College Kids - Investing

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retire#10
Posts: 1
Joined: Thu Jun 10, 2021 10:45 pm

College Kids - Investing

Post by retire#10 »

I have been a silent learner in this forum. Great posts and responses!

My daughter is a senior and going to college this year with full ride. I am planning to invest (every year) the amount equivalent to the college tuition in her name. Thinking of investing in Vanguard 2065 Target retirement fund. I would like to get bogle head's opinion about this and also know about the following:

1) Tax Implications
2) Does having a brokerage account affect financial aid for future school/Post graduation?
3) Any other suggestions
Pessimist55
Posts: 160
Joined: Thu May 14, 2015 12:16 am

Re: College Kids - Investing

Post by Pessimist55 »

1. They are allowed tax free of $2.2k in LTCG each year
2. It's assets doesn't matter if it's in a brokerage or savings.
3.529 plan no need to pay tax on gains but a little late now...
Max out your own Roth IRA/401k acct first..gift the money later.
lazynovice
Posts: 1513
Joined: Mon Apr 16, 2012 10:48 pm

Re: College Kids - Investing

Post by lazynovice »

Sounds like you want her to have this for retirement.

Does she work? If she does, she can contribute the lesser of her earned income or 6,000 into a Roth. So you could take 6,000 of the college money and contribute to the Roth for 2021. You can continue to do that each year that she is below the limit for direct Roth contributions. If she is eligible for a Roth 401(k) when she starts working, she can make large contributions year 1 vis payroll and you can gift her the money for living expenses.

Having money in any non-retirement account will affect financial aid eligibility, so I would keep it in yours until you can get it into Roth accounts.

If you think she might use it for graduate school, then putting it into a 529 would make sense.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
KlangFool
Posts: 20983
Joined: Sat Oct 11, 2008 12:35 pm

Re: College Kids - Investing

Post by KlangFool »

OP,

1) Invest in your own taxable account.

2) If and when she is working, sell and give her the money to invest in her own Roth IRA account. This could be during college too.

<< I am planning to invest (every year) the amount equivalent to the college tuition in her name.>>

3) Alternatively, don't do that. Give her the money to max up her Roth IRA and Trad/Roth 401K when she started working. That maximize the tax benefits. In general, she would not be able to max contribute those accounts when she started working for the first few years. Those tax-advantaged account space would be wasted.

KlangFool
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smitcat
Posts: 7954
Joined: Mon Nov 07, 2016 10:51 am

Re: College Kids - Investing

Post by smitcat »

KlangFool wrote: Fri Jun 11, 2021 2:07 pm OP,

1) Invest in your own taxable account.

2) If and when she is working, sell and give her the money to invest in her own Roth IRA account. This could be during college too.

<< I am planning to invest (every year) the amount equivalent to the college tuition in her name.>>

3) Alternatively, don't do that. Give her the money to max up her Roth IRA and Trad/Roth 401K when she started working. That maximize the tax benefits. In general, she would not be able to max contribute those accounts when she started working for the first few years. Those tax-advantaged account space would be wasted.

KlangFool
Yes - exactly this.
StealthRabbit
Posts: 584
Joined: Sat Jun 13, 2009 1:25 am

Re: College Kids - Investing

Post by StealthRabbit »

Yes, do as above....
Fill your own opportune pot,
Fill her opportune pots as available (consider funding her Roth 1st, and forever.... She can access contributions after 5 yrs if needed)
Teach her to be a boglehead, sooner than later. (Long before college if possible)

If she takes to finance,. Gift her $12k/ yr into her 'freedom-fund'. My kids made more investing during college, that their tuition expense. They exited 'positive' / in the black, but were quite disgusted with the time sink / opportunity cost of college. At that age.... I can understand thier reasons. College was their first introduction to a 'classroom' full of similar aged clones. Few are there for the 'learning'. They met and roomed with a lot of older students, very interested and active as investors / business owners. They learned a lot from collaboration and resourceful roomies! Nearly all ended up in finance careers.
hppycamper
Posts: 10
Joined: Sat May 22, 2021 8:41 pm

Re: College Kids - Investing

Post by hppycamper »

+1. Agree with the advice above.

To add a finer detail, take advantage of paid internship opportunities during college years to contribute to Roth 401K if the employers allow college interns to contribute to 401K. Direct roll over to a Roth IRA after the internship ends.
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