Investing inheritance for teens

[Anonymous]

My two kids, both early teens, are being gifted $25K each as part of an inheritance. Each has about $150K in their college funds and we will continue to contribute with the goal of fully covering in-state tuition so I am not inclined to put it in their 529 accounts. I would prefer to invest the money so that they have a nice nest egg when they graduate to buy a house, fund grad school, etc. I am considering putting a few thousand ($5K) into their savings accounts so that they have money to take a school trip in high school (or similar). But that is still a few years away for the youngest so I don't want to lose out by keeping it in his savings account if I can grow it over a short time.

WWYD? Are we foolish to not put it in their 529 accounts (in terms of growth opportunity)? The kids don't know about the money and we don't plan on telling them until they are older.

I am good at saving money not so good at investing so all advice is welcome!

[Anonymous]

Open a Vanguard account for each of them and keep the money in there. You can always take some out for a high school trip, but it will grow in the meantime.

[Anonymous]

You could open a UTMA for them. They are more flexible than a 529 plan. Depending on where you live, you can manage and control the UTMA until they are 18 or 21. And the first $1300 of annual income in the account is tax-free.

If they are teens and work, you could put it into a Roth IRA for them for up to the amount they earned in a tax year (with a cap of $7k per year) - then they get tax free growth plus it is eventually withdrawn tax-free. I have a few friends who do this - they let the kids spend what they earn, but they make a Roth IRA contribution for them up to their earnings or $7k, whichever is lower.

[Anonymous]

Anonymous wrote:You could open a UTMA for them. They are more flexible than a 529 plan. Depending on where you live, you can manage and control the UTMA until they are 18 or 21. And the first $1300 of annual income in the account is tax-free.

If they are teens and work, you could put it into a Roth IRA for them for up to the amount they earned in a tax year (with a cap of $7k per year) - then they get tax free growth plus it is eventually withdrawn tax-free. I have a few friends who do this - they let the kids spend what they earn, but they make a Roth IRA contribution for them up to their earnings or $7k, whichever is lower.

OP here. I thought about an IRA but they don't have jobs (they are 12 and 14). DH owns his own business and I read something about "hiring" the kids but I don't know that there is much we could realistically say they are doing an employees.

[Anonymous]

Anonymous wrote:

Anonymous wrote:You could open a UTMA for them. They are more flexible than a 529 plan. Depending on where you live, you can manage and control the UTMA until they are 18 or 21. And the first $1300 of annual income in the account is tax-free.

If they are teens and work, you could put it into a Roth IRA for them for up to the amount they earned in a tax year (with a cap of $7k per year) - then they get tax free growth plus it is eventually withdrawn tax-free. I have a few friends who do this - they let the kids spend what they earn, but they make a Roth IRA contribution for them up to their earnings or $7k, whichever is lower.

OP here. I thought about an IRA but they don't have jobs (they are 12 and 14). DH owns his own business and I read something about "hiring" the kids but I don't know that there is much we could realistically say they are doing an employees.

Hang on to the money for a few years (you can buy a CD or something) and when they get W2 jobs, match whatever they earn into Roth IRAs (up to the annual limit).

[Anonymous]

Do not put it in a savings account for a few years! Look into Robo investing, I have made over 15% of my investment using a Schwab Intelligent Portfolio.

[Anonymous]

Anonymous wrote:You could open a UTMA for them. They are more flexible than a 529 plan. Depending on where you live, you can manage and control the UTMA until they are 18 or 21. And the first $1300 of annual income in the account is tax-free.

If they are teens and work, you could put it into a Roth IRA for them for up to the amount they earned in a tax year (with a cap of $7k per year) - then they get tax free growth plus it is eventually withdrawn tax-free. I have a few friends who do this - they let the kids spend what they earn, but they make a Roth IRA contribution for them up to their earnings or $7k, whichever is lower.

Don't do this! It counts against them for financial aid.

[Anonymous]

Do not put it in IRAs! They will pay huge penalty if they take it out before 55 or something.
If you put it in Vanguards they will likely need to file tax returns and get 1099s.

[Anonymous]

Silver and gold.

[Anonymous]

Anonymous wrote:

Anonymous wrote:You could open a UTMA for them. They are more flexible than a 529 plan. Depending on where you live, you can manage and control the UTMA until they are 18 or 21. And the first $1300 of annual income in the account is tax-free.

If they are teens and work, you could put it into a Roth IRA for them for up to the amount they earned in a tax year (with a cap of $7k per year) - then they get tax free growth plus it is eventually withdrawn tax-free. I have a few friends who do this - they let the kids spend what they earn, but they make a Roth IRA contribution for them up to their earnings or $7k, whichever is lower.

Don't do this! It counts against them for financial aid.

How much financial aid do you think a kid would get with $150k in a 529 in their early teens and grandparents rich enough to give $25k per grandchild (plus whatever they gave to their children)?

[Anonymous]

Anonymous wrote:Do not put it in IRAs! They will pay huge penalty if they take it out before 55 or something.
If you put it in Vanguards they will likely need to file tax returns and get 1099s.

The idea is not to take it out before retirement age. But there are exceptions to the 10% penalty on early withdrawals for emergencies and other circumstances.

[Anonymous]

Anonymous wrote:Do not put it in IRAs! They will pay huge penalty if they take it out before 55 or something.
If you put it in Vanguards they will likely need to file tax returns and get 1099s.

That is the point.

[Anonymous]

Similar situation. Kid both got a significant amount from a great grandmother. We opened Fidelity accounts for them with the $. They also have their checking accounts there (young adults now). They are free to invest the money however they like but they defer to us for help. The money has grow. Significantly in the past few years. College was fully funded in 529s so no need to put it there.

[Anonymous]

Anonymous wrote:Similar situation. Kid both got a significant amount from a great grandmother. We opened Fidelity accounts for them with the $. They also have their checking accounts there (young adults now). They are free to invest the money however they like but they defer to us for help. The money has grow. Significantly in the past few years. College was fully funded in 529s so no need to put it there.

^PP. Both kids currently have the money in mutual funds but are free to move it around as they want.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:You could open a UTMA for them. They are more flexible than a 529 plan. Depending on where you live, you can manage and control the UTMA until they are 18 or 21. And the first $1300 of annual income in the account is tax-free.

If they are teens and work, you could put it into a Roth IRA for them for up to the amount they earned in a tax year (with a cap of $7k per year) - then they get tax free growth plus it is eventually withdrawn tax-free. I have a few friends who do this - they let the kids spend what they earn, but they make a Roth IRA contribution for them up to their earnings or $7k, whichever is lower.

OP here. I thought about an IRA but they don't have jobs (they are 12 and 14). DH owns his own business and I read something about "hiring" the kids but I don't know that there is much we could realistically say they are doing an employees.

Hang on to the money for a few years (you can buy a CD or something) and when they get W2 jobs, match whatever they earn into Roth IRAs (up to the annual limit).

You don't need W2 job to put money in their ROTH as long as they have earned income (like babysitting, dog walking...etc). You just need to document how your kid earned the money in case IRS asks