Author Topic: Where to invest kids' money?  (Read 788 times)

DeniseNJ

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Where to invest kids' money?
« on: April 02, 2019, 09:03:05 AM »
My mom has 10K for each of my two kids in CDs right now which mature at the end of April.  they have savings accounts at Ally but recently I took out their savings and opened custodial accounts for them at Vanguard.  With just about 2K each the funds to buy were limited to some life cycle funds so I bought them the ones furtherst out like 2060 or soemthing.  I did not put the money into 529s bc NJ doesn't have deductible or in any way tax advantaged 529s and I'm paying their education costs out of my pocket anyway.  I want a place for their own money and investments, rather than an education fund (they don't gt it until 21 and even then I'd totally talk them out of tapping it).  Neither have ever worked a day in their lives so Roths are out and they each have diagnosed mental health/emotional issues so are not likely to work for pay anytime while they are in school.

Should I invest their 10K into their custodial accounts in a total market fund?  Where do you put kids' money aside from a 529 or Roth?  I'm thinking longterm.  They are 19 and 16 now and the 19 yr old is in the state college down the street and lives at home.  The 16 yr old will also go to the state school but wants to live on campus, which we'll pay for.  I want to get their staches started and on the road to FIRE.

MustacheAndaHalf

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Re: Where to invest kids' money?
« Reply #1 on: April 02, 2019, 11:16:21 AM »
For a kid, I think a total stock market fund has several benefits over a target date fund.  Explaining a target date fund would be more complicated (why are they paying foreign taxes on a total international fund?  what's a foreign tax credit?).  Explaining that they own "a small part of every business in America" is easier.  Since the custodial account is presumably in taxable, that also makes taxes simpler: it's just stock dividends (mostly qualified).

When there's a stock market correction, you might have a big teachable moment on your hands.  You might want to brace them for that...

Chrissy

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Re: Where to invest kids' money?
« Reply #2 on: April 03, 2019, 06:57:02 AM »
I did not put the money into 529s bc NJ doesn't have deductible or in any way tax advantaged 529s and I'm paying their education costs out of my pocket anyway. 

Don't discount the 529.  Even though you don't get a tax deduction on the contribution, the growth will still be tax free when you withdraw for school:  no capital gains or federal taxes, much like a ROTH.  Depending on the age of your children, that could be a big win.

I don't understand the comment about paying out-of-pocket.  Your 401k, ROTH, 529, tIRA are just different places IN your pocket.

DeniseNJ

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Re: Where to invest kids' money?
« Reply #3 on: April 03, 2019, 08:16:05 AM »
Quote
I don't understand the comment about paying out-of-pocket.  Your 401k, ROTH, 529, tIRA are just different places IN your pocket.

LOL--I just meant that I'm not going to put their savings in a 529 then they'd only be able to get that money for school.  They aren't using their savings for school as I am paying for that.  To be honest, we havne't saved a dime for school and they are already 19 and 16, and I'm not taking money from our Roths of 401K for that so bascially I'm just saving and paying as we go.  We actually have the money since I started MMM about 6 months ago.  Money we just used to spend on I don't know what since we were always broke.  Moving forward I've got some pay increases coming and with my new thrifty ways, I'll have some money in a savings account to cover tuition bills as they come in.

Our money is in my 401K, DH's and my Roths, the kids' custodial accounts at Vanguard, and a small amount in savings accounts.  I just don't want my kids to be pusing 50 and still years from retirement like me.

Chrissy

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Re: Where to invest kids' money?
« Reply #4 on: April 03, 2019, 01:50:40 PM »
Ah, then you're absolutely right, the 529 wouldn't be a benefit to you.  Thank you for clarifying.