#InvestingForKids #ToddlerModeling #529Plan #RothIRA #UTMA
Hey everyone! 😊
I’ve got a bit of a head-scratcher for you. My toddler dabbles in child modeling and managed to pull in about $5,000 this year. Right now, that money is just hanging out in a UTMA brokerage account as cash—not invested yet. We’re actively funding her 529 plan up to our state’s tax deduction limits, so that’s all squared away. However, I’ve been exploring options like a custodial Roth IRA but haven’t taken the plunge yet. So, I’m curious:
What would be the best strategy for investing around $5,000 for my kid at this stage?
Here are some things I’ve been pondering:
- Priority of the 529 Plan: It seems like a smart move to contribute as much as possible here first, given the tax benefits.
- UTMA vs. Custodial Roth IRA: Between these two options, which one should take precedence for future growth and flexibility? 🤔
- Future growth potential: I’m a little concerned about the long-term implications of choosing one route over the other—especially regarding taxes and access to funds.
It’s so important to make wise investments for the little ones, especially when we plan for their future needs! To help everyone, I’d love to hear your thoughts and experiences:
- Have you invested in a custodial Roth IRA for your child? What was your experience?
- How do you feel about using a UTMA account versus a Roth IRA for kids?
- What strategies have you found most effective in growing your child’s savings?
Let’s dive into this discussion—your insights could really help someone figuring out the best path forward! Thanks in advance for sharing your wisdom! 🙌
Nothing wrong with UTMAs, but, I can’t say I love the idea of an 18 year old getting a large sum of money. I can say for certain that if I’d received a ton of money on my 18th birthday, boy, it would not have been spent wisely. I know not everyone is dumb like me, but it’s just something I think I should avoid doing with my kids.
Custodial Roth IRA is fine – however, do you plan on continuously investing in it after the $5k in the coming years?
I’d do the Roth if there will be additional income between now and age 18. What a dream to have money growing this early and tax free after 59.5!
Since the $5K is earned income, I would put it in a custodial Roth IRA and invest it in a stock index fund within the Roth IRA and just let it sit. That is excellent tax-free growth, and then the principal can be withdrawn tax-free at any time, such as for college, and the earnings can be withdrawn tax free in retirement. The kid would have unfettered access at age 18 (or 21?), so consider that – but the kid was also the one to earn the money in the first place.
To me this is a perfect situation for a Roth IRA. Earned income, 0% tax bracket, and their needs for college are already met.
The only downside would be you couldn’t repurpose it for consumption later (like say buying her a car or something). But IMO that’s a fine trade off, especially since you seem to earn plenty of money. 5k invested now will be worth like $300k when she’s 60.
I did this:
Fund the 529 based on a savings goal of instate tuition for 4 years.
Fund a 21st birthday gift. I set a goal amount for them. This was the second priority.
When I was in a spot to save some more (5 year assignment) I opened a custodial Roth IRA for each. Each year I had some extra, I put it there and had it invested in VOO. Third priority.
Neither kid had any student loans. They each took their 21 year gift and bought a house together. They are well ahead on their retirement savings.
Prioritize, have specific goal(s), and a target amount for the each. You don’t know if you’re doing well if you don’t know where you’re going.
Good luck.
Make sure you are saving enough for school. Not sure what your state’s limit is. I ended up using an out of state plan because the fund expenses in my state were too high. The tax free on qualified withdrawals is still a huge benefit.