Child Investment Questions?

I have a 9 month old that I want to invest for. I am kind of unclear as to the best ways to sign up for an account for him. I have 2 thousand to start and will contribute on a yearly basis. I am willing to take a high risk with this so as to reep the highest possible yield. I have been looking into mutual funds primarilly, and I am wondering how should I register the account (UGMA/UTMA, Trustee, or other) so my wife & I can retain control of the account until we wish to give the money to him?

ALSO

What are the tax liabilities for us or my son if we are custodians/ trustees as opposed to other options.

I hope someone answers your question because I had a question along the same line. I read on this site almost every day and know someone (Maybe Dingo or 1MO) has the answer.

dingo? you want it?

ok, i am back and dingo hasnt found this question yet, so lets get started:

please state what your intention is for the money you are putting away for your 9 month old (congratulations on your son!).

can he use it to buy a car? go backpacking in europe when he drops out of college at 19? give it all away for scientology? use it for college? bottom line - i understand you want to retain control over it, but how much control and for how long.

utma's will allow the 'minor' to have full control over it at a certain age (depends on where you live - plan for 18). actually, he could sue you for control of it even earlier. ouch, sorry to burst your bubble - now i know you are thinking your sweet little cuddly 9 month old would never sue you - but you never know.

sorry, no tax advice today. when we get into anything but the most basic of tax questions, i start to charge. that said, remember a trust is a PERSON! so it gets taxed like a person.

1MO

My thought was for school, and if he decides not to go to school we can pull the investment back (sort of like an incentive for him to get follow-on schooling) we don't care if it's even a technical school, but he gets some training he could use. What I take from your post is there may be no such thing with the sue option out there. So we'll probably keep it in an account in our names and gift it to him if he goes to school. This may not be what Gusbdman was looking for and this thread was started by him/her so I'll go now Thanks for the iput.

1MO,

I saw it, but was leaving my 2 cents in my pocket.

I am from the school (and position) of investing for retirement first, then contributing towards kids' education later, if I am still able to. Kids can pay off student loans as they enter the job market, but I cannot enjoy retirement and pay for my prescriptions, insurance, etc. in addition to a ton of loans and credit card bills. I don't want to borrow against the house I worked hard for 30 years to buy. I don't want to be a Wal-mart greeter (not that there is anything wrong with that) when I am 70. I want go on an Alaskan cruise with my wife, drive a gas-guzzling RV, play slots in Vegas and travel to Europe. I want a sizeable chunk of assets in case there is no Social Security, and my company is suddenly not able to pay my pension.

I want the best for my children, but I don't want to live in their basement when they should be enjoying their own lives. I have those family members and do not want to be them in 30 years.

Because of that stance, I am not an expert in that field (not that I am an expert in any field, or even a Jack-of-all-Trades), so I had no real imput. I ask family members to buy I-bonds or EE bonds, but only because they are easy to buy and are a better investment than Elmo toys and videos (but barely beat inflation currently).

Dingo

If the money will be earmarked for school check out a 529.

The other thing is how old are you? At 42 I am kind of an old fart to have a 3-year-old son. However when he is in his college years I will be eligible for withdrawal from my IRA’s. My financial picture will be much clearer at that time and then I can decide if I need all my IRA money for my wife and I or if we can use some of it to pay for his college. I agree with Dingo in that completely maxing out all retirement accounts should always come before college funds. In my case this causes no internal conflict because I know that I will be able to use that money for whichever endeavor makes the most sense at that time.

To add to what JM is saying, as long as an IRA is open for 5 years or more, the money is always accessible without penalty for qualified education expenses (regardless of the owner's age). They are taxed as if you are at the normal 59.5 years old. Distributions are treated as income for FAFSA (financial aid) purposes.

Thanks for both points.

Sorry for the delay in reply--time is not always available.

I already have a 529 plan for education, so yes, it will be his to do with as he pleases, and hopefully my financial education along the way will aid in how he uses it--i.e.--down payment on a house or IRA.

I am hoping to earn more than 20K easy in the next 17 yrs & 2 months. I'm not as worried about the taxes as I am about how we can retain control of it and give it to him at an appropriate time(when he graduates college, or begins a career).

Would it be easier to keep it in My wife & my name and give as a gift later, or
put him on it and hope I teach him wise spending habbits?

I am also wondering would you look more at mutual funds or stocks.
I just want to give him a good base to start from when he is older.
Thank you for all of your replys, I greatly appreciate all of your input.
GB

i would say use a UTMA using mutual fund(s). i would START with something seriously aggressive especially while he is too young to understand the risk associated with it. keep in mind that somewhere after 18 he may be able to gain access to it - though you can "lie" to him and tell him it is his at age 25. most 20 yr olds wouldnt know how to go about getting it before you tell him it is his.

theoretically, if you are only looking to give him 20K, you could keep it in your names and then gift it all to him in one year (based on present gifting allowances). but, if you are really trying to get him to learn about investing along the way, it is pretty powerful to see his name on it.

1MO

Thank you very much for your help.
I understand what you mean by the "Ownership Aspect" I would hope this would inspire and influence him, with some financial consulting from me, to invest it in his future rather than squandering it away. I am hopeful we'll have saved/ earned more than 20K in the next 17 years or so.
But thank you very much for your input I really do appreciate it.