I’m trying to figure out the best investment accounts for my two young children (ages 1 and 2).
We don’t want this to be a strict ‘college’ fund as we’re not sure what the future holds for them.
Any suggestions on what type of accounts we should look into?
You can actually move $35k from a 529 plan to a Roth IRA if they don’t end up using it for school.
Finlo said:
You can actually move $35k from a 529 plan to a Roth IRA if they don’t end up using it for school.
Depends on the state. Not all states allow this yet since it’s still a new rule.
@Peyton
Pretty sure this is a federal rule, so states can’t block the rollover. However, some states might have their own taxes on this transaction, so you should check if it’s taxable as income in your state.
@Joss
I’ve set up a few recently, and both times I was told by my state university advisor that the two different states I worked with don’t allow the conversion just yet.
Finlo said:
You can actually move $35k from a 529 plan to a Roth IRA if they don’t end up using it for school.
Why not just set up a Roth now? If they’re in a higher tax bracket in 18 years, it could be a good move.
@Skyler
I looked into this for my kids, but a Roth requires earned income. If your 5-year-old doesn’t have a job, they can’t have a Roth, according to IRS rules.
Roux said:
@Skyler
I looked into this for my kids, but a Roth requires earned income. If your 5-year-old doesn’t have a job, they can’t have a Roth, according to IRS rules.
u/mckuckle_brewery explained the options well. 
Roux said:
@Skyler
I looked into this for my kids, but a Roth requires earned income. If your 5-year-old doesn’t have a job, they can’t have a Roth, according to IRS rules.
True, but if they do small jobs or labor and make under $600 a year, no 1099 is needed, and it flies under the radar.
I just put money into a brokerage account under my own name. That way, I can give it to them when I choose, but if they end up making poor choices, I still have control.
Keir said:
I just put money into a brokerage account under my own name. That way, I can give it to them when I choose, but if they end up making poor choices, I still have control.
Same here! A lot of brokerages let you set up multiple accounts under your main account, so I have one labeled for each kid. I saw a story once where a parent had a UTMA and their kid, who had become a drug addict, got $70k at 18. Keeping the money in my name avoids that potential mess.
A 529 plan is more flexible than you might think.
Honestly, a 529 is your best option. If they don’t go to school, you can roll it over into a retirement account or other uses later on.
I opened a regular account in my name with my child as the beneficiary. It’s simple, and they’ll get everything as an only child eventually.
Have you thought about a UTMA/UGMA?
Blaire said:
Have you thought about a UTMA/UGMA?
What are the pros and cons of those accounts? I’m reading up on them, but any personal experience you could share?
Blaire said:
Have you thought about a UTMA/UGMA?
What are the pros and cons of those accounts? I’m reading up on them, but any personal experience you could share?
One downside is you have to give the money to them when they become legal adults, whether or not they’re ready for it.
A custodian account like a UGMA is worth considering.
I’d recommend a Roth IRA, but the kids need earned income. Chores can count if you document it, and you or family can match what they put in. Start small, maybe $50 a month.
Parker said:
I’d recommend a Roth IRA, but the kids need earned income. Chores can count if you document it, and you or family can match what they put in. Start small, maybe $50 a month.
Chores and allowances aren’t counted as income by the IRS.