Saving/Investing for Young Child

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NBKCF
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Saving/Investing for Young Child

Post by NBKCF »

DW and I currently put all money given to our child in our HYSA with it earmarked as our child's. We want make sure we set him up the best we can so we want to make sure we are not missing any opportunities.
  • Should he have his own HYSA? CD?
  • Should we/can we open an investment account for him? Perhaps this is a better route for higher earning potential, albeit taxable.
We have a 529 for him as well, but when money is given to him we request its intent from the gifter (i.e. savings or college).
Olemiss540
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Re: Saving/Investing for Young Child

Post by Olemiss540 »

Why are people giving the child money for "saving" with no expressed interest as to what it is for? What are you thinking as to the actual use of this money (eventually)? House? Car? Candy?

What's the child's age?
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
Topic Author
NBKCF
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Re: Saving/Investing for Young Child

Post by NBKCF »

Olemiss540 wrote: Fri Jun 05, 2020 9:10 am Why are people giving the child money for "saving" with no expressed interest as to what it is for? What are you thinking as to the actual use of this money (eventually)? House? Car? Candy?

What's the child's age?
It could be offensive to ask their motives for generosity so I will chalk it up to love and will respect their expressed purpose to allocate the money to my child. The use of the money in the future is unknown to us at the time, but why not maximize its earning in the interim? Do you think DW and I should allocate it on my child's behalf?

Child is 2 years old.
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gr7070
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Re: Saving/Investing for Young Child

Post by gr7070 »

I would not make them any account in their name. Not worth the hassle.

I would invest it as is reasonable for intended purpose and time frame. I would keep track of what is theirs.

If "their money" exceeds what is needed for college I'd just gift it to them as an adult. Sure, tax laws may change. I'll take that risk.

Lastly, if the giver doesn't specify an intent I wouldn't ask what to do with - what is now yours/your child's - money. You, and possibly with input from the child, are entitled to make that decision.
cshell2
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Re: Saving/Investing for Young Child

Post by cshell2 »

My credit union has child accounts that pay a high return (5% up to 2K), so I've always just put random cash gifts in these accounts for them until they hit the age of 13 or so, then I leave it up to them if they want to blow it or throw it in the account. Occasionally over the years the account would be raided for large ticket items. A new bike, cell phone, stuff like that. They've never received more than a few hundred a year for birthdays/Christmas, so it worked well for that.
Olemiss540
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Re: Saving/Investing for Young Child

Post by Olemiss540 »

NBKCF wrote: Fri Jun 05, 2020 10:04 am
Olemiss540 wrote: Fri Jun 05, 2020 9:10 am Why are people giving the child money for "saving" with no expressed interest as to what it is for? What are you thinking as to the actual use of this money (eventually)? House? Car? Candy?

What's the child's age?
It could be offensive to ask their motives for generosity so I will chalk it up to love and will respect their expressed purpose to allocate the money to my child. The use of the money in the future is unknown to us at the time, but why not maximize its earning in the interim? Do you think DW and I should allocate it on my child's behalf?

Child is 2 years old.
You already ask them their motives for gifting (college or savings). Personally I would put every dollar into a college savings fund/529. I think that will assist in preventing unintended tax or gift consequences in the future and it is the BEST use for a loving gift to a child in my opinion.
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
rkhusky
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Re: Saving/Investing for Young Child

Post by rkhusky »

I have a spreadsheet to keep track of the kids' savings/gifts. I pay 5.25% interest at the the end of the year. They can withdraw if they want to buy something.
aristotelian
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Re: Saving/Investing for Young Child

Post by aristotelian »

At some point someone will write you a check in the child's name and you will either need a UTMA or minor joint savings account. You can't invest funds in your name that legally belong to the child.
Last edited by aristotelian on Fri Jun 05, 2020 1:12 pm, edited 1 time in total.
bloom2708
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Re: Saving/Investing for Young Child

Post by bloom2708 »

529 or taxable/brokerage.

A young kid can't own an account.

We started 529s for each kid.

We also created brokerage accounts (you can have as many as you want at Vanguard or Fidelity, etc) for each kid at Vanguard. They are just joint owned accounts, not in the kids name. Just as a way to split the funds. Not necessary, but it helps track, especially for age gaps/differences.

All money they got went into these accounts. It is all college funds. Any leftover will transfer to each kid. They kept cash for their own spending (when old enough).

I would not complicate it early. High yield savings would also be fine. You can open multiple of these as well. Even if not owned by the kid, most can have a nickname attached. Sally, Ben, etc.

When a kid turns 18, they can open a Roth IRA and/or brokerage/taxable for themselves.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
aristotelian
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Re: Saving/Investing for Young Child

Post by aristotelian »

bloom2708 wrote: Fri Jun 05, 2020 11:36 am
A young kid can't own an account.
Some banks offer minor accounts with parent as joint owner.

There are Also UTMA accounts which are owned by the child but parent is custodian.
rkhusky
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Re: Saving/Investing for Young Child

Post by rkhusky »

aristotelian wrote: Fri Jun 05, 2020 11:29 am At some point someone will write you a check in the child's name and you will either need a UTMA or minor joint savings account. You can't invest funds in your name that legally belong to the child.
I just sign checks made out to our kids and put them in our bank account. Never had a problem. Do you have a reference for the statutes that relate to the handling of money legally belonging to a minor?
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FelixTheCat
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Re: Saving/Investing for Young Child

Post by FelixTheCat »

Taxable brokerage account in your name. You pay the taxes on interest and capital gains. You keep control of the money in case the little darling isn't ready for the $$$.

Vanguard S&P 500 Index or Vanguard Total Stock Market Index. Buy the ETF version if you don't have the $3K minium.
Felix is a wonderful, wonderful cat.
aristotelian
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Re: Saving/Investing for Young Child

Post by aristotelian »

rkhusky wrote: Fri Jun 05, 2020 12:31 pm
aristotelian wrote: Fri Jun 05, 2020 11:29 am At some point someone will write you a check in the child's name and you will either need a UTMA or minor joint savings account. You can't invest funds in your name that legally belong to the child.
I just sign checks made out to our kids and put them in our bank account. Never had a problem. Do you have a reference for the statutes that relate to the handling of money legally belonging to a minor?
I don't. My bank wouldn't let us do that. I assumed it wasn't possible but maybe it varies by bank. Will edit my post.
cshell2
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Re: Saving/Investing for Young Child

Post by cshell2 »

bloom2708 wrote: Fri Jun 05, 2020 11:36 am
A young kid can't own an account.
Both my kids had their own accounts since they were babies. Oldest got a checking account when he was 12, and has a couple UTMA accounts that will be turned over to him entirely next month when he turns 18. I don't like mixing money. It was gifted to them, not me.
bloom2708
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Re: Saving/Investing for Young Child

Post by bloom2708 »

cshell2 wrote: Fri Jun 05, 2020 1:12 pm
bloom2708 wrote: Fri Jun 05, 2020 11:36 am
A young kid can't own an account.
Both my kids had their own accounts since they were babies. Oldest got a checking account when he was 12, and has a couple UTMA accounts that will be turned over to him entirely next month when he turns 18. I don't like mixing money. It was gifted to them, not me.
I understand UTMA. A young kid can't own an account (without a co-owner). At 18 they can.

We always sign checks to a kid with our name and deposit them in our checking account and then transfer. Each of 3 kids got a checking account with a parent also signing when they turned 14. They also got a debit card.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
bltn
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Re: Saving/Investing for Young Child

Post by bltn »

Our kids did not receive enough cash gifts to make much difference to them or us. The cash was just added to their UGMA accounts until I became aware of 529 plans. These accounts were then transferred to their 529 plans. Those transfer amounts accounted for about 5% of their college costs, or less. But they helped us avoid student loans, which was a great gift for them.
S7M832
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Re: Saving/Investing for Young Child

Post by S7M832 »

I'm went through a similar analysis a couple years back - two kids, and their grandparents are very generous, and money for college tuition has already been set aside.

Two options I considered: (1) trust; or UTMA account. I chose UTMA account because I expect the amounts to be less than $50k or so by the time they are 18, and didn't think the transaction costs of setting up a trust would be worth the money/hassle. Had I created a trust, which I strongly considered, I could have put more stringent requirements as to when the kids would have access to the money (i.e. - distribution at age 30 unless money is needed for medical expenses, living expenses, etc.). With a UTMA, the parent's (custodian) control/management of the funds ceases at the age of 18. Once control is turned over to them, I'll encourage them to save it to use for a house downpayment, start a business, etc.

The UTMA asset allocations are both 100% VTI.
mak1277
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Re: Saving/Investing for Young Child

Post by mak1277 »

I don't plan on opening an account for my child until he is old enough to understand it. Beyond that, gifts will go in his piggy bank. I'm not worried about missing out on compounding. We intend to pay for his college but until I write the check that money isn't his, it's mine and his mother's. I just don't feel like overengineering the process.
KlangFool
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Re: Saving/Investing for Young Child

Post by KlangFool »

OP,

I invest my children's money in my Vanguard taxable account. I use the Vanguard LifeStrategy Growth Fund. When they are grown up, I give the money back to them and they open their own Vanguard Taxable account.

KlangFool
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Ben Mathew
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Re: Saving/Investing for Young Child

Post by Ben Mathew »

Kids' assets would ideally be 100% stocks to maximize time diversification over their lifetimes.
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NBKCF
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Re: Saving/Investing for Young Child

Post by NBKCF »

Thank you everyone for your input. I figured since his 529 is invested in the market then there is not much harm in trying that with his gifted money as well to let compounding do it's work. I also have not heard of UTMA accounts so that is good information to research.
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NBKCF
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Re: Saving/Investing for Young Child

Post by NBKCF »

Olemiss540 wrote: Fri Jun 05, 2020 11:04 am
NBKCF wrote: Fri Jun 05, 2020 10:04 am
Olemiss540 wrote: Fri Jun 05, 2020 9:10 am Why are people giving the child money for "saving" with no expressed interest as to what it is for? What are you thinking as to the actual use of this money (eventually)? House? Car? Candy?

What's the child's age?
It could be offensive to ask their motives for generosity so I will chalk it up to love and will respect their expressed purpose to allocate the money to my child. The use of the money in the future is unknown to us at the time, but why not maximize its earning in the interim? Do you think DW and I should allocate it on my child's behalf?

Child is 2 years old.
You already ask them their motives for gifting (college or savings). Personally I would put every dollar into a college savings fund/529. I think that will assist in preventing unintended tax or gift consequences in the future and it is the BEST use for a loving gift to a child in my opinion.
Yes, you are correct. I prefer not to get so granular as to deter from the gifter's having to overthink their gift - just a personal preference. I like to have the 2 different buckets for those that specifically want to contribute to his college since we have a 529 under his name.
softwaregeek
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Re: Saving/Investing for Young Child

Post by softwaregeek »

I have an UTMA account for each of my kids. 100% invested in small cap index. Higher risk than I take, but I expect they will need it for a house payment decades from now, so their horizon is very long.

The kids don't know about those accounts. They are too young.

They do have a few bucks in a bank savings account that they consider theirs.
bayview
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Re: Saving/Investing for Young Child

Post by bayview »

NBKCF wrote: Fri Jun 05, 2020 9:01 am DW and I currently put all money given to our child in our HYSA with it earmarked as our child's. We want make sure we set him up the best we can so we want to make sure we are not missing any opportunities.
  • Should he have his own HYSA? CD?
  • Should we/can we open an investment account for him? Perhaps this is a better route for higher earning potential, albeit taxable.
We have a 529 for him as well, but when money is given to him we request its intent from the gifter (i.e. savings or college).
This was vigorously debated several months ago:

viewtopic.php?f=2&t=297565&p=5045634&hi ... t#p4890764

(Sorry for the goofy link. I don’t know how to post a clean link for a topic found on a search. If someone could post the “use this, delete that” how-to, I’d be grateful.)
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri
nolesrule
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Re: Saving/Investing for Young Child

Post by nolesrule »

The advantage of a UTMA account is the kiddie Tax standard deduction on unearned income. This can be used to tax gain harvest investments to increase their basis and not pay taxes on their bank account interest.
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CyclingDuo
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Re: Saving/Investing for Young Child

Post by CyclingDuo »

NBKCF wrote: Fri Jun 05, 2020 9:01 am DW and I currently put all money given to our child in our HYSA with it earmarked as our child's. We want make sure we set him up the best we can so we want to make sure we are not missing any opportunities.
  • Should he have his own HYSA? CD?
  • Should we/can we open an investment account for him? Perhaps this is a better route for higher earning potential, albeit taxable.
We have a 529 for him as well, but when money is given to him we request its intent from the gifter (i.e. savings or college).
I can only respond what we did years ago in the dark ages (early 90's). Opened UTMA accounts for each child as soon as they were born and shoveled some money in each and every year to front load their investment accounts with an earmark for using them to pay for college. Did it all pre-Boglehead, so everything in the accounts were individual stocks during one of the most powerful bull markets in history. We let them ride during the dot.com bust as well as the financial crisis, and kept everything invested all the way through their schooling just pulling enough to cover tuition/room/board each semester. They both entered college after the financial crisis was over and the market was marching upwards - so the timing of when they entered college was fortuitous in that regard and the investment period from beginning to the final tuition bill being paid covered a period of 24 years for one, and 26 for another.

Strategy worked well as the funds - along with them working in high school and the paid internships they had through college - paid for their college educations (undergraduate and graduate degrees) with enough leftover that at age 21 the UTMA's were converted to individual brokerage accounts for each child and turned over to them. Both are pretty well set in their mid 20's as a result. All new investments they have made in their Roth IRA's, tIRA's and 401k's have been in the three fund portfolio and target date Vanguard funds.

In our house - the option of not attending college did not exist, so we had no issue setting up the UTMA's from the get go.
:sharebeer

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
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NBKCF
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Re: Saving/Investing for Young Child

Post by NBKCF »

bayview wrote: Sat Jun 06, 2020 9:28 am
NBKCF wrote: Fri Jun 05, 2020 9:01 am DW and I currently put all money given to our child in our HYSA with it earmarked as our child's. We want make sure we set him up the best we can so we want to make sure we are not missing any opportunities.
  • Should he have his own HYSA? CD?
  • Should we/can we open an investment account for him? Perhaps this is a better route for higher earning potential, albeit taxable.
We have a 529 for him as well, but when money is given to him we request its intent from the gifter (i.e. savings or college).
This was vigorously debated several months ago:

viewtopic.php?f=2&t=297565&p=5045634&hi ... t#p4890764

(Sorry for the goofy link. I don’t know how to post a clean link for a topic found on a search. If someone could post the “use this, delete that” how-to, I’d be grateful.)
Great link, Bayview - thanks. The topics do seem different with overlapping information, however. Good information nonetheless.
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NBKCF
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Re: Saving/Investing for Young Child

Post by NBKCF »

FelixTheCat wrote: Fri Jun 05, 2020 12:50 pm Taxable brokerage account in your name. You pay the taxes on interest and capital gains. You keep control of the money in case the little darling isn't ready for the $$$.

Vanguard S&P 500 Index or Vanguard Total Stock Market Index. Buy the ETF version if you don't have the $3K minium.
Hey FelixTheCat,

I took your advice here and opened a brokerage account under my name. I purchased FSKAX since I am already with Fidelity. Does this seem like the right approach? Any other accounts or details in which I should focus?
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Moondawg
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Re: Saving/Investing for Young Child

Post by Moondawg »

NBKCF wrote: Sun Jan 10, 2021 9:21 am
FelixTheCat wrote: Fri Jun 05, 2020 12:50 pm Taxable brokerage account in your name. You pay the taxes on interest and capital gains. You keep control of the money in case the little darling isn't ready for the $$$.

Vanguard S&P 500 Index or Vanguard Total Stock Market Index. Buy the ETF version if you don't have the $3K minium.
Hey FelixTheCat,

I took your advice here and opened a brokerage account under my name. I purchased FSKAX since I am already with Fidelity. Does this seem like the right approach? Any other accounts or details in which I should focus?
I wouldn't overthink this one; sounds like you're doing it right.

We do basically the same, but are using VOO instead because his brokerage account hasn't hit that $3k value quite yet. Keep up the good work!
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FelixTheCat
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Re: Saving/Investing for Young Child

Post by FelixTheCat »

NBKCF wrote: Sun Jan 10, 2021 9:21 am
FelixTheCat wrote: Fri Jun 05, 2020 12:50 pm Taxable brokerage account in your name. You pay the taxes on interest and capital gains. You keep control of the money in case the little darling isn't ready for the $$$.

Vanguard S&P 500 Index or Vanguard Total Stock Market Index. Buy the ETF version if you don't have the $3K minium.
Hey FelixTheCat,

I took your advice here and opened a brokerage account under my name. I purchased FSKAX since I am already with Fidelity. Does this seem like the right approach? Any other accounts or details in which I should focus?
You're fine. Leave the account alone and watch it grow over the years. :D
Felix is a wonderful, wonderful cat.
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