Review Investment Plan for Children's Windfall, Please

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Shaoya
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Review Investment Plan for Children's Windfall, Please

Post by Shaoya » Mon Apr 06, 2015 11:21 pm

A wonderful family friend recently sent my kids (b. 2008 & 2010) $10K each. It's sitting in their credit union accounts now, but for each of them, I'm thinking of doing the following: first, transferring $5K to their Oregon College Savings Plan 529 accounts (to which my wife and I contribute each month via DCA). Each kid has a domestic equities index fund (TIAA-CREF Equity Index Fund Institutional Class - TIEIX:0.05%) and an international equities index fund (Vanguard Total International Stock Index Fund Investor - VGTSX:0.22%) [BTW - Oregon's a high income tax rate state and it we do gain tax deductions for our contributions.]

To give them maximal flexibility (maybe they want to travel for a bit after high school?), I'm thinking of setting up a UGMA/UTMA account at Vanguard for each kid and invest the other $5K.[My wife and I each have Vanguard accounts.] But I'm not sure what fund to select which would further diversify their holdings? 500 Index?, Small Cap Index?, etc. [I understand that a UGMA/UTMA does penalize their prospects for college financial aid, but I don't think we'll likely qualify for need-based aid anyway.]

Questions:

1. What Vanguard fund should I select for their UGMA/UTMA?

2. Should I do a UGMA or an UTMA?

Any other advice would be appreciated! Thank you in advance your time and assistance. - Shaoya

Leeraar
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Re: Review Investment Plan for Children's Windfall, Please

Post by Leeraar » Tue Apr 07, 2015 12:44 am

I'd put it all in a UTMA for each child, in Vanguard LifeStrategy Growth.

If the money was given to each child, you should not (I think) put it in a 529 that you own, even if it is for the benefit of the child.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

Grt2bOutdoors
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Re: Review Investment Plan for Children's Windfall, Please

Post by Grt2bOutdoors » Tue Apr 07, 2015 7:30 am

Put the money in the UTMA, when the children become of an age in understanding things, explain that the account is to be used for college.
Whether that is true or not it will reinforce that resources must be used for college costs. The real benefit of the UTMA is there is no restriction in being able to withdraw monies (interest/dividends/capital gains) for uses other than higher education, if you attempt that with a 529 plan, you will be subjected to penalties.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Leeraar
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Re: Review Investment Plan for Children's Windfall, Please

Post by Leeraar » Tue Apr 07, 2015 7:42 am

I think the UTMA/UGMA is made for you by your stste.

I agree with Grt2bOutdoors. Put athe money in a UTMA, and always let the kids know it is there, for their education. When they gain control, there is unlikely to be a problem.

You may, in due course, end up with a kiddie tax calculation, which is a pain.

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")

Grt2bOutdoors
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Re: Review Investment Plan for Children's Windfall, Please

Post by Grt2bOutdoors » Tue Apr 07, 2015 7:55 am

Leeraar wrote:I think the UTMA/UGMA is made for you by your stste.

I agree with Grt2bOutdoors. Put athe money in a UTMA, and always let the kids know it is there, for their education. When they gain control, there is unlikely to be a problem.

You may, in due course, end up with a kiddie tax calculation, which is a pain.

L.
The OP can partially offset the kiddie tax problem by liquidating appreciated shares but below the current $2K threshold (first $1K is untaxed, second $1K is taxed at childs rate of 10% but no capital gains tax at that level), kiddie tax gets invoked after you surpass $2K in taxes. Personally, I'd just hold the Total Stock Market Index when gains approach $1K or so, redeem and exchange into Large Cap Index, then you can switch back later on. This is what I do currently.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

dc81584
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Re: Review Investment Plan for Children's Windfall, Please

Post by dc81584 » Tue Apr 07, 2015 8:06 am

You have great friends!

letsgobobby
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Re: Review Investment Plan for Children's Windfall, Please

Post by letsgobobby » Tue Apr 07, 2015 8:25 am

I like OP'S plan very much. To feel better she could clarify with the friend if it would be ok.

Our kids are nearly the same age as yours. Their UTMAs are invested in Vanguard target date 2060.

Lafder
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Re: Review Investment Plan for Children's Windfall, Please

Post by Lafder » Tue Apr 07, 2015 9:48 am

To keep things simple, you can keep the money in your name. This allows you to have more control if one of your kids needs more time to mature before they get a windfall at 18 yo.

My kids also received a gift, smaller than 10k each. I put the money into Vanguard Life Strategy Moderate Growth in my name, actually a joint account with my husband. I figured if the balance dropped, I would match the original gift at the designated time of use. In our case the money was specified to be used for travel after high school.

Putting the money into the 529 sounds fine too.

lafder

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Shaoya
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Re: Review Investment Plan for Children's Windfall, Please

Post by Shaoya » Wed Apr 08, 2015 9:03 am

Thank you all very much!
dc81584 wrote:You have great friends!
, yes, we are very aware and grateful for that. Take care - Shaoya

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