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The Gift of Investment


When you are out purchasing gifts for your children this holiday you may be wondering if there is something that you could give them that would greatly benefit their future. Liz Weston, award-winning personal finance columnist, suggests giving your child the gift of investment.

It is financially wise to teach children at a young age how to invest, because practice makes perfect and every penny makes a difference. Below you will find a few options on how to successfully teach your children about the value of money.

  • Custodial Roth IRA Account

If your child is self-employed, such as babysitting or dog walking, then you might want to consider opening a custodial Roth IRA account. By opening this account, your child will be able to contribute his or her earnings and begin to understand saving for retirement from their first job forward.

  • Uniform Transfers to Minors Act or Uniform Gifts to Minors Act Rules

What if your child does not have earned income yet? Then you can open a custodial account through the uniform transfers to minors act or the uniform gifts to minors act. However, there are taxes placed on these accounts. If your child's account is small, you will pay tax at the child's rate. Furthermore, accounts above a certain limit will require a kiddie tax that is based off of your rate.

  • Brokerage Account

In a custodial account, the account is legally the child's. This means when they become a certain age, they will have the rights to the money in the account. If you are concerned with the kiddie tax or that your child might spend all the money, then you can always open a brokerage account in your own name.

Unfortunately, there are pros and cons to early investment. Before any decisions are made, make sure to read the following.

If your child is planning on financial aid for college, then make sure you spend the money in the custodial account before your child begins looking at colleges during their junior year of high school. Also, according to Liz, "the custodial account typically requires the money be spent on something that benefits your child (tutoring, a computer, test prep) but that you're not already obligated to provide (food, clothing, shelter)."

  • Starting Amount and Fees

Find out how much you will need to start an account as well as what fees will incur over time. Custodial accounts can have a minimum of $100 or have a minimum as high as $2,500. However, there are accounts that do not require a minimum, instead they have outgoing transfer fees of $50 to $75. With this being said, it is wise to do some research before you sign up for an account.

Overall, teaching your children how to successfully invest his or her money will be beneficial for both you and your child.

We at Timothy J. Sierra Attorney at Law would like to state that our blog posts and links, on our web page or any other social media outlet, to any other web pages are not intended for legal advice. We are not responsible for third party website information. If one is in need of legal advice please contact an attorney directly.

Source: CBS News | Finance

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