject to the parent's marginal tax rates.

With earned income >= $750, only $350 is tax free, $1850 is subject to the dependent's tax rates* and everything else is subject to the parent's marginal tax rates.

*Ordinary income tax rate = 10% and capital gains tax rate = 0%.

The problem with large enough UTMA balances, high parental marginal tax rates and a balanced fund or other tax ineficient investments. Is they will cause excessive taxation

Even though the change back to parental marginal rates eliminated the extra tax free trust tax bracket. It is almost always better to invest in a total stock market fund and tax gain harvest up to the top of the 0% capital gains tax bracket. The latter is critical to not generate substantial income when distributing from the UTMA.

Under the new FAFSA rules implemented for the 2017/2018 school year. Income is reported for the prior prior tax year and assets are reported as of the day you sign the FAFSA.

This means if you were to file your FAFSA today. The relevant tax return for the parents and student would be 2018 and your assets as of 2/12/20.

This means you have until the winter of the student's senior year to spend down* or move UTMA balances to an UTMA 529. A UTMA 529 balance is considered a parental asset assessed at a maximum rate of 5.64%. A UTMA balance is a student asset assessed at a maximum rate of 20%.

You can use the UTMA to buy them a car, a better computer and other electronics for college, pay for academic and extra curricular activities, college tests and study, an international trip, etc...

These latter two steps are only necessary and beneficial if there is any possibility of financial aid.
As always, excellent advice from Spirit Rider.

I also like the flexibility of the UTMA and the ability to tax gain harvest, even at the reduced levels starting in 2020.
Nobody knows nothing

mega317
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Joined: Tue Apr 19, 2016 10:55 am

Re: Saving and investing for kids

Post by mega317 » Thu Feb 13, 2020 10:34 am

I guess it depends on how you define kids money. My opinion is that I have decision making about things that are ostensibly "my kids'". If grandma gives them a dangerous toy or a book that's not age-appropriate or a check I am responsible for it. It's not going to be used to buy me a watch or something, but I am going to be making the decisions.

You could argue that some gift givers wouldn't want the money saved for college but rather spent on something more immediately fun for the child.
Last edited by mega317 on Thu Feb 13, 2020 10:49 am, edited 1 time in total.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

mega317
Posts: 3254
Joined: Tue Apr 19, 2016 10:55 am

Re: Saving and investing for kids

Post by mega317 » Thu Feb 13, 2020 10:48 am

Also I can afford the watch without birthday money, and I'd be paying for school trips, computers, college without birthday money, so it's all mental accounting anyway.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

EnjoyIt
Posts: 3391
Joined: Sun Dec 29, 2013 8:06 pm

Re: Saving and investing for kids

Post by EnjoyIt » Thu Feb 13, 2020 10:54 am

oldfatguy wrote:
Thu Feb 13, 2020 9:24 am
EnjoyIt wrote:
Wed Feb 12, 2020 10:02 am
oldfatguy wrote:
Wed Feb 12, 2020 9:49 am
Mario2222 wrote:
Wed Feb 12, 2020 9:43 am
Any accounts on kids names will effect their chances of getting students aid.
You aren't suggesting that you want to defraud the financial aid system, are you?

Kids with money invested generally don't need financial aid. And even if the parent tries to "hide" the money in their own name, anyone with enough income and assets to be worried about that isn't going to be eligible for financial aid anyway.
I would gladly do everything in my power to decrease the cost of higher eduction and feel morally justified to do so.

[Distracting image removed by admin LadyGeek]
Your sense of morality is your own business, but parents attempting to "hide" money to increase financial aid does nothing to decrease the cost of providing the education, it merely shifts the cost to someone else. Just as with taxes, there are legal and ethical ways to reduce income and assets considered for financial aid. There are also fraudulent ways to do it, and moving a child's assets to an account in someone else's name is one of them.
It appears that shifting cost to someone else is what America is all about. Our healthcare is a great example where knowledgeable people do everything in their power to legally get subsidized healthcare. How is this any different? Currently i do everything in my power to lower my taxes. This includes using loop holes that I know about. How is that any different?

Please do not pick on parents who want to do everything in their power to legally decrease their cost of higher education.

KlangFool
Posts: 15098
Joined: Sat Oct 11, 2008 12:35 pm

Re: Saving and investing for kids

Post by KlangFool » Thu Feb 13, 2020 11:01 am

OP,

1) I invest my kid's money in the LifeStrategy Growth Fund within my brokerage account.

2) When they started working in a summer job during High School, they open a Roth IRA account and I transfer their money into Roth IRA. The investment change into the LifeStrategy Moderate Growth Fund.

3) After it is confirmed that they do not qualify for any need-based financial aid, I transfer the rest of their money into the LifeStrategy Growth Fund within their own Vanguard account.

4) Each of my kids has about 20K to 30K worth of investment.

KlangFool

EnjoyIt
Posts: 3391
Joined: Sun Dec 29, 2013 8:06 pm

Re: Saving and investing for kids

Post by EnjoyIt » Thu Feb 13, 2020 11:07 am

KlangFool wrote:
Thu Feb 13, 2020 11:01 am
OP,

1) I invest my kid's money in the LifeStrategy Growth Fund within my brokerage account.

2) When they started working in a summer job during High School, they open a Roth IRA account and I transfer their money into Roth IRA. The investment change into the LifeStrategy Moderate Growth Fund.

3) After it is confirmed that they do not qualify for any need-based financial aid, I transfer the rest of their money into the LifeStrategy Growth Fund within their own Vanguard account.

4) Each of my kids has about 20K to 30K worth of investment.

KlangFool
Using Roth accounts is my plan as well.

oldfatguy
Posts: 547
Joined: Tue Feb 27, 2018 1:38 pm

Re: Saving and investing for kids

Post by oldfatguy » Thu Feb 13, 2020 11:15 am

EnjoyIt wrote:
Thu Feb 13, 2020 10:54 am
oldfatguy wrote:
Thu Feb 13, 2020 9:24 am

Your sense of morality is your own business, but parents attempting to "hide" money to increase financial aid does nothing to decrease the cost of providing the education, it merely shifts the cost to someone else. Just as with taxes, there are legal and ethical ways to reduce income and assets considered for financial aid. There are also fraudulent ways to do it, and moving a child's assets to an account in someone else's name is one of them.
It appears that shifting cost to someone else is what America is all about. Our healthcare is a great example where knowledgeable people do everything in their power to legally get subsidized healthcare. How is this any different? Currently i do everything in my power to lower my taxes. This includes using loop holes that I know about. How is that any different?
I already addressed that above (bolded).

I hope everyone actually reads the text in the signature box of the FAFSA, which includes the statement, "If you purposely give false or misleading
information, you may be fined up to $20,000, sent to prison, or both."

oldfatguy
Posts: 547
Joined: Tue Feb 27, 2018 1:38 pm

Re: Saving and investing for kids

Post by oldfatguy » Thu Feb 13, 2020 11:24 am

mega317 wrote:
Thu Feb 13, 2020 10:34 am
I guess it depends on how you define kids money.
It's not subjective. Money in your name is your money. Money in your kids name is your kids money. While they are minors, you are the custodian of those assets, but they belong to the child, not you.

When you apply for financial aid, you are asked to distinguish between parent assets and student assets. It matters.

mega317
Posts: 3254
Joined: Tue Apr 19, 2016 10:55 am

Re: Saving and investing for kids

Post by mega317 » Thu Feb 13, 2020 11:28 am

OK but if the money was never in their name, or it is spent legitimately before applying, what is the problem?
https://www.bogleheads.org/forum/viewtopic.php?t=6212

oldfatguy
Posts: 547
Joined: Tue Feb 27, 2018 1:38 pm

Re: Saving and investing for kids

Post by oldfatguy » Thu Feb 13, 2020 11:31 am

mega317 wrote:
Thu Feb 13, 2020 11:28 am
OK but if the money was never in their name, or it is spent legitimately before applying, what is the problem?
None at all if the money doesn't already belong to the child, but that is not what the OP initially indicated. I have already stated several times that there are plenty of legal ways to reduce income and assets for the purpose of financial aid. But moving a child's assets into the parent's account is not one of them.

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