IRA for minor

[Patience]

16 year old is interested in starting an IRA. A few questions:

- Is it better to invest in IRA or 529 at this age?
- which brokerage to use? A small portion of our portfolio is with EJ, but we won't be signing up there because of the fees.
- which fund? Was thinking VOO after reading posts here.
- based on fund fees, is there a minimum dollar amount recommended when first opening the account? Minor child has only earned about $1,000 this year.

 

[Surewhitey]

Roth IRA imo. Fidelity has no fees or minimum as far as I can tell. A better app than most.

Roth IRA for Kids | Plan Benefits, Eligibility, and Investment Options | Fidelity

Opening a Roth IRA for kids can help them get a head start on saving for their financial future. Discover the benefits of helping a child invest early at Fidelity.

www.fidelity.com

 

[Kings over Queens]

I'll second the roth as well, and as far as the fund, any low cost s&p index or etf, or qqq. set it and forget it.

 

[MarieIG]

I will third the Roth. Child has to earn to have a Roth and those funds will grow tax free and compound for years. Look into opening an account somewhere like Fidelity - you want to keep any fees/ expenses very low. An ETF like VOO is fine.

You can call Fidelity and have a rep walk you through what is necessary. Fund the Roth with the entire amount of earnings, and then look into buying an ETF. Left over funds can be left in the settlement account or used to buy other (cheaper per share) funds, or funds where you can buy fractions.

 

[CRLLS]

I would ask, what is the goal for savings? I would not suggest an IRA or Roth if the purpose is saving for education. It is too easy to build a bad habit of using the account for purposes other than retirement.

I am another fan of S&P 500 ETF's.

 

[NgineER]

We've started Roth IRA's for my kids, they are custodial accounts at Vanguard.
As opposed to 529 accounts they are not taken into account for college financial aid but can be used penalty free to pay for qualified college expenses.

 

[kgtest]

We've started Roth IRA's for my kids, they are custodial accounts at Vanguard.
As opposed to 529 accounts they are not taken into account for college financial aid but can be used penalty free to pay for qualified college expenses.

I need to change my way of thinking? Maybe I just put into Roth instead. I've been doing 529 for the first 9 yrs of our first born. Granted not a lot just birthday money and what not. But I should establish Roth for the kiddos. They actually do help with some business stuff so I believe they could qualify even before age 16...since they have some earned income from helping with the biz.

 

[yakers]

I set up a Roth for younger son with Vanguard, used the STAR fund, . I did not do a 529 but had ibonds which were cashed tax free for college expenses.

 

[NgineER]

I need to change my way of thinking? Maybe I just put into Roth instead. I've been doing 529 for the first 9 yrs of our first born. Granted not a lot just birthday money and what not. But I should establish Roth for the kiddos. They actually do help with some business stuff so I believe they could qualify even before age 16...since they have some earned income from helping with the biz.

As long as they have earned income you can pay them that way. We do that and match whatever they want to save also.

 

[SecondCor521]

As opposed to 529 accounts they are not taken into account for college financial aid but can be used penalty free to pay for qualified college expenses.

It's possible I've misunderstood what you wrote here, but as written I think it contains an inaccuracy.

Except in limited circumstances, such as disability or being over 59 1/2, a taxpayer cannot use a distribution from a Roth to pay for college penalty free. See IRS Pub 590-B Figure 2-1 at https://www.irs.gov/pub/irs-pdf/p590b.pdf.

 

[SnowballCamper]

On page 33 it lists situations where the 10% penalty doesn't apply and education expenses is one item. It's still an unqualified distribution...

 

[SecondCor521]

On page 33 it lists situations where the 10% penalty doesn't apply and education expenses is one item. It's still an unqualified distribution...

My bad, you're correct.

Since it's unqualified, it could mean taxes on the earnings but no 10% penalty.

 

[SnowballCamper]

Yes, that's my understanding. For the OP, 529 vs IRA depends on the prospects for the Pell grant. The 529 is counted as an asset for the student, but I don't think the IRA is. I know the parents IRA is not considered. Money can be moved from the 529 to a Roth IRA later, but this is a relatively new feature, and has a lifetime limit of 35k.

I'd do Roth IRA contributions up to their income level, and start a 529.

The old FAFSA calculation number was in dollars, the expected contribution, and was useful to get a sense of the prospects for grants. The new number is just a score, and I haven't seen anything about what exactly it means for grants.

 

[CaliKid]

Fund Roth early and often if you can. For example, if you own a business maybe the child can be a model for your brochures or website!? Why not!? It's not free to hire a good looking kid for such purposes! Get that Roth stuffed as young as you can... legally of course!

 

[rodi]

We encouraged our boys to start socking away in a Roth when they first got W2 jobs. The first two years we matched $500 if they put in $500 (assuming they earned at least $1000).

We saved money in 529s for their college expenses. Living in California, with great UCs and CSUs public schools I set a target if 4 years at a UC as my target account. This meant putting $500/month/child into the 529s.

Older son had a few detours but should graduate from Berkeley Dec 2025. Younger son graduates this June. Both will have about $2000 left over in their 529s. They'll be able to roll any excess into their Roths.

 

[Koolau]

I set up a Roth for younger son with Vanguard, used the STAR fund, . I did not do a 529 but had ibonds which were cashed tax free for college expenses.

Yeah, did the same for our kids. STAR was only $1000 to open.