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Helping my child to become a Young Dreamer
Old 04-12-2018, 05:28 PM   #1
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Helping my child to become a Young Dreamer

My son will be 16 this spring. Both I and his mom (different household) have been encouraging him to get a job over the summer. Assuming this happens, I've also spoken to him a little about saving money in a tax deferred account. What I was planning on doing was some sort of matching fund, e.g. if he saved $500 of his job money I would gift him $500 to make up for it. (This is just an example, I would like him to have a little skin in the game so it might not be $ for $). I know that he can only contribute up to the amount of earned income.

1. I already have accounts at Ameritrade, Schwab, and Fidelity in my name. Any recommendations as to pro's and con's of these in terms of a child account. (I already have a UTMA account for him at Ameritrade.) Given the $ amounts, it is likely most of it will go towards low cost mutual funds or ETF's, although I am showing him how to invest in individual securities. [As an aside, his first stock he picked was Activation Blizzard in 2013 on which he has more than 4X on today. I only wish that I would have bought some at the same time!]
2. Given his low tax bracket, I'd assume a Roth is the way to go?

3. Any other considerations?
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Old 04-12-2018, 05:41 PM   #2
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I think a Roth would be wonderful, and I personally like Fidelity. No minimum to open, no fees, no transaction fees for most Fidelity funds, and many very low cost choices. Also a great website with tons of information and research tools.
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Old 04-12-2018, 05:49 PM   #3
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I think you are doing the right thing to get hip started. I bought my first stock at the age of 16, with my Dad's help.
First, search Ameritrade on this site and read all the negative comments.
There are a number of tax traps for a child. For example, if the child earns more than $2100 from investments, it is taxed at the parents tax rate.
I suggest you Google "child's income tax and read up on some of the sites. It may help you in your decision to set up and account.
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Old 04-12-2018, 06:14 PM   #4
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Originally Posted by Souschef View Post
I think you are doing the right thing to get hip started. I bought my first stock at the age of 16, with my Dad's help.
First, search Ameritrade on this site and read all the negative comments.
There are a number of tax traps for a child. For example, if the child earns more than $2100 from investments, it is taxed at the parents tax rate.
I suggest you Google "child's income tax and read up on some of the sites. It may help you in your decision to set up and account.
FWIW, I have Ameritrade as my my main non-401k brokerage, and have had it since the Datek days (1996 or so). Over the years they have treated me pretty well. But I have no problems with Schwab and Fidelity either.

Do trades in a Roth trigger the $2100 from investments consideration?
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Old 04-12-2018, 06:22 PM   #5
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Originally Posted by copyright1997reloaded View Post

Do trades in a Roth trigger the $2100 from investments consideration?
I do not think so, as I believe that is a non taxable account. I hope someone more expert on this will post
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Old 04-12-2018, 09:57 PM   #6
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Personally, I love the idea of you doing some kind of matching or top up.
Looking back on my younger days of being a horrible saver, I think one of the thinks that was kind of disheartening was how slow my savings grew in a savings account so I was more incentivized to earn money and spend it versus saving it.
By providing a match/top up and investing the saving to illustrate more muscular growth of your savings, probably provides more incentive to save. 16 might be a bit young but for me in my late 20's/early 30's, what really turned me into a dreamer was just being able to build a roadmap and visualize where my savings and investments might potentially take me. Just my 2 cents.
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Old 04-13-2018, 04:25 AM   #7
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I do not know the answer, but you might want to consider how the funds will be treated in the FAFSA application. It is my vague understanding that funds held in the name of the child count against financial need more than funds held by the parents. (We have no children, so I have no real expertise in this area)
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Old 04-13-2018, 06:00 AM   #8
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Quote:
Originally Posted by Souschef View Post
I think you are doing the right thing to get hip started. I bought my first stock at the age of 16, with my Dad's help.
First, search Ameritrade on this site and read all the negative comments.
There are a number of tax traps for a child. For example, if the child earns more than $2100 from investments, it is taxed at the parents tax rate.
I suggest you Google "child's income tax and read up on some of the sites. It may help you in your decision to set up and account.
You can go to the internet and google any brokerage and find tons of negative comments. I have one gripe with TDA and that's the lack of an easy way to show account performance. Fund selection, cost, ease of use, available trading platforms, commission free options, etc etc all are on par or better than the rest of the major brokerages in my opinion. Not having set up a child's account, I can't give OP insight into how they are at the three he mentioned though.
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Old 04-13-2018, 06:20 AM   #9
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I do not know the answer, but you might want to consider how the funds will be treated in the FAFSA application. It is my vague understanding that funds held in the name of the child count against financial need more than funds held by the parents. (We have no children, so I have no real expertise in this area)
Yes, I need to do a dry run on FAFSA to see where things are as of now and to get a better understanding of how assets in his name (including a Roth) impact FAFSA. Unfortunately/Fortunately (depending on your perspective), I have a lot of assets that are (I think) counted in the wealth calculation of EFC (Estimated Family Contribution). I see (looking at some stuff on the web) that tax deferred accounts (401K, IRA) are not included, but my other non-tax-deferred accounts would be.

I may have to quit my j*b in order for DS to get any kind of needs based scholarship. Since there is a two year look back, maybe I need to do that today.
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Old 04-13-2018, 06:48 AM   #10
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Back in the day when savings bonds were a decent investment, we bought those along with a FIDO UGMA account. Now, many years later he still has a stack of bonds and a chunk of FIDO funds. Looking back, both were, and are good investments.
During the undergrad years we provided (mostly his money) a monthly allowance for nonessential stuff. I told him from the beginning he could blow it or save it for a grander future purchase. He went the saving route for most of it and was able to fund a trip to Europe upon graduation and before start of med school.
My point was to show him that saving can pay off in ways far more exciting than a massive pile of books.
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Old 04-13-2018, 06:51 AM   #11
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Both of my children started Roth IRAs in this way. Since they did not "need" their income They put their relatively low summer job earnings into T Rowe Price S&P 500 index fund. As I recall at the time, this was the only low cost index that would allow low level ($1000 or less) Roth. I would have preferred Fidelity where they have UTMA accounts, or Vanguard for their low low cost index funds, but until they had more more money to invest, it was not an option.
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Old 04-13-2018, 07:21 AM   #12
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I just looked up the FAFSA thing... If the money is saved in a roth, in the child's name, it does not count on FAFSA.

My 17 year old will also be getting a job this summer, and I will also be matching roth contributions.

Like you, OP, I will not qualify for much aid under FAFSA because of assets. (Income is fine, but we have a rental property and rental income that disqualifies us.)

Gumby - your recollections are correct - under FAFSA, 100% of kids non-retirement assets count, and only 20% of parents non-retirement, non primary home, assets count.

The roth is an excellent way for the child to establish early savings towards retirement without putting that burden on the parent to cover extra college expenses... IF the child qualifies for financial aid.
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Old 04-13-2018, 08:25 AM   #13
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If you plan to get college aid then I would go with a Roth, if not then I think I would lean towards a taxable account since the funds can be used more flexibly... for a condo or house down payment, car that is needed, etc.

I like the idea of a 50% match to encourage savings, IMO it doesn't need to be retirement savings and arguably for taxable savings the benefits are more tangible (albeit with the risk that he might go off the rails and blow it foolishly).
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Old 04-13-2018, 01:56 PM   #14
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If you plan to get college aid then I would go with a Roth, if not then I think I would lean towards a taxable account since the funds can be used more flexibly... for a condo or house down payment, car that is needed, etc.

I like the idea of a 50% match to encourage savings, IMO it doesn't need to be retirement savings and arguably for taxable savings the benefits are more tangible (albeit with the risk that he might go off the rails and blow it foolishly).
If one is looking to tap just the original contributions and not the growth, could not the same thing be accomplished with a Roth? That is to say that the contributions could be withdrawn tax-free without penalty at any time.

Once I realized that this is how Roth's work, I went "whole hog" into them and no longer contributed to taxable accounts.

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Old 04-13-2018, 03:45 PM   #15
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When I was about 12 my grandfather made me a deal. He would give me 25 cents for every dollar that I saved. Every Christmas I would bring out my bank book and he would look at the incremental gain YOY. Then I would get the bonus. Way back, during the stone age, I would buy $50 or $100 savings bonds with the money.

I am a fan of this type of reward. It certainly encouraged me to be a saver vs. a spender and to plan for the future. Hopefully I will be around to do the same for my grandson.
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Old 04-14-2018, 07:17 PM   #16
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My dad just did the dollar for dollar match into a taxable brokerage in his name. I couldn't afford many shares and it was more just to get my get my.feet wet. I did think it was cool I owned a few shares of my favorite video card company at the time 3dfx.
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Old 04-14-2018, 07:24 PM   #17
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I just looked up the FAFSA thing... If the money is saved in a roth, in the child's name, it does not count on FAFSA.

My 17 year old will also be getting a job this summer, and I will also be matching roth contributions.

Like you, OP, I will not qualify for much aid under FAFSA because of assets. (Income is fine, but we have a rental property and rental income that disqualifies us.)

Gumby - your recollections are correct - under FAFSA, 100% of kids non-retirement assets count, and only 20% of parents non-retirement, non primary home, assets count.

The roth is an excellent way for the child to establish early savings towards retirement without putting that burden on the parent to cover extra college expenses... IF the child qualifies for financial aid.
DWs grandparents started her out with a Roth, and brokerage at the same time when she was 16. Between that and my dads deal it were able to sort of help with external pressures beyond tuition like buying reliable cars and housing assistance. Took some financial stress away and allowed us to focus on the important side of college...the studies. I never did finish but doesn't matter now. High earner engineer without degree. Rare and difficult path but possible.
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Old 04-14-2018, 07:54 PM   #18
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Man, at 16, during summer was interested in getting a tan, having fun with friends, going out to dance at night and the beach by day, learning to drive.

I get the idea of starting younger than later, but, maybe, at least high school, I'd let them have fun and be silly.
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Old 04-15-2018, 08:15 AM   #19
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Man, at 16, during summer was interested in getting a tan, having fun with friends, going out to dance at night and the beach by day, learning to drive.

I get the idea of starting younger than later, but, maybe, at least high school, I'd let them have fun and be silly.
I started working at age 11 (paper route), and didn't stop until I was 50. But I had plenty of time for fun and silliness (some would say stupidity), and had a pretty good tan. If I hadn't worked I wouldn't have had a car to learn to drive in. If you're given these things, more power to you. But making money and learning to save and spend wisely goes a long way.

Very few young people I know ever had a job until they got out of college, and with very few exceptions don't handle money very well. Some learn it later, some not at all. A few seem to know it instinctually. I personally think working early is a good teaching tool.

Regarding the OP, I think the matching concept is a great way to go, and the Roth is the perfect vehicle. I've used VG, Fido, and TDA, and any of them will be fine. It's easy enough to move around if you or he decides to.
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Old 04-25-2018, 10:30 AM   #20
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My parents taught us how to live and how to prosper.

Advice like don't buy things that you cannot afford with money you don't have. Avoid all consumer debt. Don't pay any attention to what others do. Conformity is greatly overrated and will stifle you. The only person who really cares about your money is you. Beware of those who claim otherwise since they are probably trying to separate you from you money. Politicians lie.

Avail yourself of every educational opportunity that you can. Learn to recognize opportunities, work/financial/personal, and do not be afraid to pounce on them out of fear of failure. Work hard and don't take anything for granted. Save and invest for the future. Entitlement is a four letter word.

Travel. Understand the world a little better and don't judge everyone and everything by the standards at home.

So far it has worked well for us. My parents had a comfortable retirement. They retired at 59. As did we. Financially independent.
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