Ask Terry Questions Best investment choices for kids inheriting money from Grandfather

Best investment choices for kids inheriting money from Grandfather

By Terry Savage on October 22, 2015 | Wild Card

My father left his four grandkids (21, 14, 8 and a special needs child, and 2mths) $1000 each upon his death. I would like to put the money for them into the investment choice that will maximize the return when the three youngest get to at least 21. The 21 yr old I felt the best choice may be a Roth IRA or 401k.

What do you recommend?


Terry Says: Well, that was very generous, but it raises some issues — depending on the child.   For the oldest, a Roth IRA would be great — IF he or she has earned income of at least that amount this year.  (Roth contributions can only be made from earned income — not dividends, nor money gifted to them.)  So if he/she didn’t have a job in 2015, hang on to the money and use it as an incentive to “match” any earnings the child saves next year.  Open that Roth IRA at Fidelity or Vanguard or T.Rowe Price, using the S&P 500 index stock fund.  And encourage the child to add a contribution from earnings every year.

The middle children would benefit from opening a 529 College Savings Account, where the money will grow tax-free for college.  Again, go to one of the above named fund companies and choose a conservative, equity/income fund.

But you don’t every want to have money in a custodial account for a special needs child, because enough assets can disqualify them from important government aid programs.  I’m assuming you can easily spend that money on behalf of the child in the next few years.  But don’t even open a custodial account, just hang on to it for him/her.



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