Brokerage Accounts for the Kiddos

[sulaco]

We've been setting aside money for our son for quite a while now and he's begun to establish quite the stache. Instead of keeping this money in a "high-interest" savings account, I'd like to move this into a brokerage account specifically for him. I'm not interested in a 529 for this money, we'll likely open a 529 account and fund it separately, though we would prefer this money go to educational expenses later, I'm not thrilled with the restrictions.

The two major options appear to be a Custodial account, which we would lose control over after he turned 18 (but would have tax advantages up to earnings of $1,900/yr after which all earnings would be taxed at my tax rate). A joint account loses those tax advantages, but allows us to control the account in case we don't feel he's ready for the responsibility. In both cases, the money can be used for anything, unlike a 529.

We have two more on the way, so optimally, what we set up for our first would be modeled for the others as well.

Any thoughts or suggestions on accounts for dependents?

[kkbmustang]

We have a 529 for each kid and mutual funds in a segregated account, in our names, for each kid. For financial aid purposes for college, it is my understanding that all assets in their names are expected to be contributed to the costs of education vs a tiny percentage of parents assets. That's why we do it that way.

[acanthurus]

Roth IRA, if you can find some way for the kiddos to have earned income.

[grantmeaname]

We have a 529 for each kid and mutual funds in a segregated account, in our names, for each kid. For financial aid purposes for college, it is my understanding that all assets in their names are expected to be contributed to the costs of education vs a tiny percentage of parents assets. That's why we do it that way.

Well, that is kinda the point of 529 accounts.

[Mini-Mer]

Growing up, I had a credit union savings account, which expanded into a custodial investment account.   It was a good learning experience - even though I wasn't deeply passionate about investing, I've had (and managed) a brokerage account for my entire adult life.  It's something that adults should have, and I've since learned that many adults don't think about until much later. 

- The money was mine.  Half my allowance went straight to savings, and that was what that we opened the custodial account with.  The investment account was not 'money you cannot have until you're 18' (i.e., a windfall) - it was 'money you are saving for a car, school, house, or retirement'. 

- I was always in the loop about the account.  I remember going to the brokerage in the beginning.  Internet banking came along a little later (I think after I turned 18), and I got parental guidance on using the online tools to evaluate and choose funds.

- Also, since the money was mine (or 'mine'), there wasn't a lot of it.  I just looked at those statements a few days ago, and was surprised.  Enough to get started, but if I'd lost it or blown it, I could have made it up fairly quickly with a part-time job.  In fact...

- Difficult to arrange, but: the market crashed right before I graduated, and took my investments with it.  I would have lost money if I'd cashed out then, which was not cool.  By the time it recovered, I was employed and adding to the stash. 

- My parents budgeted for children's education expenses separately, and that money was theirs unless and until they chose to spend it.  I would not have trusted 18-year-old-me with all the funds for my college education, and you probably shouldn't either.

[kkbmustang]

We have a 529 for each kid and mutual funds in a segregated account, in our names, for each kid. For financial aid purposes for college, it is my understanding that all assets in their names are expected to be contributed to the costs of education vs a tiny percentage of parents assets. That's why we do it that way.

Well, that is kinda the point of 529 accounts.

Grant- our kids have assets other than 529 accounts and their in-state public college tuition has been prepaid by their grandparents. Yes, we realize how fortunate we are. We are hoping the 529 can cover the difference in tuition should they choose to go to an out of state or private university and/or grad school. I was referring to assets they hold in non-college related funds. So, for example, they each have a non-529 account, in our names, into which dividends on stock they own are deposited and invested.

[agoraphone]

I just opened a custodial account for my daughter. I looked at Fidelity first, but they had a $2500 minimum. I ended up using Capital One, which has no minimum AND a $50 bonus. Here's the link if anyone's interested: http://content.sharebuilder.com/mgdcon/jump/Consumer/Youth/

Question for the mustachians: What is a good fund for her to start with? She only has around $200 to play with at this point. So obviously something with low fees is good. Maybe something that will pay some dividends as well as grow in share price? Any suggestions appreciated!

[Bigote]

I set up a custodial account for my son when he got a small inheritance.  I think there's 6-7 grand in there.   I recognized while setting it up that he could end up using it on hookers and blow when he's 18.   If it were a more significant amount of money and I wanted control for longer then a trust would have been the option.

Of course I'm talking about general use funds.  We also have a fully-funded 529 for him, but that's a different story.