Author Topic: How to invest your child’s Roth IRA?  (Read 310 times)

la Condessa

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How to invest your child’s Roth IRA?
« on: August 05, 2022, 10:50:00 AM »
My thirteen-year-old got a job a few weeks ago babysitting for a family we know three days a week for the rest of the summer.  I set up a vanguard Roth IRA for her and have put her savings into it.  I am wondering where you all would recommend investing it, as she will probably be needing to access those funds in about 5 to 7 years for college?

Rubic

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Re: How to invest your child’s Roth IRA?
« Reply #1 on: August 06, 2022, 02:15:26 PM »
You might also consider I-bonds, since she'll need the money in a few years rather than for retirement.

nereo

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Re: How to invest your child’s Roth IRA?
« Reply #2 on: August 06, 2022, 05:02:31 PM »
Not quite what you were going for, but it would be a damn shame to miss out on >52 years of tax-free compounding. I’d offer to gift that amount towards higher-Ed to my child in exchange for a promise to leave the IRA untouched until retirement. Building that lifetime savings perspective in my child would be worth it to me.

That may or may not be appealing and available to you.
« Last Edit: August 06, 2022, 06:21:15 PM by nereo »

Hadilly

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Re: How to invest your child’s Roth IRA?
« Reply #3 on: August 06, 2022, 05:21:47 PM »
At vanguard, you need 3k to invest in index funds. I’m using a total stock market ETF (VTI) until my kids hit that number.

+1 for Nereo’s advice.

secondcor521

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Re: How to invest your child’s Roth IRA?
« Reply #4 on: August 06, 2022, 11:18:20 PM »
Not what you asked, but make sure:

1.  The contributions to the child's IRA don't exceed their earned income.

2.  They file and pay any self employment taxes required.  See "Who must file?" in the Form 1040 instructions, especially Chart C item 3 regarding earnings from self employment exceeding $400.

Also not what you asked, but they can withdraw their contributions from their Roth any time without penalty.  Earnings must remain until 59.5, else generally subject to taxes and early withdrawal penalty.

My kids put theirs in Schwab SWTSX, but it's money for the long haul, not for college.

la Condessa

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Re: How to invest your child’s Roth IRA?
« Reply #5 on: August 07, 2022, 12:41:41 AM »
Thank you for the input!  Using VTI for now.

While we plan on helping our kids with higher education costs, we don’t intend to give them a free ride, so using their own savings is going to be necessary.  Skin-in-the-game theory.  Frankly even if we wanted to pay everything for them, we are unlikely to be in a position to be able to do so within five years. 

We’re keeping track of her earnings for purposes of taxes and tracking her allowed contributions.