She hasn’t been a dependent for 2 years. You can be in college and not be a dependent. She owns a condo and the rent from the condo pays her monthly living expenses. She has 529 money and she is the beneficiary of those funds and that pays for her school, so she is not more than 50% supported by me, hence she is legally not a dependent of mine. Her tuition is also only about $13k/year so that is also helpful.
I have to check if they offer the 401k Roth. This is actually something I just discussed with my accountant regarding my own plan. It’s my company, but the rules of the “administrator” may not allow for the 401k Roth, or some other stuff he said. But in my case, it’s a conversion issue. I guess I have a lot of reading to do this weekend!
Re: platforms. We have experience with all of the major ones. IMO, Schwab and Etrade are better for those who like to do some periodic trading in their accounts. Fidelity is also fine. Vanguard’s interface is extremely clunky. This will be a very unpopular advice, but for a youngster with a 40-50 year investment horizon, I would recommend opening an Etrade account and invest in stocks of things they know and use. Buy and forget. When they start working, their employer’s plan may or may not have the option of buying individual stocks or even access to good funds.
Funny. In November 2019, my son gave me 3 stocks he was interested in for me to buy for him for his Hannukah and birthday gift that I had owed him. I don’t spend a lot on their gifts but that’s what he wanted. Well, I forgot. One of the companies if you can believe, was Zoom Video. It was about $65/share. Today? It’s about $372. He hasn’t let me forget that one.
But this kid spends nothing. Lives in t-shirts and shorts/sweats. Doesn’t have a credit card, just because he doesn’t want to deal with paying bills, not about the possibility of debt.
But then tells me his company is flying off to Greece in August for one of those bonding trips that startups are doing, as if it’s nothing. My kid is definitely unique, I’ll say that!
Vanguard, Fidelity or Schwab. Big fan of Total Stock Market Index for the 20- adn 30-somethings.
I would avoid Robinhood as the young 'ens need to learn to become a buy-and-hold investor, and Robinhood makes it too easy to play around. Checking balance everyday is not a good thing.
Yes, VAnguard’s website is not the highest rated for UI, but it works. Purchasing more of an existing fund is a two-step process. 1) Transfer money from checking to Vanguard Settlement Account. 2) Purchases new shares of the fund you want and pay with the funds that just got transferred into Settlement Account.
Yeah, the 529 ownership is a gray area the IRS has not touched. You can find written opinions to support either position, but not from the IRS. I am wrestling with this myself for next year. On the one hand, I am the owner of the 529, FBO my son, so I could at any time change the beneficiary designation. However, if I have the 529 administrator pay the university directly, the 1099-Q is issued to my son, but if I pay the university and reimburse myself from the 529, the 1099-Q is issued to me. Hence, the ability to argue this either way, and its impact on the dependent definition.
Your D’s $13K tuition makes this an easier evaluation.
Robinhood is good for young ones (have to be 18) for the mentality of someone who just wants to have “fun” money to play around in. But I say fun money in terms of I wouldn’t keep a lot there since they’ve had all those issues and I’ve told my kids not to get on the reddit stocks or ever short sell.
I agree re Vanguard. I don’t use them for brokerage account stuff except what’s in my Roth. But they’re not fast and as instant as other places. But they still have the best service and never have a problem getting through to someone.
We once had Scottrade for my husband’s IRA and they were the worst for customer service, fees, etc… It’s now sitting at Ameritrade and it’s also adequate, but nothing special.
Agree completely and will suggest that anyone add whatever security features each brokerage offers.
Fidelity allows Money Transfer Lockdown, which is what it sounds like. No one can transfer money out unless the Money Transfer Lockdown is lifted. Granted, if a hacker managed to access the account, they could also figure out how to remove the Money Transfer Lockdown.
Both Fidelity and Schwab (and others, I am sure) offer 2FA, or if you do not want to go that far, you can be informed when changes are made to login ID, password, email address, or phone numbers.
The reason I did not recommend Robinhood is that their policies are somewhat slimy; not sure they disallow margin trading in their IRAs. Etrade and Schwab do not enable margin in UTMA (or whatever they are called now) or personal IRAs. Plus, customer support is nonexistent.
Thanks, yes, we couldn’t even figure out how to transfer the funds in to start! And the worst part was that he had opened the account the year before, so his checking account was already linked. We did find the appropriate button and was able to fund the Roth, but decided just to move it to Fidelity. I do think so much of this is personal preference and familiarity with interfaces.
You can’t have an UTMA at Robinhood so there no parental oversight either. A lot of people will get burned (and have) bevause they don’t know what they’re doing. When my kids first started investing their money it was in Fidelity. I could see everything since they were UTMA accounts and I had to be the one to fund them with their other UTMA funds but we could also sit and discuss and share information. They’ve also heard about this stuff in our house their entire lives and paid attention and asked questions. I admit it’s funny seeing which of my kids are a little more risk averse than the others.
I also see even how as I’ve gotten older my investing has changed as I get more anxious about having enough money for retirement. Although I also realized as I just recently vocalized to my father that I worry I will never have enough money. I think that’s also illogical and need to learn how to overcome that fear and figure out why I have it.
Thanks to all so much for the ‘starter retirement fund’ company recommendations for my 19 y.o.! Much appreciated. We are going on vacation soon - that will give us (me) some time to look at these sites and figure it out.
My kids both did ROTH IRAs with Fidelity early on. I actually contributed the total amount of their earnings for a couple of years, just to get them started. (Or one could say I gifted them the amount - they contributed it :)). I suggested they just do an age based fund, about 30 years out. I’m sure they’ve done well the last several years.
@srparent15 I just got started again with looking at ETFs (exchange traded funds) for DD2’s TD Ameritrade Roth IRA. She has some funds there to invest – right now she has some shares in 2 ETFs (one is Morningstar 4 star rated and one is 5 star rated). She has some funds coming into that account too from a rollover as she changes jobs. Looking over all 11 sectors of ETFs and the top funds from each sector.
I think it is great for parents to help teach their young adults some financial lessons. So much for kids to absorb in so many areas of their lives and they have very busy lives. DD2 and I just talked tonight about the changing paradigm from when H and I were in our 20’s (40 years ago).
Once she makes all the transitions, I can look into DD1’s account. She is busy with life transitions too.
For us starting out young, we got into a home as soon as we could and didn’t have a lot of ‘extras’ to do so. We paid high interest rates in the late 70’s/early 80’s. They came down a lot when we built and later refinanced. Have 2.5% interest rate on the last of our home loan - which was through a credit union with low closing costs on the $100K 10 year loan - definitely was looking when the rates were super low. I find it interesting that credit unions in recent times are making car loans at a lower interest rate than home loans - I imagine it is so they can make the shifts as interest rates climb.
I think we should start looking at DD2’s new city and gain some idea on that housing market. She does need to see how her own choices are and what sacrifices she may initially need to make to be a home owner. In her new job to be saving money towards a down payment on a place - she has an account going now plus another account that just about has $10K in it. I am thinking that when the time is right to provide an interest free loan with payoff plan to get her to the 20% down to avoid PMI.
Just found out our niece and her fiancé have plans to be building a home - moving into a cheaper rental which will help save up. Their wedding is next May.
So glad our DDs have such a strong relationship with us and our extended family. It certainly adds the happiness in retirement. Since we live where they grew up they can return and reconnect with friends in our area.
DH has a ‘new plan’ with helping with DD2’s move - it involves him taking a bus to her city (actually not a bad trip from our place), help her drive the loaded moving truck (paying local help to load) while she drives her vehicle down to FL city. DD2’s BF and his friends are unloading. IDK if DH will drive moving truck back to city of origin or turn in at her new city - I guess they can see how it can play out. DH is taking a flight back to our city using his airline points for lower cost flight. Useful time for retired DH and not having a long drive back. I suspect it will work out to turn the truck in to her new city - but we shall see. Whatever works.
Once DD secures her apt, the rest of the timing will have things move to follow through.
@srparent15 wow on trying to steal your money on IRA.
Our neighbor who uses the same large CU we use had someone making up checks using their checking account and floating small checks through it - they caught one (maybe $59 was check amount) with their bank statement - and in looking back there was another one for $20 some months back. The ‘check’ was out of their sequence. They had two accounts so they closed one and now use the other for their checking account - so she had to buy checks ($100). What a hassle. Any one ‘seeing’ a check can record bank account and bank ID. I guess if they had ‘seen’ a recent actual check they would not have processed a check so out of sequence.
People now are brazenly stealing out of people’s mail box if one has outgoing mail that may include a check – so they can make up checks and steal. Some people are seeing and sharing the mail box ‘lookers’ - they have a motion detector light and camera – one recently shared shows the neck down of a gal with upper leg tattoos as she was opening their mail box. One showed a guy that was pretending to jog.
Yes, the numbers on the bottom of the check are all the information needed to make checks that will take money from the account (account number and bank routing number). There is effectively no security; the only deterrent is that there will be a “paper” (actually electronic) trail, if the banks, police, etc. actually bother to hunt down the forger.
Deposit outgoing mail at the post office or a post office mailbox.
Use a locking mailbox for incoming mail.
For paper check writing, use an account that you keep only enough money for the checks written plus any minimum to avoid fees.
@ucbalumnus good points on the checking account and use of out/incoming mail.
I do keep a watch on our account balance. We pay a lot electronically for monthly bills, auto draft.
One gets more cautious as people get ‘burned’. We have a neighbor with front facing garage who often left garage door open – well stuff did get stolen in broad daylight. There are brazen thieves. These neighbors replaced their mailbox with a locking mailbox for incoming mail too. Our driveway is longer and we have side entry garage – I think in hindsight that has been helpful with security. Since I was a SAHM for many years and now DH is retired, we didn’t have a two person work ‘routine’ where someone watching the house would know easily our comings and goings.
In the 1980’s, our home in the neighboring ‘bigger city’ was robbed in the daytime while we were both at work. I believe a painter’s helper may have copied a key. The police got finger prints (the thieves got scared off and left some of the loot - a meter reader came through and also our next door neighbor’s German shepherd was fiercely barking) but no closure. We had SAHM’s at both sides of our home. Some months later, a neighbor across the street had his front door knocked off the frame and thieves went in - no security alarm. Yuck. The bigger city had higher level crimes to combat. The detective that came to our home was super fat - I was surprised that they didn’t have standards for fitness.
However if you contribute to a pre-tax 401(K) then convert to a Roth IRA the amount converted would presumably become unearned income? Something to be careful about in the context of kiddie tax, so seems much better to use a Roth 401(K) if available (though employer contributions are still pre-tax, not sure what happens to these in a rollover?).
I have forgotten the amount the OP’s D was thinking of contributing to the plan, but I thought it was lower than the $6K Roth IRA limit, so she had decided to skip the process of contributing to Roth 401K at work and then transferring it out to her individual Roth IRA account. Also, IIRC, the daughter is supporting herself by paying her own living expenses via a condo she owns? I may be confusing the details at this point.
Either way, Kiddie Tax would not come into play b/c Roth conversions are not taxed as unearned income. Pulling from the internet:
“When converting an IRA, any funds representing contributions that were tax-deductible, as well as the growth of those contributions, are taxed as ordinary income in the year of the conversion . … The conversion amount itself is not counted as unearned income , but the conversion amount is included in AGI.”
One other correction --Roth 401K contributions are post-tax income, so someone who transfers money from an employer Roth 401K to an individual Roth IRA will not be taxed on the money b/c it was taxed when contributed.
Good to know it won’t get caught by kiddie tax, I may get my S to convert from an old employer plan then.
That’s true for the employee’s contributions, but as I understand it the employer’s contribution is still pre-tax money. So I guess that amount is declared as income when the transfer happens?
