Teenage investment accounts

[Wannaretireearly]

Hi All,

I want to invest my kids savings. I’ve been combining it with my accounts up until now. All fungible etc, but I want to show them how their $5k or so is invested/growing or not etc.

We have BofA kids checking and saving.
We have Vanguard brokerage, incl 529s
We have Fidelity for all 401ks.

I don’t want another seperate company for kids investment accounts (Robinhood etc). What are my options to open actual investment accounts for two teens?

[delamer]

You can open UTMAs or UGMAs almost anywhere: https://www.nerdwallet.com/article/investing/utma-ugma

[Lmf1171]

The Fidelity Youth account is a great option for teens. You can often find a sign up bonus of $50 or $100 for opening a new youth account.

https://www.fidelity.com/go/youth-account/overview

[Wannaretireearly]

You can open UTMAs or UGMAs almost anywhere: https://www.nerdwallet.com/article/investing/utma-ugma

Thanks, I had not thought of these accounts at all. Any pros/cons with going this approach? Ideally I want simplicity and full access for the kids without strings. (Not tied to college etc)

[delamer]

You can open UTMAs or UGMAs almost anywhere: https://www.nerdwallet.com/article/investing/utma-ugma

Thanks, I had not thought of these accounts at all. Any pros/cons with going this approach? Ideally I want simplicity and full access for the kids without strings. (Not tied to college etc)

Some are listed in the article. These funds belong to your kids once they reach the age of majority; that’s an issue for some parents (overblown in my opinion).

[Wannaretireearly]

Thanks, I had not thought of these accounts at all. Any pros/cons with going this approach? Ideally I want simplicity and full access for the kids without strings. (Not tied to college etc)

Some are listed in the article. These funds belong to your kids once they reach the age of majority; that’s an issue for some parents (overblown in my opinion).

Thank you.

[Wannaretireearly]

The Fidelity Youth account is a great option for teens. You can often find a sign up bonus of $50 or $100 for opening a new youth account.

https://www.fidelity.com/go/youth-account/overview

Good option. Perhaps the easiest/no strings. Thanks.

[Wannaretireearly]

A thought…will this become a tax problem/headache?
Imagine $500 or $1k gain. How does this get reported? Do the kids have to file their own taxes?

[WAROB]

Agree UTMA accounts are probably the best route. Just keep in mind that the 1099 is issued to the minor’s SSN so the kid may end up with a filing requirement and you may have considerations for the kiddie tax.

[Wannaretireearly]

Agree UTMA accounts are probably the best route. Just keep in mind that the 1099 is issued to the minor’s SSN so the kid may end up with a filing requirement and you may have considerations for the kiddie tax.

Thanks and grrrr. This may stop me in my tracks. I don’t want to deal with more tax complexity

[WAROB]

You could open up separate brokerage accounts in your name each with one of your kids listed as the sole beneficiary. This might allow them to see “their” account and then you can gift the account to them whenever you choose.

[Wannaretireearly]

You could open up separate brokerage accounts in your name each with one of your kids listed as the sole beneficiary. This might allow them to see “their” account and then you can gift the account to them whenever you choose.

Thanks. Perhaps the gods are telling me to wait this out until they are true adults.

[billfromct]

Google “kiddie tax”.

I believe for 2024, the first $1,300 of investment income (interest, dividends, capital gains, etc) is not taxable for the child. The next $1,300 is taxed at the child’s income tax rate & any investment income over $2,600 is taxed at the parent’s income tax rate. I guess this was put in place so parents wouldn’t put their money in a child’s investment account to avoid paying income tax on money that they may eventually give to their children.

I think the $1,300 & $2,600 figure is adjusted for inflation each year.

Edit: I will probably give some money to my grandchildren (if I ever do have any) & will tell my son/daughter to “tax gain harvest” every year up to the $1,300 or $2,600 (adjust for inflation) figure in order to keep future capital gains as low as possible for those future grandchildren.

bill

[Wannaretireearly]

Google “kiddie tax”.

I believe for 2024, the first $1,300 of investment income (interest, dividends, capital gains, etc) is not taxable for the child. The next $1,300 is taxed at the child’s income tax rate & any investment income over $2,600 is taxed at the parent’s income tax rate. I guess this was put in place so parents wouldn’t put their money in a child’s investment account to avoid paying income tax on money that they may eventually give to their children.

I think the $1,300 & $2,600 figure is adjusted for inflation each year.

bill

Thanks Bill. The part that concerns me is how to report this.
If I have to do something different other than file my own taxes, this maybe more headache than it’s worth.

[delamer]

Do your kids have any earned income from summer or afterschool jobs?

If so, you can open IRAs for them. No tax filing required. The amount is limited to their earned income or $7,000 (for 2024 & 2025), whichever is lower.

[Wannaretireearly]

Do your kids have any earned income from summer or afterschool jobs?

If so, you can open IRAs for them. No tax filing required. The amount is limited to their earned income or $7,000 (for 2024 & 2025), whichever is lower.

They don’t. But, this needs to happen soon

[RetiredAL]

Google “kiddie tax”.

I believe for 2024, the first $1,300 of investment income (interest, dividends, capital gains, etc) is not taxable for the child. The next $1,300 is taxed at the child’s income tax rate & any investment income over $2,600 is taxed at the parent’s income tax rate. I guess this was put in place so parents wouldn’t put their money in a child’s investment account to avoid paying income tax on money that they may eventually give to their children.

I think the $1,300 & $2,600 figure is adjusted for inflation each year.

bill

Thanks Bill. The part that concerns me is how to report this.
If I have to do something different other than file my own taxes, this maybe more headache than it’s worth.

I do the tax returns for the two Grands UTMA's. Takes maybe 15 min each using HRB. I do gain harvest the account each year to just below the $2600 taxable points.

[RetiredAL]

Thanks, I had not thought of these accounts at all. Any pros/cons with going this approach? Ideally I want simplicity and full access for the kids without strings. (Not tied to college etc)

Some are listed in the article. These funds belong to your kids once they reach the age of majority; that’s an issue for some parents (overblown in my opinion).

I concur.

[Wannaretireearly]

Thanks Bill. The part that concerns me is how to report this.
If I have to do something different other than file my own taxes, this maybe more headache than it’s worth.

I do the tax returns for the two Grands UTMA's. Takes maybe 15 min each using HRB. I do gain harvest the account each year to just below the $2600 taxable points.

Nice. Thanks!

[Rocky Mtn Man]

Some are listed in the article. These funds belong to your kids once they reach the age of majority; that’s an issue for some parents (overblown in my opinion).

I concur.

The funds belong to your kids the instant you fund the account, you are only the custodian. Any funds taken out before the kids reach the age of majority have to be for their direct benefit beyond ordinary expenses. Ex: you can't take the money out to buy toothpaste and socks.

[jackholloway]

I also think the concern about the money belonging to your kids at 18 (or 21 depending on state) is overblown. I am not sure I would put my kids college fund in their hands at 18 but I inherited what would now be 35k from my grandmother when I was 14. I saved it though college, bought a computer in college, then was going to spend the rest on a new car on graduation. My parents didn’t stop me, but found a used car for a third the price that was both a better deal and a more fun ride.

As far as complexity, you don’t even need to file if they’ve got less than 1300 games I need additional complexity filing isn’t that much. Heck, even if it’s more than that, you’re still only looking at more paid your tax rate, rather than theirs.

[Valhalla7]

Do your kids have any earned income from summer or afterschool jobs?

If so, you can open IRAs for them. No tax filing required. The amount is limited to their earned income or $7,000 (for 2024 & 2025), whichever is lower.

Is a 1099 from a parent’s LLC considered earned income? A time sheet for manual labor could be kept and paid out of the LLC.

[Wannaretireearly]

Ok, I think utma may be the right account for the kids.
I’m thinking keep it in vanguard with the 529’s. The utma will have $5k ish invested. Is this a good path? Also, what can I invest in?
I was thinking of a world fund but idk.

[delamer]

Ok, I think utma may be the right account for the kids.
I’m thinking keep it in vanguard with the 529’s. The utma will have $5k ish invested. Is this a good path? Also, what can I invest in?
I was thinking of a world fund but idk.

If you want/expect/hope that the kids will not spend any of the funds for 10+ years, then a 100% stock fund is fine. If they might spend the funds in the shorter-term, then maybe add some Treasuries (individual or funds).

If you want to avoid dealing with taxes, then a fund that doesn’t off throw much in dividends, interest, or capital gains is worth considering.

[Wannaretireearly]

Ok, I think utma may be the right account for the kids.
I’m thinking keep it in vanguard with the 529’s. The utma will have $5k ish invested. Is this a good path? Also, what can I invest in?
I was thinking of a world fund but idk.

If you want/expect/hope that the kids will not spend any of the funds for 10+ years, then a 100% stock fund is fine. If they might spend the funds in the shorter-term, then maybe add some Treasuries (individual or funds).

If you want to avoid dealing with taxes, then a fund that doesn’t off throw much in dividends, interest, or capital gains is worth considering.

Thanks! Yes I want to avoid dealing with taxes!
What 100% stock fund would be good to choose? Ideally global AA but doesn’t have to be.

[delamer]

If you want/expect/hope that the kids will not spend any of the funds for 10+ years, then a 100% stock fund is fine. If they might spend the funds in the shorter-term, then maybe add some Treasuries (individual or funds).

If you want to avoid dealing with taxes, then a fund that doesn’t off throw much in dividends, interest, or capital gains is worth considering.

Thanks! Yes I want to avoid dealing with taxes!
What 100% stock fund would be good to choose? Ideally global AA but doesn’t have to be.

I don’t know if there are world stock funds with limited distributions. It is just not something I’ve looked into. The international fund (VEA) that I hold throws off a fair amount of income. Plus there is the issue of foreign taxes paid.

You might want to do an all US fund instead.

[Wannaretireearly]

Thanks! Yes I want to avoid dealing with taxes!
What 100% stock fund would be good to choose? Ideally global AA but doesn’t have to be.

I don’t know if there are world stock funds with limited distributions. It is just not something I’ve looked into. The international fund (VEA) that I hold throws off a fair amount of income. Plus there is the issue of foreign taxes paid.

You might want to do an all US fund instead.

Thanks Delamer. Yep, a US fund might be the way to go.