Author Topic: Investing young son's cash presents  (Read 2584 times)

JR

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Investing young son's cash presents
« on: January 05, 2016, 01:58:47 PM »
My wife and I would like to start investing our son's cash presents in stock index funds and wanted to get some opinions on the best way to do it. I shy away from investing in a 529 because I am not sure if he will want to go to college so the other option I see is an UTMA brokerage. The downsides I see are that he gets total control when he turns 18 and it also counts as an asset of his for financial aid if he does go to college. I have also been unable to find a custodian that does not charge a fee to maintain an UTMA brokerage account.

How are Mustachians investing for their children?

Thanks.

Frs1661

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Re: Investing young son's cash presents
« Reply #1 on: January 05, 2016, 07:21:40 PM »
Does it have to be in his name? I plan to do some investing for my son in a taxable account in my name. One he has earned income I'll open a Roth for him.

seattlecyclone

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Re: Investing young son's cash presents
« Reply #2 on: January 05, 2016, 07:43:28 PM »
We'll probably do some saving in a 529 plan, as we're reasonably likely to steer our son toward college. We may also transfer some appreciated stock to an UTMA account once in a while to take advantage of the $2k/year of investment income that doesn't trigger the kiddie tax. Raise your kid with a healthy respect for money and the fact that it becomes his at age 18 should be little cause for concern.

Ohio Teacher

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Re: Investing young son's cash presents
« Reply #3 on: January 05, 2016, 07:51:54 PM »
We are putting it in a 529, invested in Vanguard index funds.  Regarding your shying away from that option, a 529 is remarkably flexible.  Leftover money can even be transferred to a sibling, a parent, grandparent, and other relatives for their qualified expenses.

Paul der Krake

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Re: Investing young son's cash presents
« Reply #4 on: January 05, 2016, 08:00:09 PM »
There's also the Coverdell plan that allows distributions for educational expenses before college. But your son may resent that you are using "his money" to pay for his cafeteria lunches in high school (or whatever expense you see fit to use it on that is allowed).

I don't have children yet, but the plan is to generously fund 529s, and then allocate them as needed. Should all my children decline to pursue higher education (statistically very unlikely), then the lax rules regarding transfers will allow some wealth redistribution among cousins, nieces and nephews, or even skip a generation, etc. Educational rebels can receive cash gifts in lieu of college tuition from elsewhere in the portfolio.

The main advantage that I see in having a dedicated college fund is that it creates an easy alternative for relatives to give to, instead of showering the kids with plastic toys for their birthdays.

Like Frs1661 pointed out, as soon as they are old enough to have earned income, they will be strongly encouraged to open their own IRA. Maybe we'll even match every dollar that they put in.

Manguy888

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Re: Investing young son's cash presents
« Reply #5 on: January 08, 2016, 07:09:23 AM »
I second the 529 and its lax rules. Also, the vanguard 529 allowed the grandparents to establish accounts and give money with the click of a button. It's so much easier than dealing with cash or checks, although most people still aren't willing to give money and would much rather shower us with chunks of pink plastic. I digress.

I know a few people who did year-long intensive "food systems" courses of studies that were based in Italy and France. I mention these because they seem like glorified vacations and I could see my wife and I embarking on this "degree program" in retirement if our kids don't need our 529 money.

Pooplips

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Re: Investing young son's cash presents
« Reply #6 on: January 08, 2016, 07:26:09 AM »
We have a 529 for our child that we fund every month.

I set up a UTMA account that we put birthday, christmas, etc. in because it is their money that they will get at 18.

I consider the 529 to not be their money; just our money that we are setting aside for college.

Scandium

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Re: Investing young son's cash presents
« Reply #7 on: January 08, 2016, 07:55:39 AM »
I second the 529 and its lax rules. Also, the vanguard 529 allowed the grandparents to establish accounts and give money with the click of a button. It's so much easier than dealing with cash or checks, although most people still aren't willing to give money and would much rather shower us with chunks of pink plastic. I digress.

I know a few people who did year-long intensive "food systems" courses of studies that were based in Italy and France. I mention these because they seem like glorified vacations and I could see my wife and I embarking on this "degree program" in retirement if our kids don't need our 529 money.

529 money can also be used to pay for housing. So if my son don't use it I'll just enroll in the local community college when I'm retired and pay my mortgage out of the 529! Or maybe a study program in Paris and spend it all on baguettes and cigarettes (classified as "food" in France) There are many options.

The only point I see of having a separate account in my child's name is to separate cash he receive as gifts from others. Certainly valid, but I don't exactly know how to do it yet so for now I just put it into his 529.