What to do with gifted money for children
Hi Terry,
My children’s grandfather gifted them each $10,000. They are ages 16, 19, 21. I would like to know what to do with this money so they have it for future use as they do not need it for anything immediately, but may need it in the somewhat near future (wedding, house/car down payment, etc.), especially the older children. I do not want to put it in their savings account where they have immediate, easy access to it. If they choose to invest it for longer term, where should they invest it?
Terry Says
Well, the children who are minors (is it age 18 or 21 in your state of residence) can’t have their own money or investment account. It must be a “custodial” account.
The initial response I always give is to open a college savings account. But at this stage, and since you didn’t mention it, that doesn’t seem to be a need. But if you do decide to use the money for college (and will also be applying for financial aid) the money should definitely go into a 529 account (search my columns) because otherwise it will have a big impact on their ability to get financial aid.
And assuming college is all taken care of and not a factor here, my next question is whether any of them is working, and reporting earned income. If so, then money can be placed in a ROTH IRA where it will grow tax-free for the rest of their lives.
You’d just go to Fidelity and open a Roth (up to the amount of earned income — even if they already spent what they earned!) and put it into a Roth IRA invested in the stock market for the long run – in an SP 500 stock index fund.
But they must hold on to the account for at least 5years.
If that time horizon is too long, you could let them try to learn now to invest half by going to www.Stockpile.com and picking shares in companies they like. But put the other half in a money market fund for each of them. That’s a perfect compromise so they won’t blow it all with wild stocks.
