What to do with my Children's Savings

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Topic Author
tonsofthorns
Posts: 31
Joined: Sat Feb 11, 2012 1:22 pm

What to do with my Children's Savings

Post by tonsofthorns »

I am concerned about my children's saving, sitting in a online savings account making about 1%.

First child (8 yrs) has $7K & second child (3 yrs) has $1.2K in taxable savings accounts. They both have college plans outside of this money. I expect my daughter will want to start using this money at about 15-16 yrs old. What should I do with the money until then? What has been your experience with children's savings accounts?

Option 1: Open taxable accounts with Vanguard and DCA the money into a ETF's or Target Funds.
Option 2: Keep chasing online savings rates,
Other Options?

Thanks for your help!
sscritic
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Joined: Thu Sep 06, 2007 8:36 am

Re: What to do with my Children's Savings

Post by sscritic »

Accept that interest rates are low. When my children were young, I kept their money in the local savings and loan. It earned 13%, but that was then. Today is not then, today is today.

What is your real concern? If it is that today is not 1982, there isn't much you can do about it.
The prime interest rate, a highly important economic measure, eventually reached 21.5% in June 1982
Hey, we just missed the 30th anniversary party! Bummer. :(

Actually I lie (frequently). I actually put some of my first child's money into the highest flying most speculative mutual fund of the era. Luckily, I got out before it crashed and burned. That's why I stuck with the savings and loan for my second child.
Dave76
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Re: What to do with my Children's Savings

Post by Dave76 »

Do you really want to waste it on college?
sscritic
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Re: What to do with my Children's Savings

Post by sscritic »

Dave76 wrote:Do you really want to waste it on college?
I read it that there is other money to be wasted on college. This money is to be wasted on parties.
They both have college [savings] plans outside of this money.
Dave76
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Re: What to do with my Children's Savings

Post by Dave76 »

sscritic wrote:
Dave76 wrote:Do you really want to waste it on college?
I read it that there is other money to be wasted on college. This money is to be wasted on parties.
They both have college [savings] plans outside of this money.
It's an extension of adolescence. Take it from a guy who lived on campus at a graduate school.
mickens16
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Joined: Wed Apr 06, 2011 8:52 am

Re: What to do with my Children's Savings

Post by mickens16 »

tonsofthorns wrote:I am concerned about my children's saving, sitting in a online savings account making about 1%.

First child (8 yrs) has $7K & second child (3 yrs) has $1.2K in taxable savings accounts. They both have college plans outside of this money. I expect my daughter will want to start using this money at about 15-16 yrs old. What should I do with the money until then? What has been your experience with children's savings accounts?

Option 1: Open taxable accounts with Vanguard and DCA the money into a ETF's or Target Funds.
Option 2: Keep chasing online savings rates,
Other Options?

Thanks for your help!
My kids are 5 yrs old and almost 2 yrs old and I have a taxable account for them with VT (Vanguard Total World Stock ETF) at 60% and Intermediate Term Tax Exempt at 40%. As you mentioned in option 1, I DCA money every month to keep the allocation at 60/40. I also have separate 529 accounts for both of them.
reggiesimpson
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Re: What to do with my Children's Savings

Post by reggiesimpson »

I have 529s for my two children (still in college) and 50/50 in their taxable accounts. I have told them that if they take any of this out of their taxable they will lose on it. As they have no reason to take it and spend it they therefore simply dont need it. The real bills will come later so hang on to it!
nonnie
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Location: Northern California

Re: What to do with my Children's Savings

Post by nonnie »

You might take a look at SmartyPig which could be used as a version of children's savings accounts. Although they only pay 1% you could use it as a tool to teach your kids about money. They could create goals and when they are a little older contribute baby sitting or paper route (do kids actually have paper routes any more?) money. As others have suggested you could put it into Vanguard accounts and start teaching them early about BH investing.

http://www.smartypig.com/
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Dandy
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Re: What to do with my Children's Savings

Post by Dandy »

What is the goal for this money? Safety? then keep it in low interest safe vehicles. Growth? then maybe a balance fund? I chose the later by investing in the Star fund. There are more and probably better choices now.
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Topic Author
tonsofthorns
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Re: What to do with my Children's Savings

Post by tonsofthorns »

Thank you for your input. I am going with option 1 and open Vanguard accounts.

Next question. Would you open the accounts in parents name (for the sake of college aid) or would you open them in the child's name?
Gill
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Re: What to do with my Children's Savings

Post by Gill »

tonsofthorns wrote:Would you open the accounts in parents name (for the sake of college aid) or would you open them in the child's name?
Open in parents' names? How can you do that? Didn't you say the money belongs to your children?
Bruce
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
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Rainier
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Re: What to do with my Children's Savings

Post by Rainier »

MBMiner wrote: Open in parents' names? How can you do that? Didn't you say the money belongs to your children?
Bruce
Money can't belong to an 8 year old, technically speaking.

If it's already in a UTMA then it obviously needs to stay in a UTMA. I have about the same amount in my children's UTMA accounts, but I kept my younger child's money earmarked within my savings account until she had enough to open an investment account (the first one got so much more from family/friends, not fair).

Also, no reason to invest in tax-exempt municipals if the children don't earn enough to pay tax.

My children's accounts are 100% equities. 80% domestic/20% foreign.
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happymob
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Re: What to do with my Children's Savings

Post by happymob »

If they don't have any other interest income, consider I Bonds and pay the taxes (there won't be any under the kiddie tax limits) on a yearly basis. You'll get the rate of inflation (likely better than 1%) completely tax-free (again, assuming there is no other interest that the kids are receiving).
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BL
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Re: What to do with my Children's Savings

Post by BL »

My first thought also was I-Bonds. They are now 2.2% for 6 months and can change every 6 months. Yes, you can pay interest each year (file income tax for them) but it probably won't be a great deal of interest a few years from now even if you pay the total then. If it stays in until they are making a good income then maybe it would be worth reporting the interest annually. Would you pay someone to do those simple tax returns?

If you are able to set up a child's account at Vanguard, you could use funds such as Target Retirement or Star which have $1000 minimums. Target Retirement Income (30% equities) would be my choice for relatively short-term investing.
Last edited by BL on Thu Jul 05, 2012 8:00 am, edited 1 time in total.
sscritic
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Re: What to do with my Children's Savings

Post by sscritic »

Rainier wrote: Money can't belong to an 8 year old, technically speaking.
I believe this to be incorrect. If I have money that Vanguard Trust manages as trustee of my trust, the money doesn't belong to Vanguard. When you manage your child's money as trustee of their trust, the money doesn't belong to you. It is true that a child can't enter a contract, which is why you as guardian must sign any contracts for them. Such contracts include opening a mutual fund account. You sign, they own.
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happymob
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Re: What to do with my Children's Savings

Post by happymob »

BL wrote:My first thought also was I-Bonds. They are now 2.2% for 6 months and can change every 6 months. Yes, you can pay interest each year (file income tax for them) but it probably won't be a great deal of interest a few years from now even if you pay the total then. If it stays in until they are making a good income then maybe it would be worth reporting the interest annually. Would you pay someone to do those simple tax returns?

If you are able to set up a child's account at Vanguard, you could use funds such as Target Retirement or Star which have $1000 minimums. Target Retirement Income (30% equities) would be my choice for relatively short-term investing.
Heck no. I let Turbotax do my kids' returns and I print and mail them (to avoid e-file fees). It's not much extra effort (an extra hour per year and a couple bucks in mailing costs).

Suppose the 8-year-old sells at age 18 (to buy a car or pay for college, for example). At 3% annual inflation, they'd have $2407 in interest at redemption, which is over the kiddie tax limit, so the parent would have to put part of the interest on their own return. Why pay that if you don't have to? What happens if they continue to buy more I Bonds between 8 and 18 (so the interest is higher)? What happens if inflation spikes (so the interest is higher)?
JDCPAEsq
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Re: What to do with my Children's Savings

Post by JDCPAEsq »

Rainier wrote:Money can't belong to an 8 year old, technically speaking.
Oh, I didn't realize that. :confused So if someone gives your child $10,000 it doesn't belong to that child and you are free to do as you wish with it, perhaps buy yourself a new motorcycle? No so, I'm afraid. That gift, or earnings of the child or whatever are fully vested in the child. Under certain circumstances it must be managed by a guardian, a custodian or a trustee but those funds are just as fully vested in that minor as they would be for you and me. Please elaborate on "technically speaking" and educate me further on the limitations you perceive.
John
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Rainier
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Re: What to do with my Children's Savings

Post by Rainier »

JDCPAEsq wrote:
Rainier wrote:Money can't belong to an 8 year old, technically speaking.
Oh, I didn't realize that. :confused So if someone gives your child $10,000 it doesn't belong to that child and you are free to do as you wish with it, perhaps buy yourself a new motorcycle? No so, I'm afraid. That gift, or earnings of the child or whatever are fully vested in the child. Under certain circumstances it must be managed by a guardian, a custodian or a trustee but those funds are just as fully vested in that minor as they would be for you and me. Please elaborate on "technically speaking" and educate me further on the limitations you perceive.
John
I was wrong, but thanks for being so friendly.

I misunderstood the guardianship/custodial terminology.
hsv_climber
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Re: What to do with my Children's Savings

Post by hsv_climber »

happymob wrote: Heck no. I let Turbotax do my kids' returns and I print and mail them (to avoid e-file fees). It's not much extra effort (an extra hour per year and a couple bucks in mailing costs).
You can't e-file anyway. There are some rules that prohibit e-filing if child's taxable income is less than $900. I don't know what is the reasoning behind it, but Turbotax won't allow you to e-file.
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