Author Topic: What type of brokerage accounts do you use for your kids?  (Read 5313 times)

J'onn J'onzz

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What type of brokerage accounts do you use for your kids?
« on: February 06, 2015, 09:30:30 AM »
What type of accounts do you use for your kids money? I have heard that if they kids have money in their name it can have a big impact on their ability to get any type of financial aid. Do you use ugma/utma or do you just keep it in your name with the intent to transfer it back to them later on?

To be clear I am not referring to money that is meant for college but the kids own money that they have saved through odd jobs, bday, or xmas gifts.

johnny847

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Re: What type of brokerage accounts do you use for your kids?
« Reply #1 on: February 06, 2015, 09:42:39 AM »
What type of accounts do you use for your kids money? I have heard that if they kids have money in their name it can have a big impact on their ability to get any type of financial aid. Do you use ugma/utma or do you just keep it in your name with the intent to transfer it back to them later on?

To be clear I am not referring to money that is meant for college but the kids own money that they have saved through odd jobs, bday, or xmas gifts.
I have no idea what the impact of UGMA/UTMA accounts is on financial aid, but I do know that what you heard is correct - while parents non retirement assets can be assessed at up to 5% (and retirement assets are not assessed whatsoever) for the expected family contribution (EFC), students retirement and non retirement assets can be assessed at up to 50% for the EFC. EDIT: I was mistaken, it is 20% for the EFC.

So it will definitely make a difference in terms of financial aid.
« Last Edit: February 06, 2015, 01:31:40 PM by johnny847 »

hodedofome

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Re: What type of brokerage accounts do you use for your kids?
« Reply #2 on: February 06, 2015, 10:38:11 AM »
I have a Coverdell ESA account for each of our kids, basically a Roth for college.

People think I'm joking, but I honestly don't see me paying for college if tuition keeps rising in the future at the rate it has in the past. They'll be getting educated by watching youtube videos and reading books on their own. If 4 years of college costs $250k per kid by the time they are that age, I'd rather just pay their living expenses for 4 years and they self-educate.

MDM

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Re: What type of brokerage accounts do you use for your kids?
« Reply #3 on: February 06, 2015, 11:30:57 AM »
What type of accounts do you use for your kids money? I have heard that if they kids have money in their name it can have a big impact on their ability to get any type of financial aid. Do you use ugma/utma or do you just keep it in your name with the intent to transfer it back to them later on?

To be clear I am not referring to money that is meant for college but the kids own money that they have saved through odd jobs, bday, or xmas gifts.

money that they have saved through odd jobs: Custodial Roth IRA through Schwab.

bday, or xmas gifts: either cash in his toy safe or a savings account.  We're talking hundreds, not thousands, of dollars.

ioseftavi

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Re: What type of brokerage accounts do you use for your kids?
« Reply #4 on: February 06, 2015, 11:41:43 AM »
No kids yet.  We've opened a 529 Account [which we'll max out to the state-deductible limit] for our future kids. 

A 529 seemed to be the best of all the [slightly imperfect] choices for us, for reasons already touched on in this thread.

J'onn J'onzz

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Re: What type of brokerage accounts do you use for your kids?
« Reply #5 on: February 06, 2015, 01:04:29 PM »
No kids yet.  We've opened a 529 Account [which we'll max out to the state-deductible limit] for our future kids. 

A 529 seemed to be the best of all the [slightly imperfect] choices for us, for reasons already touched on in this thread.

Correct me if I am wrong but isn't a 529 account specifically for college savings? I was really more interested in what people were doing with money that belongs to the kids but is not really meant for college savings.

So far I have been adding it to a utma but being that only 5% of my net worth vs 50% of their will be assessed when calculating the expected family contribution, thanks for that info johnny847, I am thinking I may just keep it in my name for now and gift it back to them later.

ioseftavi

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Re: What type of brokerage accounts do you use for your kids?
« Reply #6 on: February 06, 2015, 01:18:24 PM »
Correct me if I am wrong but isn't a 529 account specifically for college savings? I was really more interested in what people were doing with money that belongs to the kids but is not really meant for college savings.

No correction needed, you're absolutely right.  I just don't have kids yet, so I don't have any need to try and make assets in their name more efficient, for purposes of tax or FAFSA calculations.  I don't particularly plan to do that when I've actually got kids, either, but perhaps my opinion will change in time. 

If the government wants to assume that half of my son or daughter's savings should go towards paying for college, I think I'd be ok with that.

johnny847

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Re: What type of brokerage accounts do you use for your kids?
« Reply #7 on: February 06, 2015, 01:31:03 PM »
No kids yet.  We've opened a 529 Account [which we'll max out to the state-deductible limit] for our future kids. 

A 529 seemed to be the best of all the [slightly imperfect] choices for us, for reasons already touched on in this thread.

Correct me if I am wrong but isn't a 529 account specifically for college savings? I was really more interested in what people were doing with money that belongs to the kids but is not really meant for college savings.

So far I have been adding it to a utma but being that only 5% of my net worth vs 50% of their will be assessed when calculating the expected family contribution, thanks for that info johnny847, I am thinking I may just keep it in my name for now and gift it back to them later.
Hmm oops I got that wrong - it's 12% for parental assets (after subtracting some allowance. Just think of the EFC as a tax, and you get a personal exemption and/or deduction) get lumped with available parents income (again, there's a personal deduction here) to form the AAI (available adjusted income). AAI is "taxed" on a progressive scale with brackets ranging from 22% to 47%. So at most, parental assets are "taxed" at 12% * 47% = 5.64% for EFC.

Whereas the student's assets are "taxed" at 20%. And this isn't lumped into an AAI. It's just expected to be contributed directly. So it's a straight up 20% tax. And there's no "deduction" here, unlike parental assets.

The difference isn't quite as high as I originally said, but still significant.
« Last Edit: February 06, 2015, 01:34:55 PM by johnny847 »

Yankuba

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Re: What type of brokerage accounts do you use for your kids?
« Reply #8 on: February 07, 2015, 12:09:09 PM »
No kids yet.  We've opened a 529 Account [which we'll max out to the state-deductible limit] for our future kids. 

A 529 seemed to be the best of all the [slightly imperfect] choices for us, for reasons already touched on in this thread.

Correct me if I am wrong but isn't a 529 account specifically for college savings? I was really more interested in what people were doing with money that belongs to the kids but is not really meant for college savings.

So far I have been adding it to a utma but being that only 5% of my net worth vs 50% of their will be assessed when calculating the expected family contribution, thanks for that info johnny847, I am thinking I may just keep it in my name for now and gift it back to them later.
Hmm oops I got that wrong - it's 12% for parental assets (after subtracting some allowance. Just think of the EFC as a tax, and you get a personal exemption and/or deduction) get lumped with available parents income (again, there's a personal deduction here) to form the AAI (available adjusted income). AAI is "taxed" on a progressive scale with brackets ranging from 22% to 47%. So at most, parental assets are "taxed" at 12% * 47% = 5.64% for EFC.

Whereas the student's assets are "taxed" at 20%. And this isn't lumped into an AAI. It's just expected to be contributed directly. So it's a straight up 20% tax. And there's no "deduction" here, unlike parental assets.

The difference isn't quite as high as I originally said, but still significant.

What stops people from lying about their assets? How do the schools verify what you tell them? Aren't there dozens of ways to hide assets (trusts, offshore accounts, etc)?

johnny847

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Re: What type of brokerage accounts do you use for your kids?
« Reply #9 on: February 07, 2015, 02:23:21 PM »
No kids yet.  We've opened a 529 Account [which we'll max out to the state-deductible limit] for our future kids. 

A 529 seemed to be the best of all the [slightly imperfect] choices for us, for reasons already touched on in this thread.

Correct me if I am wrong but isn't a 529 account specifically for college savings? I was really more interested in what people were doing with money that belongs to the kids but is not really meant for college savings.

So far I have been adding it to a utma but being that only 5% of my net worth vs 50% of their will be assessed when calculating the expected family contribution, thanks for that info johnny847, I am thinking I may just keep it in my name for now and gift it back to them later.
Hmm oops I got that wrong - it's 12% for parental assets (after subtracting some allowance. Just think of the EFC as a tax, and you get a personal exemption and/or deduction) get lumped with available parents income (again, there's a personal deduction here) to form the AAI (available adjusted income). AAI is "taxed" on a progressive scale with brackets ranging from 22% to 47%. So at most, parental assets are "taxed" at 12% * 47% = 5.64% for EFC.

Whereas the student's assets are "taxed" at 20%. And this isn't lumped into an AAI. It's just expected to be contributed directly. So it's a straight up 20% tax. And there's no "deduction" here, unlike parental assets.

The difference isn't quite as high as I originally said, but still significant.

What stops people from lying about their assets? How do the schools verify what you tell them? Aren't there dozens of ways to hide assets (trusts, offshore accounts, etc)?
What stops people from lying to the IRS about income? Of course, it's hard to lie about some things like W-2 income when the IRS gets a copy of that, but what about offshore accounts?

Gin1984

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Re: What type of brokerage accounts do you use for your kids?
« Reply #10 on: February 07, 2015, 02:46:24 PM »
My daughter has a custodial investment account at sharebuilder because they offered me $100 if I opened an account with $100.  It probably will get moved to an account in my name during her grammar school to look better an college aid apps.

Yankuba

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Re: What type of brokerage accounts do you use for your kids?
« Reply #11 on: February 07, 2015, 04:59:14 PM »
No kids yet.  We've opened a 529 Account [which we'll max out to the state-deductible limit] for our future kids. 

A 529 seemed to be the best of all the [slightly imperfect] choices for us, for reasons already touched on in this thread.

Correct me if I am wrong but isn't a 529 account specifically for college savings? I was really more interested in what people were doing with money that belongs to the kids but is not really meant for college savings.

So far I have been adding it to a utma but being that only 5% of my net worth vs 50% of their will be assessed when calculating the expected family contribution, thanks for that info johnny847, I am thinking I may just keep it in my name for now and gift it back to them later.
Hmm oops I got that wrong - it's 12% for parental assets (after subtracting some allowance. Just think of the EFC as a tax, and you get a personal exemption and/or deduction) get lumped with available parents income (again, there's a personal deduction here) to form the AAI (available adjusted income). AAI is "taxed" on a progressive scale with brackets ranging from 22% to 47%. So at most, parental assets are "taxed" at 12% * 47% = 5.64% for EFC.

Whereas the student's assets are "taxed" at 20%. And this isn't lumped into an AAI. It's just expected to be contributed directly. So it's a straight up 20% tax. And there's no "deduction" here, unlike parental assets.

The difference isn't quite as high as I originally said, but still significant.

What stops people from lying about their assets? How do the schools verify what you tell them? Aren't there dozens of ways to hide assets (trusts, offshore accounts, etc)?
What stops people from lying to the IRS about income? Of course, it's hard to lie about some things like W-2 income when the IRS gets a copy of that, but what about offshore accounts?

The IRS gets the forms and they have the power to conduct audits and subpoena records. Lying to the IRS in person is probably also an actual crime. But I was wondering what authority a school has - they don't get statements or forms, they cannot subpoena records and they can't really punish you if you lie. So what happens if someone leaves off a zero when reporting their mutual fund holdings? What stops someone from selling everything and converting the proceeds into currency/gold in order to claim no assets? Do you have to sign some kind of declaration?

Gin1984

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Re: What type of brokerage accounts do you use for your kids?
« Reply #12 on: February 07, 2015, 05:03:20 PM »
No kids yet.  We've opened a 529 Account [which we'll max out to the state-deductible limit] for our future kids. 

A 529 seemed to be the best of all the [slightly imperfect] choices for us, for reasons already touched on in this thread.

Correct me if I am wrong but isn't a 529 account specifically for college savings? I was really more interested in what people were doing with money that belongs to the kids but is not really meant for college savings.

So far I have been adding it to a utma but being that only 5% of my net worth vs 50% of their will be assessed when calculating the expected family contribution, thanks for that info johnny847, I am thinking I may just keep it in my name for now and gift it back to them later.
Hmm oops I got that wrong - it's 12% for parental assets (after subtracting some allowance. Just think of the EFC as a tax, and you get a personal exemption and/or deduction) get lumped with available parents income (again, there's a personal deduction here) to form the AAI (available adjusted income). AAI is "taxed" on a progressive scale with brackets ranging from 22% to 47%. So at most, parental assets are "taxed" at 12% * 47% = 5.64% for EFC.

Whereas the student's assets are "taxed" at 20%. And this isn't lumped into an AAI. It's just expected to be contributed directly. So it's a straight up 20% tax. And there's no "deduction" here, unlike parental assets.

The difference isn't quite as high as I originally said, but still significant.

What stops people from lying about their assets? How do the schools verify what you tell them? Aren't there dozens of ways to hide assets (trusts, offshore accounts, etc)?
What stops people from lying to the IRS about income? Of course, it's hard to lie about some things like W-2 income when the IRS gets a copy of that, but what about offshore accounts?

The IRS gets the forms and they have the power to conduct audits and subpoena records. Lying to the IRS in person is probably also an actual crime. But I was wondering what authority a school has - they don't get statements or forms, they cannot subpoena records and they can't really punish you if you lie. So what happens if someone leaves off a zero when reporting their mutual fund holdings? What stops someone from selling everything and converting the proceeds into currency/gold in order to claim no assets? Do you have to sign some kind of declaration?
Yes you do.  And you can lose financial aid for child and I do think it is a crime. 
« Last Edit: February 07, 2015, 06:25:49 PM by Gin1984 »

GizmoTX

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Re: What type of brokerage accounts do you use for your kids?
« Reply #13 on: February 07, 2015, 05:30:03 PM »
We created an Irrevocable Educational Trust for our son, with ourselves as trustees. If necessary, it can be used for other essential expenses as well, including health, room & board. The advantage to us is that the trust files its own taxes, at a lower rate & shielding it from the kiddie tax on our return, we can invest it in anything we want, & it can be used for any college. Its assets are currently with Schwab. We don't qualify for educational tax credits & don't bother with the FAFSA. He has 50% of his tuition paid for by merit scholarships & no student loans. When DS gets a BS or BA, he receives 50% of what is left in the trust, with any remainder paid out at ages 30 & 35 -- this is tax-free to him, since the trust has already paid it.

johnny847

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Re: What type of brokerage accounts do you use for your kids?
« Reply #14 on: February 07, 2015, 05:38:07 PM »
What stops people from lying about their assets? How do the schools verify what you tell them? Aren't there dozens of ways to hide assets (trusts, offshore accounts, etc)?
What stops people from lying to the IRS about income? Of course, it's hard to lie about some things like W-2 income when the IRS gets a copy of that, but what about offshore accounts?

The IRS gets the forms and they have the power to conduct audits and subpoena records. Lying to the IRS in person is probably also an actual crime. But I was wondering what authority a school has - they don't get statements or forms, they cannot subpoena records and they can't really punish you if you lie. So what happens if someone leaves off a zero when reporting their mutual fund holdings? What stops someone from selling everything and converting the proceeds into currency/gold in order to claim no assets? Do you have to sign some kind of declaration?
Yes you do.  And you can lose financial aid for child and do think it is a crime.

Indeed. I downloaded the FAFSA out of curiosity. At the bottom where you sign, it says
Quote
If you are the parent or the student, by signing this application you certify that all of the information you provided is true and complete to the best of your knowledge and you agree, if asked, to provide information that will verify the accuracy of your completed form. This information may include U.S. or state income tax forms that you filed or are required to file. Also, you certify that you understand that the Secretary of Education has the authority to verify information reported on this application with the Internal Revenue Service and other federal agencies. If you sign any document related to the federal student aid programs electronically using a personal identification number (PIN), username and password, and/or any other credential, you certify that you are the person identified by that PIN, username and password, and/or other credential, and have not disclosed that PIN, username and password, and/or other credential to anyone else. If you purposely give false or misleading information, you may be fined up to $20,000, sent to prison, or both.
[Emphasis mine]
The specific crime would probably be fraud.

Yankuba

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Re: What type of brokerage accounts do you use for your kids?
« Reply #15 on: February 07, 2015, 07:20:52 PM »
What stops people from lying about their assets? How do the schools verify what you tell them? Aren't there dozens of ways to hide assets (trusts, offshore accounts, etc)?
What stops people from lying to the IRS about income? Of course, it's hard to lie about some things like W-2 income when the IRS gets a copy of that, but what about offshore accounts?

The IRS gets the forms and they have the power to conduct audits and subpoena records. Lying to the IRS in person is probably also an actual crime. But I was wondering what authority a school has - they don't get statements or forms, they cannot subpoena records and they can't really punish you if you lie. So what happens if someone leaves off a zero when reporting their mutual fund holdings? What stops someone from selling everything and converting the proceeds into currency/gold in order to claim no assets? Do you have to sign some kind of declaration?
Yes you do.  And you can lose financial aid for child and do think it is a crime.

Indeed. I downloaded the FAFSA out of curiosity. At the bottom where you sign, it says
Quote
If you are the parent or the student, by signing this application you certify that all of the information you provided is true and complete to the best of your knowledge and you agree, if asked, to provide information that will verify the accuracy of your completed form. This information may include U.S. or state income tax forms that you filed or are required to file. Also, you certify that you understand that the Secretary of Education has the authority to verify information reported on this application with the Internal Revenue Service and other federal agencies. If you sign any document related to the federal student aid programs electronically using a personal identification number (PIN), username and password, and/or any other credential, you certify that you are the person identified by that PIN, username and password, and/or other credential, and have not disclosed that PIN, username and password, and/or other credential to anyone else. If you purposely give false or misleading information, you may be fined up to $20,000, sent to prison, or both.
[Emphasis mine]
The specific crime would probably be fraud.

Intense! Thanks for checking

nvmama

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Re: What type of brokerage accounts do you use for your kids?
« Reply #16 on: February 08, 2015, 09:17:56 PM »
For my two children I currently have their money in a Capitalone savings account in my name, just nicknames with their names, so I know whose is whose.  They do not have tons of money only about $1000 each.  I debated investing it in my name for them, but haven't done it yet.  I however do not plan on paying for any part of their college education.  They will have the option to continue to live at home for free while in college.  My kids are too young to know if college will be a benefit for them or not yet or if that is even something that they will want to do.