Author Topic: Investing strategy advice youth tribal members  (Read 462 times)

SEAK

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Investing strategy advice youth tribal members
« on: June 09, 2020, 10:04:59 AM »
Both of my children aged 13 and 11 are members of a small federally recognized Indian Tribe. Over the past few years the tribe has opened a casino, gas station, liquor store, tobacco outlet, hotel (in development), etc. They are also residents of Alaska and eligible for the Permanent Fund Dividend payments. Recently the tribe has began to dispense money to tribal members from casino earnings (expected to increase) and for covid-19 relief (both of which are tax exempt). I am looking for advice regarding how to invest this money for my children's future.

I have already invested money into 529 accounts for both of them and the tribe also issues generous scholarships for education purposes, so I'm not so worried about money for their future education. Currently I have opened vanguard brokerage accounts under my name for them; one kid is invested in the SP 500 index fund and the other in total stock market index fund. Whenever they receive money from the tribe or state I simply invest their share of the money into the index fund for them. This seems like a very simplistic strategy and with the accounts being under my name I assume I'm setting myself up for future tax liability issues. We feel very fortunate to be the benefactors of this money. Any investing strategy that would help set my kids up for their future is very much appreciated!

Lucky Penny Acres

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Re: Investing strategy advice youth tribal members
« Reply #1 on: June 09, 2020, 11:39:32 AM »
A couple ideas:

- Do they have jobs where they earn any earned income? If so, you could invest the money into a ROTH IRA for them up to the amount of their earned income (up to the annual IRA cap).

- Do you want them to have automatic direct access to the money when they reach 18/21? You could set up a custodial account (also referred to as UTMA / UGMA accounts) for each of them and put their money in that account. That account is technically in their name and they are responsible for taxes on that account - but they should pay 0% tax on unearned income below $2,200 per year.

BicycleB

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Re: Investing strategy advice youth tribal members
« Reply #2 on: June 09, 2020, 02:28:58 PM »
The stock strategy is likely over time to generate high returns, but to fluctuate down as well up dramatically from year to year. If they will access the money in less than 10 years, some people would suggest diversifying their investments, perhaps by keeping a third of the money in a bond fund and annually rebalancing. Or one third US stock, one third international, one third US bonds.

Re transferring to them, I think Lucky Penny Acres is onto something because their tax rate is probably less than yours. If you are firm about giving up control over the money, transferring now or soon could save them (or you) some tax money.

Best wishes to both of them!

PS. Not to be nosy, but if they're the recipients, why is it in your name in the first place? Shouldn't each one's money be in an account in their name, to be used when they are of age?
« Last Edit: June 09, 2020, 06:15:33 PM by BicycleB »

MDM

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Re: Investing strategy advice youth tribal members
« Reply #3 on: June 09, 2020, 09:26:12 PM »
...one kid is invested in the SP 500 index fund and the other in total stock market index fund.
Taking that at face value, it's reasonable.

Quote
...with the accounts being under my name I assume I'm setting myself up for future tax liability issues.
Not only future, but current as well.  You do declare any dividends, etc., you receive each year, correct?

Quote
Any investing strategy that would help set my kids up for their future is very much appreciated!
Have you considered a UGMA or UTMA account?  If the account sizes get very large (over $50K?) you might have to work with the Kiddie tax, but otherwise there is a good chance there will be no tax liability for them or you, at least for many years to come.

MustacheAndaHalf

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Re: Investing strategy advice youth tribal members
« Reply #4 on: June 09, 2020, 11:24:20 PM »
Since I don't see any UGMA posts with Vanguard links:
https://personal.vanguard.com/us/whatweoffer/college/vanguardugmautma

You might also want to involve them with the purchases, maybe every year around tax time?  You could go over the overall history of the S&P 500 performance, and why you're buying it again this year.

With kids over age 10, you might even be able to explain about bonds.  Although 5% bonds won't change the portfolio much, it can be a way to teach rebalancing.  Each year, divide the bonds, stocks and cash by 20, and that's how much needs to be in bonds (5%).  That way they are used to the idea of holding some bonds, and rebalancing into whatever is lower (usually stocks).

SEAK

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Re: Investing strategy advice youth tribal members
« Reply #5 on: June 09, 2020, 11:58:16 PM »
A couple ideas:

- Do they have jobs where they earn any earned income? If so, you could invest the money into a ROTH IRA for them up to the amount of their earned income (up to the annual IRA cap).

- Do you want them to have automatic direct access to the money when they reach 18/21? You could set up a custodial account (also referred to as UTMA / UGMA accounts) for each of them and put their money in that account. That account is technically in their name and they are responsible for taxes on that account - but they should pay 0% tax on unearned income below $2,200 per year.

They currently don't have real jobs other than pet sitting, etc. But I could see my 13 yo with a summer job or reffing youth hockey within the next year of two so I'll definitely keep the IRA in mind! And regarding when they can have access to the money I'd prefer to have control over it for as long as possible. My son currently wants to use his $ to buy himself a full suspension mountain bike, I keep preaching the buy and hold strategy to him. I will spend some time researching the UTMA/UGMA accounts. Thanks for the advice.

SEAK

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Re: Investing strategy advice youth tribal members
« Reply #6 on: June 10, 2020, 12:05:07 AM »


PS. Not to be nosy, but if they're the recipients, why is it in your name in the first place? Shouldn't each one's money be in an account in their name, to be used when they are of age?

I decided to keep the money under my name after reading that for college scholarship/tuition assistance eligibility calculations it was better to have $ under the parents name vs. the kids name. But I could be mistaken on this and will look into this again.

SEAK

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Re: Investing strategy advice youth tribal members
« Reply #7 on: June 10, 2020, 12:14:33 AM »
...one kid is invested in the SP 500 index fund and the other in total stock market index fund.
Taking that at face value, it's reasonable.

Quote
...with the accounts being under my name I assume I'm setting myself up for future tax liability issues.
Not only future, but current as well.  You do declare any dividends, etc., you receive each year, correct?

Quote
Any investing strategy that would help set my kids up for their future is very much appreciated!
Have you considered a UGMA or UTMA account?  If the account sizes get very large (over $50K?) you might have to work with the Kiddie tax, but otherwise there is a good chance there will be no tax liability for them or you, at least for many years to come.

I do declare the dividends, but I hadn't thought much about the the current tax liability of that though! And I am planning on looking into the UGMA/UTMA accounts. Thanks for your advice.

SEAK

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Re: Investing strategy advice youth tribal members
« Reply #8 on: June 10, 2020, 12:21:04 AM »
Since I don't see any UGMA posts with Vanguard links:
https://personal.vanguard.com/us/whatweoffer/college/vanguardugmautma

You might also want to involve them with the purchases, maybe every year around tax time?  You could go over the overall history of the S&P 500 performance, and why you're buying it again this year.

With kids over age 10, you might even be able to explain about bonds.  Although 5% bonds won't change the portfolio much, it can be a way to teach rebalancing.  Each year, divide the bonds, stocks and cash by 20, and that's how much needs to be in bonds (5%).  That way they are used to the idea of holding some bonds, and rebalancing into whatever is lower (usually stocks).

That's a great idea to involve them more in the actual purchases. I currently just tell them that the $ they got from pet sitting etc I invested for them. And introducing bonds and rebalancing would be a great lesson. Thank you for the advice.