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Started By
Message
Type of account for minor
Posted on 6/26/24 at 9:37 am
Posted on 6/26/24 at 9:37 am
So in-laws are telling us they want to give us $1k for our child's 1st birthday and want it to be invested somewhere. We have a 529 for her already but seems like they are hinting at wanting this to go somewhere else.
Trying to figure out the pro/cons of setting up a UTMA/UTGA account for our daughter vs. just opening a separate brokerage account in our name we could transfer to her in the future?
This money we figure we might use some before she would be 18/21 and get the UTMA/UTGA in the sense of helping pay for something like her Bat Mitzvah when she's 13, or first vehicle and the like as well which not sure that can be done from the UTMA/UTGA accounts...? We also dont love the idea of the account turning right over to her right when she turns 18 or 21 as well like a UTMA/UTGA account seem to do (without knowing what mindset she is in at that point so far in the future)...so wasnt sure what route some of you might take here.
Definitely was not just thinking of a basic savings account since we do want this money invested in the market since it should be for a relatively long time (>10 years at least). We were probably throwing in an additional $100/mo ourselves for now starting this account.
Trying to figure out the pro/cons of setting up a UTMA/UTGA account for our daughter vs. just opening a separate brokerage account in our name we could transfer to her in the future?
This money we figure we might use some before she would be 18/21 and get the UTMA/UTGA in the sense of helping pay for something like her Bat Mitzvah when she's 13, or first vehicle and the like as well which not sure that can be done from the UTMA/UTGA accounts...? We also dont love the idea of the account turning right over to her right when she turns 18 or 21 as well like a UTMA/UTGA account seem to do (without knowing what mindset she is in at that point so far in the future)...so wasnt sure what route some of you might take here.
Definitely was not just thinking of a basic savings account since we do want this money invested in the market since it should be for a relatively long time (>10 years at least). We were probably throwing in an additional $100/mo ourselves for now starting this account.
This post was edited on 6/26/24 at 9:38 am
3
Posted on 6/26/24 at 9:54 am to thunderbird1100
The UTMA will let the money grow at the child's tax rate while being linked to your account and managed by you. Which will be 0% unless they are earning more than 1250 a year in unearned income (dividends and capital gains). It can be invested in whatever you want. Once in the UTMA it is the kid's money though and can only be used for something for the kid, but can be pulled out at any time for the car, bat mitzvah, etc.
It will have to be turned over to the kid at whatever age your state indicates though. 21, etc.
It's probably the best choice if they don't want it to go into the 529. If you put it in a brokerage account in your name the dividends and capital gains will be taxed at your rate.
It will have to be turned over to the kid at whatever age your state indicates though. 21, etc.
It's probably the best choice if they don't want it to go into the 529. If you put it in a brokerage account in your name the dividends and capital gains will be taxed at your rate.
This post was edited on 6/26/24 at 9:57 am
Posted on 6/26/24 at 10:29 am to NATidefan
quote:
It will have to be turned over to the kid at whatever age your state indicates though. 21, etc.
This is the only thing I'm worried about because if the account still has a big amount of money left in it by then she basically gets that right in the middle of college which could be problematic
But I guess it makes the most sense for tax purposes and getting her things like a first vehicle or paying for Bat Mitzvah and such along the way.
Posted on 6/26/24 at 10:33 am to thunderbird1100
quote:
This is the only thing I'm worried about because if the account still has a big amount of money left in it by then she basically gets that right in the middle of college which could be problematic
Just spend the next decade educating her well. You could start moving it to a roth once she gets a job too.
This post was edited on 6/26/24 at 10:34 am
Posted on 6/26/24 at 10:37 am to thunderbird1100
Here are my thoughts from another thread. It’s not an easy decision:
My wife and I ruled out the custodial account as well. While I think we are solid parents and will raise two well minded children, I didn’t want to have to give them full control of any decent chunk of money at 21. Our plan has been max out their 529s for the full state tax credit and then put additional money in a brokerage account and gift whatever we feel is appropriate when they graduate college from that account.
My wife and I ruled out the custodial account as well. While I think we are solid parents and will raise two well minded children, I didn’t want to have to give them full control of any decent chunk of money at 21. Our plan has been max out their 529s for the full state tax credit and then put additional money in a brokerage account and gift whatever we feel is appropriate when they graduate college from that account.
Posted on 6/26/24 at 10:50 am to NATidefan
quote:
Just spend the next decade educating her well. You could start moving it to a roth once she gets a job too.
Certainly plan to, but just about anyone will burn through some money at that age and if they are in college if they come across it. Just young folk mindset when they come across a large amount of money basically.
Putting whatever she earns from a job in high school/college into a ROTH IRA might not be a bad idea to deplete the account mostly before turning 21 though.
Posted on 6/26/24 at 11:00 am to thunderbird1100
quote:
Putting whatever she earns from a job in high school/college into a ROTH IRA might not be a bad idea to deplete the account mostly before turning 21 though.
Just depends on what she will need it for. Saving for a downpayment on a house and building an emergency fund is always rough when you are young. And wasting money on rent while trying to do so is... a waste.
If you have college and that covered, the roth would make sense. If not I would try to educate her as best you could that this money is a starter account for an emergency fund/house payment.... and that's all its for. Of course if she is rebellious, she can go blow it on a trip to cancun and you'll get to see a hawk tuah tik tok from her down there.
Posted on 6/26/24 at 11:50 am to thunderbird1100
529 in grandparents name kid as beneficiary. Convert $35k to Roth after 15 yrs or use for education. You can also withdraw excess $ equivalent to scholarships rcv'd.
Grandparents' 529 doesn't count against financial aid. Accounts in kids name count most and parents name less.
Grandparents' 529 doesn't count against financial aid. Accounts in kids name count most and parents name less.
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