I am FIREd, and seriously considering taking SS in a few years when I turn 62. The major factor pushing me to take it early is that my child would get a dependent benefit through High School, which would be about four years. If I understand correctly, the dependent benefit would be 50% of my FRA SS payment. My own benefit would be reduced since I would be taking SS early, but the numbers clearly favor taking the dependent benefit before it expires. As an added attraction, the dependent benefit would be taxed at my child's rate rather than my own.
The question is, what would be the best vehicle to invest this money for my child's benefit? I don't foresee needing the money, so the idea would be to invest it in a way that makes a positive long-term difference for my child. My first choice would be to use the money to fund a Roth IRA, but it is not clear to me that my child will have a job that would allow the maximum contribution and the transfer might take a very long time. It is even possible that the money could grow faster than the maximum contribution level. I could put the money in my child's 529, but I am already concerned that the 529 might be overfunded.
A third option would be to open a custodial UTMA investment account. This would have some tax advantages. On the other hand, the money would become my child's at 21, before even graduating from University (if that is the chosen direction). I like to think that my kid will be responsible with money (my spouse and I both grew up in families that taught us how to manage money successfully and we try to do the same). That said, if I had close to $100,000 in an investment account in my name when I was a poor college student, it is entirely possible that I would have bought a sports car rather than ride my bike to class and I don't even want to think about what what might have happened after too many beers at spring break.
Or my spouse and I could keep the money in our regular accounts but in separate funds. When our child gets a job, we could give it as annual gifts to fund an IRA or an investment account. If we don't see the maturity level to handle the money, we could wait.
Are there other ways the money could be put to use? This is an opportunity to jump start an investment or retirement fund for our child with tax advantaged money. On the other hand, we want it to be a helpful boost to financial independence, not economic outpatient care. Beyond not wanting to fund something really negative, we don't want this money to be (or be interpreted as) a tool to control our child's life. I suppose if we did nothing but put the money into our own accounts, our child would inherit it one day, but it would be nice to be able to see it put to better use.
