Author Topic: Where to put money for child  (Read 4308 times)

blackjack

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Where to put money for child
« on: February 07, 2016, 07:42:54 AM »
I have a 10 month old and she currently has around $3,000; but Im not sure where to put it?
Roth IRA? 529?
We live in PA and my wife and I gross around 130-150k; and our close to maxing out funds.
« Last Edit: February 07, 2016, 08:31:31 AM by blackjack »

GrowingTheGreen

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Re: Where to put money for child
« Reply #1 on: February 07, 2016, 07:55:00 AM »
Unless she has earned income, you're stuck with the 529.

If your kid is 10 months, the IRS might find earned income fishy :). Your post says "month year" btw.

mrpercentage

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Re: Where to put money for child
« Reply #2 on: February 07, 2016, 08:24:30 AM »
or a UTMA
I have one for both my kids.
Index or direct stock purchases for them. Disney, Exxon, Procter & Gamble, J & J, Coke, Hershey, Colgate, Clorox, or your local utility. They have a enough time to make good money anywhere but they could make huge money in the right places. They don't get taxed on income they receive until it exceeds $10K of gains or dividends in a year and you are far from that, so maybe even a REIT like Reality Income.

I use American Funds but I have NAV accounts because my mom worked for them.

blackjack

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Re: Where to put money for child
« Reply #3 on: February 07, 2016, 08:31:21 AM »
Unless she has earned income, you're stuck with the 529.

If your kid is 10 months, the IRS might find earned income fishy :). Your post says "month year" btw.

oops 10 months

Gin1984

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Re: Where to put money for child
« Reply #4 on: February 07, 2016, 08:33:00 AM »
I opened a custodial account with capital one when they were giving money for them. 

GGNoob

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Re: Where to put money for child
« Reply #5 on: February 07, 2016, 08:52:01 AM »
A friend of mine has a 5 month old and I thought about helping them open a direct stock purchase of Reality Income Corp (O), but we decided to go with the UTMA custodial at TD Ameritrade instead. No minimum to start and can trade commission free ETFs.

blackjack

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Re: Where to put money for child
« Reply #6 on: February 07, 2016, 09:05:24 AM »
If I open a 529 via vanguard can anyone suggest what fund?

GrowingTheGreen

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Re: Where to put money for child
« Reply #7 on: February 07, 2016, 09:56:18 AM »
If I open a 529 via vanguard can anyone suggest what fund?

How active are you willing to be?  If you're more of the "set and forget" type, you can choose one of their Life Strategy funds with a goal date of when they turn 18.  If you can manage/rebalance along the way, it is a little cheaper to do it yourself via mutual funds (diversify between Total Stock Market and Total Bond market) or ETFs.  ETFs are by far the cheapest option, but take a little extra work.  I just went over creating an ETF portfolio with Vanguard in a recent blog post if you choose to go that route and are looking for info.

blackjack

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Re: Where to put money for child
« Reply #8 on: February 07, 2016, 10:53:28 AM »
Probably more set it and forget it....

MasterStache

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Re: Where to put money for child
« Reply #9 on: February 08, 2016, 11:41:22 AM »
Schwab has custodial IRA accounts with $100 minimum initial deposits. I opened one for both my kids.

Apples

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Re: Where to put money for child
« Reply #10 on: February 09, 2016, 12:14:24 PM »
or a UTMA
I have one for both my kids.
Index or direct stock purchases for them. Disney, Exxon, Procter & Gamble, J & J, Coke, Hershey, Colgate, Clorox, or your local utility. They have a enough time to make good money anywhere but they could make huge money in the right places. They don't get taxed on income they receive until it exceeds $10K of gains or dividends in a year and you are far from that, so maybe even a REIT like Reality Income.

I use American Funds but I have NAV accounts because my mom worked for them.

I'm not an expert on this...buuuuut won't the kid get taxed at the adult rate instead of at the kid rate if their parents make over a certain threshold?  My brother has an UTMA and at 16 our parents had the terrible problem of making too much money and he was taxed at an adult rate instead of dependent rate on his dividends (I think) from the UTMA.  But it's possible that he was taxed differently on his summer job wages, my understanding is fuzzy.  There's someone around here who knows though!

Gin1984

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Re: Where to put money for child
« Reply #11 on: February 09, 2016, 03:02:32 PM »
or a UTMA
I have one for both my kids.
Index or direct stock purchases for them. Disney, Exxon, Procter & Gamble, J & J, Coke, Hershey, Colgate, Clorox, or your local utility. They have a enough time to make good money anywhere but they could make huge money in the right places. They don't get taxed on income they receive until it exceeds $10K of gains or dividends in a year and you are far from that, so maybe even a REIT like Reality Income.

I use American Funds but I have NAV accounts because my mom worked for them.

I'm not an expert on this...buuuuut won't the kid get taxed at the adult rate instead of at the kid rate if their parents make over a certain threshold?  My brother has an UTMA and at 16 our parents had the terrible problem of making too much money and he was taxed at an adult rate instead of dependent rate on his dividends (I think) from the UTMA.  But it's possible that he was taxed differently on his summer job wages, my understanding is fuzzy.  There's someone around here who knows though!
Tax Advantages
Because money placed in an UGMA/UTMA account is owned by the child, earnings are generally taxed at the child’s—usually lower—tax rate, rather than the parent’s rate. For some families, this savings can be significant.

Tax Benefits
Children under age 19 or 24*
Up to $1,050 in earnings tax-free.
The next $1,050 is taxable at child's tax rate.
Any earnings over $2,100 are taxed at parent’s rate.

My bet is this is where the problem occurred, not your parent's income.

Apples

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Re: Where to put money for child
« Reply #12 on: February 10, 2016, 07:33:51 AM »
Oh that's it.  I was confused about which person was making too much.  Darn kid working his summer job and then having a taxable account.  And my parents have a farm, which last year actually did well, so they were paying the AMT-I guess my brother did too then.  #richkidproblems*

To note:  I also had a taxable account, but I was a teenager around the 2008 crash, and didn't make as much at the same summer job (the income my parents have decided to pay us for working on the farm has gone up greater than inflation...) so I didn't have these issues.

*That's a joke.  With a farm, the income is way up and way down.  The money from these good years that wasn't spent on equipment or buildings goes directly in the savings account so when the bad year strikes in 2-3 years we have the money for it.  So some years, my parents are in the 15% tax bracket (and we live life like that)...and then some years they're paying AMT and having #richpeopleproblems.

catccc

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Re: Where to put money for child
« Reply #13 on: February 10, 2016, 12:55:58 PM »
If you are considering having any college savings at all for your little munchkin, I suggest the 529.  NY State's 529 is very low cost- Vanguard run.  Easy to open and manage online.  And in PA, contributions to any state's 529 are deductible.  You can put it in a moderate age based portfolio with Vanguard at nysaves.org if you are a set it and forget it kinda person.  This is exactly what i've done.  I also find that the state deduction is a bit of an incentive for me to sock away for the kids' educations.  Especially since we don't get to deduct contributions to retirement plans at a state level here in PA.

Good luck deciding!

little_brown_dog

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Re: Where to put money for child
« Reply #14 on: February 11, 2016, 10:46:31 AM »
If you are considering having any college savings at all for your little munchkin, I suggest the 529.  NY State's 529 is very low cost- Vanguard run.  Easy to open and manage online.  And in PA, contributions to any state's 529 are deductible.  You can put it in a moderate age based portfolio with Vanguard at nysaves.org if you are a set it and forget it kinda person.  This is exactly what i've done.  I also find that the state deduction is a bit of an incentive for me to sock away for the kids' educations.  Especially since we don't get to deduct contributions to retirement plans at a state level here in PA.

Good luck deciding!

+1 to a low cost 529 for the tax advantages. This is what we opened for our baby. We plan on having multiple kids if everything goes according to plan, so we are pretty sure someone will make good use of the funds for college/grad school even if this specific child doesn't.

JustGettingStarted1980

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Re: Where to put money for child
« Reply #15 on: February 11, 2016, 11:04:27 AM »
This is a Bogelheads Forum type of question, it's been answered innumerable times there...

https://www.bogleheads.org/forum/viewforum.php?f=1

I personally opened a couple 529 plans with State of PA -placing them in 500 index funds.
-Expense Ration is around 0.35 or so
-PA gives you 3% off your STATE taxes the year of your contribution
-PA doesn't care if you use the Utah 529, the Nevada 529, or the NY 529, all of which have very low costs associated with them if you want to index.

Hope this helps