[Steve]

My son turns one in a couple of days and I have already opened a custodial account at Vanguard for him, but I’m curious what the group thinks are the best options when it comes to saving/investing for your kids.

Should I be worried about keeping money in a savings account, precious metals, REITs, different funds?

Currently have all the money in a high dividend yield fund and plan on making contributions monthly or every 6 months.

[Kevin]

Second, seek an investment that produces zero income, only capital gains.

Otherwise, as the investment grows, that income will be taxed at YOUR marginal tax rate!
Look at index ETFs.

[Bill]

I would stop all of that immediately. Don’t put large amounts of money in a minors name.

Just keep it in your own account. If you want to gift it to them later, you can do that at any time.

We all like to think our kids will be angels, but the reality is that most 18 -21yr olds will still be developing.

You want to maintain some control over the cash until you know they are ready to handle it responsibly.

You don’t want to hand a kid $20k on the summer he decides he and his new girlfriend are going to have a 3 month long party for the summe

[Christopher]

Keep the money with you. Brokerage or 529, you can gift them the shares later on.

Do not keep money in their name, it will screw them for financial aid. Your money only counts 5%, theirs is 20%

[Jessica]

The best way to take care of your kid is to take care of yourself. Are you contributing the maximum allowable to every retirement account available to both parents?

Remember that even if one parent is at home or working part-time, they can contribute to a spousal IRA.

There’s no reason to tie money up in a child’s name for the vast majority of people.

If you want to stay flexible, remember that you can use Roth IRA funds (contributions AND earnings) for education without tax or penalty.

[Ra]

It depends on your goals. I opened a 529 at 6 months and a custodial account at 8yo and then a Roth IRA at 9 when she started earning money from a car wash business.

Because each account has different goals, the investments in them are different.

For example: the 529 is just an S&P 500 fund.

The custodial account has more “fun stocks” that my daughter can identify with e.g.

Roblox and Microsoft (because she was once an avid Minecrafter!).

as a way to teach and generate awareness of the stock market.

Plus it still has your good old VTI as a foundation.

So, your goal for the account will dictate what you put in it, but I suggest having a foundation of a broad index fund like VTI and then layering whatever else you want on it …. as long as it fits your goals and risk profile

[Michelle]

Be careful with the custodial account. It becomes there’s once they reach the age of majority whether they’re ready to have it or not.

I’m saying this as the parent of a 22 year old that I wish would not have gotten his UTMA money last year (and he’s a pretty responsible kid overall).

[Mark]

I would definiltey not use a high dividend yield fund. this is a beginner mistake. please research how dividends work.

no growth and double taxation make them not ideal. u want growth over long term

[Kelly]

Piggyback question: Is there conventional wisdom for earmarking funds when keeping under parents brokerage?

Title /nickname accounts “For Kid 1” “For Kid 2” etc? Keep “their” funds at separate brokerages?

I’m wanting the intent to remain clear, perhaps if we aren’t here to distribute in the future.

[Rick]

Another vote for regular brokerage account in your name with maybe a nickname that helps you segment it for the kid.

Tax efficient fund/etf choice. I would lean aggressive if this is truly 18-25 year out goal money.

VTI, some AVUV, maybe some QQQ. I wouldn’t get cute by having 7+ etfs but 3-5 seems like a good landing spot.

[Melanie]

I did errrything. I had zero help as a kid/young adult and I want to give my kids a head start (hopefully without raising them to be entitled jerks…)

I’m divorced and their father can’t afford to help them financially.
Most $$ went into 529…

I did a UTMA and bought each kid about 10 shares of apple when they were very young and just left it alone for many years, didn’t really add to it.

It grew like crazy (shares split too) and in the past couple years I started selling off little bits to reduce the tax burden and moving those proceeds into an index fund.

Then when they got part time jobs, I opened a custodial Roth and maxed that out to whatever their income was for that year.

[Elizabeth]

Another downside to a custodial account – if you’re hoping to get need-based aid for college, they count way more of assets in a child’s name vs assets in the parents’ names.

A 529 plan is fine if you’re the account holder and the child is the beneficiary.

That plus the control issue makes custodial accounts with large amounts a no-go for me (unless you plan on using it before college or keep a relatively smaller amount in it).

[Moore]

We opted to open a taxable brokerage account in our names and will gift it to her when the time is right.

We’re very much VTSAX (or similar) and chill.

[Fred]

A child’s brain is still developing into their 20s. As soon as he can get his hands on that money at age 18, he will probably spend it in a way that you wouldn’t approve of.

Use a total market index fund from Vanguard, Schwab, or Fidelity.

Keep it in your name or a 529 but designate for your son for when he needs it for education or perhaps to start a business someday.

Not all kids need to go to college.

Many high paying jobs don’t require a degree but they do require specialized training.

That trend will continue well into the future.

[Golden]

529 plan. Roth IRA later on when kid earns money from job. If you wanted to save more…do brokerage under your name, but earmarked for the kid.

You don’t want anything under the kid’s name. It counts against financial aid for college.

[Justin]

I’m old so I’ve been thinking of just setting aside a monthly deposit into my Roth IRA for my daughter but I also have a specific savings for her in my brokerage.

I don’t like 529 or custodial. I don’t mind transferring it to her at all later date vs her taking full control at 18yo

[Author]

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