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Help! 3 kids and looking to start their retirement plans!

Bonaccan
Established Member

Help! 3 kids and looking to start their retirement plans!

Looking to determine what is the best plan to start my kid's retirement plans. I'm late to the game but I figure something better than nothing. 

 

Kids ages are 23, 13, and 5.

 

23yr old is in college, which I have been paying for in cash, so no debt when she is done.

13yr, just opened a youth investment account via Fidelity with $150 (bought VOO) so he can start putting half his allowance into.

5yr, nothing yet.

 

In the next month, I will have $10,000 for each one to put away. I'm not looking for anything high risk just something stable that I can continue to contribute monthly.

 

Thanks in advance, MD

Message 1 of 6
5 REPLIES 5
disdreamin
Valued Contributor

Re: Help! 3 kids and looking to start their retirement plans!

Following as I've contemplated doing retirement investments as part of holiday gifts for my kids moving forward, but because they have little or no earned income I haven't figured out an appropriate way to do this.

Message 2 of 6
IOBA
Senior Contributor

Re: Help! 3 kids and looking to start their retirement plans!

I opened ROTH IRA's for the kids when they were minors.  When they turned 18, my name fell off the account or was removed.  I don't remember which.  

 

I know my youngest voluntarily contributes to his retirement accounts & opened an additioanl account.

 

When you do open the account, please condsider putting in just under the 10k amount.  Ten thousand triggers an IRS reporting.  Not a big deal.

Message 3 of 6
IOBA
Senior Contributor

Re: Help! 3 kids and looking to start their retirement plans!

PS - Once I had the ROTH IRA's established, the funds usually migrated into another investment vehicle under the ROTH IRA umbrella, like a CD with a high interest rate, a money market account, or something.

Message 4 of 6
PNWRambler
Valued Member

Re: Help! 3 kids and looking to start their retirement plans!

If they have any earned income, the ROTH IRA is a great place to put it.  If not, you could open a regular mutual fund custodial account or UTMA.  You could also use an ESA or 529 if you want to put the money towards college rather than retirement for the younger ones; you'll get a tax advantage that way.  

Message 5 of 6
iced
Valued Contributor

Re: Help! 3 kids and looking to start their retirement plans!


@Bonaccan wrote:

Looking to determine what is the best plan to start my kid's retirement plans. I'm late to the game but I figure something better than nothing. 

 

Kids ages are 23, 13, and 5.

 

23yr old is in college, which I have been paying for in cash, so no debt when she is done.

13yr, just opened a youth investment account via Fidelity with $150 (bought VOO) so he can start putting half his allowance into.

5yr, nothing yet.

 

In the next month, I will have $10,000 for each one to put away. I'm not looking for anything high risk just something stable that I can continue to contribute monthly.

 

Thanks in advance, MD


I'll break down my thoughts and recommendations by child.

 

23: This one's the easiest of the three because he/she is already an adult. It sounds like you just put the cash toward tuition now, and if you continue to contribute post-college the easiest (and really only) thing you can do is put the cash into one of their accounts. Could cut a $6k check to their Roth IRA (provided they qualify) and put the rest into their brokerage account.

 

5: Can go the 529 or UTMA route here: 529 if you want to build up tax-advantaged savings for college, UTMA if you want to start building their nest egg. Bear in mind that if you are wanting to control how this money is invested and used, you lose that control upon their 18th or 21st birthday (depending on state). If control over how the money is spent is a priority for the life of the fund, you'll need to go the trust route.

 

13: Same as 5, though 529 is starting to lose its luster here. You're talking 5 years to grow it instead of 13.

 

For 5 and 13, it should be clear that you are not opening retirement plans. They aren't working and making earned income, so they can't have retirement accounts. I should also make clear that should you go the UTMA/UGMA route (which are in your kids' names though you get to manage until they are adults), any realized gains are treated as unearned income and tax code is a little more complicated here. The long and short of it is each kid needs to stay under $2200/year in realized gains to avoid paying taxes, but should you exceed that they will immediately jump to your top bracket. You can avoid that scenario with a trust, but then it comes with its own set of tax pitfalls to watch out for.

 

Investments: You really don't have a say with 23 other than to make recommendations. If they're looking for something low maintenance and low touch, stick to the basic ETFs like VOO, VO, etc. Because of the above tax considerations, you also really want to jump into something that's low dividend and low desire to sell for 5 and 13. With only $10k each to start, this won't be much of an issue initially but as those accounts grow you will want to be mindful about each sale you make and how much dividend income is coming in.

Message 6 of 6
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