Personal Investments • 12yo wants to start investing - 529, UTMA, other options?

My 12yo just told me something that’s music to a BH parent’s ear.

Yesterday I told him he’d received $200 in holiday and birthday money. I asked how he’d like to budget it, and he told me he wanted to sleep on it. Today when I touched base, he said:

“I’d like to invest that money.”

He clarified that he’s interested in index funds. So far, we’re considering investing the funds in his 529 or taking an UTMA investment route through Vanguard (which is where we do all our investing other than the 529s; no shade on Schwab and Fidelity, we just prefer to keep things simple).

This is likely to become an ongoing thing, not a one-time transaction (plus, when the time is right there’ll be similar conversations with my daughter).

My son’s interest in investing his own money has me wondering if we need to expand out what we do for our kids, since this initial bit of funds won’t be the last, plus they have their weekly allowances. A little context:

• In our 2-kid family, we’ve got custodial checking, savings, and 529 front covered pretty well.
• We adults are long-term index fund investors.
• “Consistency” is one of our family’s keywords.
• Each kid has gotten a weekly allowance since they were 5, with an “annual raise” on each birthday of a $1 a week, and they determine how that new dollar gets budgeted, along with any financial holiday/birthday gifts.
• Index funds, compound interest, debt, and long-term investing have always been family table conversations. In other words, money, thoughtful use of money, long-term thinking, and financial instruments aren’t new to our kids.

Options we’re considering… though we also don’t know what we don’t know.

529

• Money of his that he wants to invest, goes into his current 529.
• It wouldn’t count against his FAFSA the same way an UTMA might, should that be in play in a few years.
• Down the line there’s the possibility of him rolling 529 funds into a Roth IRA.

At a high level, 529 strikes me as most beneficial in terms of taxes and financial aid considerations. It also gives him skin in the game on his post-secondary education/training choices.

UTMA

• We already have custodial checking/savings for him, so we could open an UTMA brokerage account too.
• He doesn’t have a Roth IRA in his name yet (that’s something we have our eye on once relevant income in in play).
• To get out in front of one thing with UTMAs: Usually any discussion of UTMA on BH gets followed by concerns over what the kid does with the money once they take control. I’m just going to go ahead and say, what my son does with his money as an adult is his business, whether he got a high-paying job or liquidated UTMA that passed to his control. So while I appreciate that’s a consideration with UTMA, my wife and I don’t consider it a high-priority concern.

BH threads I read through before posting

What's the best way to invest $15k for kids (not 529)?

10 year old wants to buy stocks

Investing for children

Brokerage account for kids - what type of funds are ideal?

What are some of the pros/cons of 529 or UTMA approaches? What do we not know about with a kid and investing that we may want to consider?

Thanks so much, everyone.

Statistics: Posted by WanderDad — Sat Nov 30, 2024 10:02 pm — Replies 5 — Views 387

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