PEAX Equipment

Investing for my kids

Just received an engagement letter from my accountant. Fees increased 50% and they are shipping the actual preparation work to India. Your kids can now cross the noble profession of accounting off the career list and change majors accordingly.
Gotta love capitalism.
 
What's an IRA
Individual Retirement Account. Some years ago the American government made a change to our tax code allowing for people to open this kind of account, which allows an an individual to invest money, and then not have to pay taxes on the dividends and capital gains, as long as the money is not removed until retirement age. There are a lot of other rules and details, but these are the basics. IRA’s were created for many reasons, some of which include: government benefits for retired persons are projected to be meager/inadequate for all but minimal living expenses, pensions from employers were no longer offered to new employees, and some corporations allowed their own version of an IRA called a “401(k)”, which is another tax code provision - but not everyone at a particular company was eligible to have a 401(k) to invest tax-free, and some people are self-employed, so the IRA basically opens the field to most everyone to fund their own retirement.

In practice a lot of Americans find personal investing worrisome, complicated, or onerous, and so they don’t participate. We have a high percentage of elderly persons living in poverty in our country.
 
Individual Retirement Account. Some years ago the American government made a change to our tax code allowing for people to open this kind of account, which allows an an individual to invest money, and then not have to pay taxes on the dividends and capital gains, as long as the money is not removed until retirement age. There are a lot of other rules and details, but these are the basics. IRA’s were created for many reasons, some of which include: government benefits for retired persons are projected to be meager/inadequate for all but minimal living expenses, pensions from employers were no longer offered to new employees, and some corporations allowed their own version of an IRA called a “401(k)”, which is another tax code provision - but not everyone at a particular company was eligible to have a 401(k) to invest tax-free, and some people are self-employed, so the IRA basically opens the field to most everyone to fund their own retirement.

In practice a lot of Americans find personal investing worrisome, complicated, or onerous, and so they don’t participate. We have a high percentage of elderly persons living in poverty in our country.
Ah thank you, that's called superannuation in our country, mandatory 9.5% of our wage, going up to 12% soon.
 
Ah thank you, that's called superannuation in our country, mandatory 9.5% of our wage, going up to 12% soon.
I think the primary difference is that IRA's are personally funded, with no mandatory minimums, only maximums. It's a personal account that isn't tied to an employer (typically) in any way. The 401K mentioned is typically tied to an employer, but most only contribute by matching what you personally decide to donate up to a certain percentage (usually from 1% - 5%). Again, if you don't personally contribute, many employers are contributing either.
 
I'm putting my daughter through college now so I'm getting an education on FAFSA. The kid's assets are a big mark against them getting financial aid. A Roth won't count against them. Also, there is no penalty for early withdrawal from a Roth if used for a house down payment if you are first time homebuyer.
Taking this one step further, but neither will cash value life insurance taken out of a properly structured life insurance policy affect a FAFSA.

If the life Insurance is properly structured (I can’t emphasize that enough, because too many insurance agents put the screw job on their clients), then the funds are also tax-free and have a little to no “loan provision” to get access to the tax-free cash value.

As an advisor I am all for Roth IRA accounts, but a properly structured life insurance policy is the only way to put significantly more amount of money in to a tax-free account, then what a Roth IRA will allow for on a yearly basis. Another plus, you don’t have to wait till age 59 1/2 to take money out of the account like you do a Roth IRA.

again, to reiterate, it Hass to be properly structured and most of the time the agent is not doing what’s in the best interest for the client. If properly structured, A cash value life insurance policy that is linked to the S&P 500 has the potential to do better than a Roth IRA from a liquidity, contribution standpoint.

A really good read on this is the book “money master the game” by Tony Robbins. It’s on page 439 or something, but Tony goes on to say “I was introduced to this concept by some of my wealthiest friends”.

If you thinking about exploring this further, please go into it very cautiously and understand all the good and bad.

If anyone has any questions you’re welcome to DM me and I’m happy to point you in the right direction.
 
I think you can take the contributions out of a Roth, but not the earnings. You can't contribute more than your child's earned income. I'm re-****ing around with my child's FAFSA and managed to lock myself out.

 
Only advice I have is involve them in the process and let them opine on how it’s invested. It’s a great learning experience for them. Sounds like that’s already in your plan.
I 100% agree with this advice - involve them. And I'd add, consider working with some sort of financial planner.
 
So my 18 year old son won $25,000 on a lottery ticket. Currently his plans for going forward are not set, but most likely a trade school. I am far from a financial genius, so what do you guys in the know suggest as to how he proceeds with the money? I'm researching, but thought I'd present the question. mtmuley
 
Make him save (ie invest) a minimum of 50% after tax. Let him have fun with some. Encourage him to be mature and start thinking longer term. Where does he want to be in five years?
 
Ask a politician? LOL.
The reason is supply and demand. For the last 40yrs we have told kids they need to go to college. The economy moved from ag-based to services, resulting in Metro-area growth. Most of the new jobs required some higher level of skill than a HS education provided. The number of universities stayed pretty static, so we saw the beginning of for-profit and online colleges. It is the same reason there are not enough plumbers and electricians. I see "Get your degree in 18 months" ads and just laugh.
This and that we are subsiding students with relatively cheep government provided student loans.

On another note, I see were some collages are allowing you to pay for collage now at the current rate so you can attend school in the future and not have to pay the future rate. Think there is any way I could do this with taxes?
 
So my 18 year old son won $25,000 on a lottery ticket. Currently his plans for going forward are not set, but most likely a trade school. I am far from a financial genius, so what do you guys in the know suggest as to how he proceeds with the money? I'm researching, but thought I'd present the question. mtmuley
Easier said than done. I would show him what that money could look like if it was invested for his retirement.
 
So my 18 year old son won $25,000 on a lottery ticket. Currently his plans for going forward are not set, but most likely a trade school. I am far from a financial genius, so what do you guys in the know suggest as to how he proceeds with the money? I'm researching, but thought I'd present the question. mtmuley
@JohnCushman would likely say “hookers and blow”. I’d say invest it all in e-bikes. :LOL:

Seriously, though, if he doesn’t already own his own home, I would encourage him to save it for a down payment on something when he’s ready. Building equity in real estate vs. flushing money down the drain on rent is probably one of the more prudent ways to begin to build some financial security.
 
So my 18 year old son won $25,000 on a lottery ticket. Currently his plans for going forward are not set, but most likely a trade school. I am far from a financial genius, so what do you guys in the know suggest as to how he proceeds with the money? I'm researching, but thought I'd present the question. mtmuley

He could buy more lottery tickets....

QQ
 
I'm kind of on the other end now, but we bought municipal bonds from the time our daughter was 3 and, with her scholarship had money left over. Some of our friends had money in the market during the crazy days (2000s), and their college money went kaput. For you money guys, with all the trillions going into spending are there opportunities here?
 
So my 18 year old son won $25,000 on a lottery ticket. Currently his plans for going forward are not set, but most likely a trade school. I am far from a financial genius, so what do you guys in the know suggest as to how he proceeds with the money? I'm researching, but thought I'd present the question. mtmuley
Well, after he buys a RUM... :)

I believe feds hold back 25% as a withholding but most states don't...but both fed and state tax it at ordinary income (so watch out for the state piece!). If he's 18, he's actually in a good time to win it given presumably low marginal bracket.

His biggest asset right now is time + lifting his earning potential, so I'd bend a healthy amount that way towards education.

If he were my kid and he had reliable transportation, I'd suggest ratios like for the final "investable" amounts (ie, post tax, post tithe if that's your thing) go into:

1) 40% towards education...trade school is a decent idea.

2) 20% starting up a ROTH (if he has any earned income for the year received...lottery earnings don't count as earned income), and get the seed germinating that putting money in there every year is a good idea. "Index funds only" rule.

3) 15% towards building up an emergency 6 month fund (we all need it!)

4) 15% starting a "house fund" (agreed with @Wildabeast on the rent comment)

5) 10% fun money (he is 18 after all)
 
Well, after he buys a RUM... :)

I believe feds hold back 25% as a withholding but most states don't...but both fed and state tax it at ordinary income (so watch out for the state piece!). If he's 18, he's actually in a good time to win it given presumably low marginal bracket.

His biggest asset right now is time + lifting his earning potential, so I'd bend a healthy amount that way towards education.

If he were my kid and he had reliable transportation, I'd suggest ratios like for the final "investable" amounts (ie, post tax, post tithe if that's your thing) go into:

1) 40% towards education...trade school is a decent idea.

2) 20% starting up a ROTH (if he has any earned income for the year received...lottery earnings don't count as earned income), and get the seed germinating that putting money in there every year is a good idea. "Index funds only" rule.

3) 15% towards building up an emergency 6 month fund (we all need it!)

4) 15% starting a "house fund" (agreed with @Wildabeast on the rent comment)

5) 10% fun money (he is 18 after all)
Or throw it all on a Dall sheep hunt, which is effectively what I did with some insurance proceeds :)
 
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