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Newborn - Investing

3,991 Views | 37 Replies | Last: 2 yr ago by The Lurker
Carlo4
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My firstborn is scheduled to come to this world in early 2022 after a tough road to get pregnant. I'm looking for a few ideas to start things for her that I didn't have for myself. For example, I didn't know/learn anything about IRAs and 401ks until my early to mid 20s.

I have the below ideas but would love some feedback/critique as necessary.

1. Update wills prior to birth just to have it setup (or do I need to wait for her birth).

2. Start a Roth IRA upon her birth and manage it. Guessing I can add $1k to $2k a year minimum spread out over monthly deposits on top of what I can normally do. I'd rather her having something well started vs me starting at 25.

3. 529 plan/Coverdell ESA. Unless something happens with my folks at the end of their life, they want part of their life savings/inheritance setup for their future only grandchild. I know they can contribute while alive, so I figure I can work with someone on that.

4. A little brother.... I'll work with my wife on that one

Anything else you can think?
Killin Me Smalls
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I also set up a UTMA for each of my kids.

Any birthday or Christmas money they receive goes into that account and I buy stock shares with it. All 3 of my kids are under 4, so I imagine the money will start going into their pocket at some point, but hopefully I can also teach them to invest some of it.
cjsag94
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Congrats on the baby.

First thing.. term life insurance covering both you and your wife individually to completely take care of that child if something were to happen to you, your wife, or both. And don't wait on birth.. for all the modern miracles, child birth still seems to be one of the riskiest medical events! And get plenty... I have north of a 2 million 20 year term policy on myself that's like $130/mo.. and I'm no specimen of great health... And don't let anyone sell you anything other than term life.

Second, make sure you are taken care of financially long before you start setting up your unborn child. Your thoughts are admirable, but that kid is likely to be very expensive if it's like many these days.. sports, dance, cars, golf carts... Man we spoil our kids! After you are good, then build that college fund.

If you are completely set, and you really think this is necessary, you can start funding a UTMA account. But understand that money is legally her's and you are a fiduciary to manage it for her, then ultimately giving it to her.

Finally, maybe a CPA can chime in, but you have to show earned income for the child to fund a Roth. In time, you can pay them to do chores and such, but I don't think you are going to get away with that until the child is at least old enough to pass the smell test on then actually being able to work.
htxag09
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I set up a 529 for ours. Outside that, all we really did (saving wise) was set up a savings account with a decent rate (we used AMEX) in my name but nicknamed it for my kid. The money is technically mine, just in case something happens, but we plan to transfer it to him when he's 18 or so and starts seeing expenditures for college.

We put a couple grand in it to start, but now really just plan on putting what he gets for birthdays/holidays from family members into it going forward. We may change it when he's older and can understand saving more, i.e. matching what he adds, etc.
TexasAg21
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Roth IRA can only be opened up if the baby has earned income, which almost none do.

I have set up a 529 and UTMA for my infant.
aTm_bomb
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Just start an Acorns account, link to your purchasing cards and forget about it. In 18 years you'll have some serious coin to give them and they can learn about investing, capital gains etc. I started this back in April 2020 and have almost $6k. Probably use it towards braces, a first car or gift to them after graduating college. Not most tax efficient but easy and simple way to save.

Oh and a 529.
Baby Billy
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Whole life insurance
TikkaShooter
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Can an IRA be started for a kid with no income?
cjsag94
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No
Ag13
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htxag09 said:

I set up a 529 for ours. Outside that, all we really did (saving wise) was set up a savings account with a decent rate (we used AMEX) in my name but nicknamed it for my kid. The money is technically mine, just in case something happens, but we plan to transfer it to him when he's 18 or so and starts seeing expenditures for college.

We put a couple grand in it to start, but now really just plan on putting what he gets for birthdays/holidays from family members into it going forward. We may change it when he's older and can understand saving more, i.e. matching what he adds, etc.
Have you considered investing this money instead of just putting it into a savings account? That couple grand could double or triple by the time your kid is 18. Something like Betterment could be super hands off and stress free.
htxag09
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Ag13 said:

htxag09 said:

I set up a 529 for ours. Outside that, all we really did (saving wise) was set up a savings account with a decent rate (we used AMEX) in my name but nicknamed it for my kid. The money is technically mine, just in case something happens, but we plan to transfer it to him when he's 18 or so and starts seeing expenditures for college.

We put a couple grand in it to start, but now really just plan on putting what he gets for birthdays/holidays from family members into it going forward. We may change it when he's older and can understand saving more, i.e. matching what he adds, etc.
Have you considered investing this money instead of just putting it into a savings account? That couple grand could double or triple by the time your kid is 18. Something like Betterment could be super hands off and stress free.

I have. I mean the wife and I have a couple different investment accounts so I'm aware that they're better tools for long term success. I may look into betterment. We are pretty hands off, so everything we do is with an advisor. We meet, discuss our risk appetite, he handles the rest. So would want something similar but don't really want something with a fee…..
AggiEE
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Put 100% in Small Cap Value funds (see work by Paul Merriman).

High risk, but very high compounded long term returns

Carlo4
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Thank you all for the feedback and education. Still have a ton to learn still. My wife and I definitely need to look into life insurance and getting our baby on a payroll ASAP for the IRA access.
10andBOUNCE
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We have a 529, UTMA and Roth (from small acting income) on our 7 year old. Nothing substantial but when they are little, time is on their side and a little seed money will grow. We also put away $13.22 monthly into a an investment account and call it our Proverbs 13:22 fund for our future grandchildren.

Agree it's most important to take care our ourselves financially, however investing for the future like this can be really fun.
ShotOver
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cjsag94 said:

Congrats on the baby.

First thing.. term life insurance covering both you and your wife individually to completely take care of that child if something were to happen to you, your wife, or both. And don't wait on birth.. for all the modern miracles, child birth still seems to be one of the riskiest medical events! And get plenty... I have north of a 2 million 20 year term policy on myself that's like $130/mo.. and I'm no specimen of great health... And don't let anyone sell you anything other than term life.

Second, make sure you are taken care of financially long before you start setting up your unborn child. Your thoughts are admirable, but that kid is likely to be very expensive if it's like many these days.. sports, dance, cars, golf carts... Man we spoil our kids! After you are good, then build that college fund.

If you are completely set, and you really think this is necessary, you can start funding a UTMA account. But understand that money is legally her's and you are a fiduciary to manage it for her, then ultimately giving it to her.

Finally, maybe a CPA can chime in, but you have to show earned income for the child to fund a Roth. In time, you can pay them to do chores and such, but I don't think you are going to get away with that until the child is at least old enough to pass the smell test on then actually being able to work.
Great advice, especially his second point. We are early 60's, all three out of A&M, and we followed this blueprint. We've started 529 plans for all five, (soon to be seven), grandchildren.

Bye the way, congrats to the both of you to be asking these questions so early in your married life. It'll really pay off for you 30-40 years from now!
Greener Acres
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When I was a kid, I'd ride around with my dad at the deer lease and listen to talk radio financial advisers. The only thing I remember was heavy warnings on giving kids large sums of money at 18. Concerns about them blowing it. The main gist was to save it fir them and keep it in your hands for their college expenses. Then give it to them after they had worked a few years or at their marriage or whatever.

Is this no longer valid advice? I see a few comments about giving kids money at 18.
htxag09
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Kids also suddenly see a large influx of expenses when they turn 18. Going to college and all that entails. End of the day, every kid and every situation is different. Some kids will get money when they're 18 and be ****s. Some won't. Some won't get any money and still be entitled ****s.
fka ftc
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cjsag94 said:

Congrats on the baby.

First thing.. term life insurance covering both you and your wife individually to completely take care of that child if something were to happen to you, your wife, or both. And don't wait on birth.. for all the modern miracles, child birth still seems to be one of the riskiest medical events! And get plenty... I have north of a 2 million 20 year term policy on myself that's like $130/mo.. and I'm no specimen of great health... And don't let anyone sell you anything other than term life.
This is great advice. I waited until our boy was born and was challenged as I have a health issue, though well controlled, still send me up the risk and price ladder. I encouraged my business partners ensure they have coverage - and one of the guys with a wife and two kids discovered his diabetes during the health screening.

Point being, term life is super cheap when you are young and healthy. Regarding waiting to update wills until they are born, I am not a lawyer but recall the language is more specific on spouse and less specific on children, unless you intend to give specific stuff to specific kids. As example "to my wife, Jane Doe, If she does not survive me, then equally to the natural born children of John and Jane Doe in equal shares".

A lawyer will get this right. Couple of things I learned when going through this process. An extremely important part will be to specify the guardian(s) of your child. Probably the thing to think about the most. Unfortunately, with time these designees may need to be updated.

The second learning was specifying heirs on assets that will not be bound by the will. That life insurance policy will require you to designate a beneficiary. The beneficiary designated will receive the proceeds regardless of what your will says. In general this will be your spouse. But for obvious reasons you will specify the secondary beneficiary. Confirm with your attorney, but the counsel provided to me is that the beneficiary (whether primary or secondary) should never be a minor child. The reason is not obvious to most.

As mentioned, these designations will trump whatever is in the will (where you specified guardians, estate managers, inheritors, etc). If you designate a minor child, what was explained to me is that the effect of your minor child receiving the proceeds in this circumstance would result in the court appointing an administrator on behalf of the child. The court is not obligated to follow any estate managers and thus the administrator is court appointed - and the administrator is allowed to charge a fee for their services, paid from the proceeds.

This can be solved in a number of ways, but the counsel we received was to make beneficiary of John Doe's life insurance be "to the estate of John Doe". That puts it back under the will.

Reminds me I need to update ours. Congrats OP. Parenthood is a fantastic journey.
"The absence of the word accountability is not the same as wanting no accountability" -unknown

"You can never go wrong by staying silent if there is nothing apt to say" -Walter Isaacson
cjsag94
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Contingent beneficiary on all my stuff is "My testamentary trustee under my last will and testament". My will creates trusts for the benefit of first my wife then the kids if she is also gone.

I'm a huge fan of trusts. I always paint the picture of one spouse dies, survivor remarries, then the survivor dies and community property gives everyone to the new second spouse.

Trusts can also address the above situation of giving kids a bunch of money. Without a trust, there isn't anything you can do to prevent kids from getting everything when they turn 18.

And finally, yes, the designation of guardians is the hardest decision you will have to make, and it can absolutely change over time.
fka ftc
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OP, I think you have some good info, particularly from cjsag94. If you do not already have a lawyer in your contact list, its time to ask for recommendations from friends or business associates. First to help with wills and estate planning (if necessary), then if something comes up they will be able to recommend someone for that situation. You do not want to be searching billboards or late night TV for legal advice.
"The absence of the word accountability is not the same as wanting no accountability" -unknown

"You can never go wrong by staying silent if there is nothing apt to say" -Walter Isaacson
Carlo4
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fka ftc said:

OP, I think you have some good info, particularly from cjsag94. If you do not already have a lawyer in your contact list, its time to ask for recommendations from friends or business associates. First to help with wills and estate planning (if necessary), then if something comes up they will be able to recommend someone for that situation. You do not want to be searching billboards or late night TV for legal advice.
This has been a great thread and excellent advice from cjasg94 and others. Appreciate the insight, and welcome any tangents for anyone with specific needs of their own.

My family has an attorney. I'll need to talk with my parents on the trust/passing down everything that route through my new daughter now. It's setup through me at this point, but will need to be updated. My wife and I will be getting our wills updated here next month.

Only con for both of us is age. I'm 39 and she's 35... wishing we were 10 years younger but glad to be starting soon. I know that will impact the term life insurance greatly, but worth it. We are more established financially and can take on adding a little extra to something for our daughter... and thankful for that!







cjsag94
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Those ages won't affect term much. 20 years is still very low mortality rate. More a question if you've developed health concerns.

Good luck with everything.
Howdy Dammit
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Don't tell the life Insurance company if you dip snuff
fka ftc
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Howdy Dammit said:

Don't tell the life Insurance company if you dip snuff
No doubt. I would even take the step of having any doctors you may see send you their personal health report they maintain on you before engaging in with underwriter. Seems trivial but I had a specialist that sent his personal notes, not my PHR, to the underwriter. Based on those notes, I was denied any coverage.

It was inappropriate of the physician to share that info, but the bridge had been crossed and burned behind it.
"The absence of the word accountability is not the same as wanting no accountability" -unknown

"You can never go wrong by staying silent if there is nothing apt to say" -Walter Isaacson
My Name Is Judge
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I have a question about the Roth IRA for a child

Roth IRA has to be earned income so gerber babies technically can have one set up but the average infant can't…

My understanding though is that children can earn money for chores, babysitting, etc & put it in a Roth IRA

So what is the minimum age "accepted" by the irs for a child to earn money performing chores

Can you pay a 3 year old 6k per year for picking up her toys & cleaning her room, and then put that money in a Roth IRA?
12thMan9
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Carlo4 said:

fka ftc said:

OP, I think you have some good info, particularly from cjsag94. If you do not already have a lawyer in your contact list, its time to ask for recommendations from friends or business associates. First to help with wills and estate planning (if necessary), then if something comes up they will be able to recommend someone for that situation. You do not want to be searching billboards or late night TV for legal advice.
This has been a great thread and excellent advice from cjasg94 and others. Appreciate the insight, and welcome any tangents for anyone with specific needs of their own.

My family has an attorney. I'll need to talk with my parents on the trust/passing down everything that route through my new daughter now. It's setup through me at this point, but will need to be updated. My wife and I will be getting our wills updated here next month.

Only con for both of us is age. I'm 39 and she's 35... wishing we were 10 years younger but glad to be starting soon. I know that will impact the term life insurance greatly, but worth it. We are more established financially and can take on adding a little extra to something for our daughter... and thankful for that!










Congrats on your new baby, life won't be the same.!

Yes, get term life b/f you turn 40 for both of you.

You parents can gift you & your wife up to $15,000/ea every year that you can turn around & gift to your daughter. No tax issues.

You said you had means to save, why not buy an investment property? Take the cash flow, tax free if you set it up right, & put that into a find to accumulate or invest that as part of her college fund?

Just some other options to consider.
Ronnie '88
KT_Ag08
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Seems a bit young to start trading.
Stive
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fka ftc said:

Howdy Dammit said:

Don't tell the life Insurance company if you dip snuff
No doubt. I would even take the step of having any doctors you may see send you their personal health report they maintain on you before engaging in with underwriter. Seems trivial but I had a specialist that sent his personal notes, not my PHR, to the underwriter. Based on those notes, I was denied any coverage.

It was inappropriate of the physician to share that info, but the bridge had been crossed and burned behind it.
No it wasn't, you gave the insurance company permission to request the medical records when you signed the application/contract. Most doctor records have personal notes about patients as part of their medical file....that's how medical records work.

And intentionally withholding pertinent information is a violation of the contract between the individual and the insurer (not to mention the ethical aspects). If it's discovered within the first few years of the contract it's possible the contract would be voided should a claim occur.

There are a few insurance companies that won't hold snuff against you on a life insurance contract so if that's the stumbling block, look to those companies for coverage.
exp
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A portfolio of Bitcoin and Ethereum will outperform anything in the stock market during that time by probably 5x.
QBCade
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Killin Me Smalls said:

I also set up a UTMA for each of my kids.

Any birthday or Christmas money they receive goes into that account and I buy stock shares with it. All 3 of my kids are under 4, so I imagine the money will start going into their pocket at some point, but hopefully I can also teach them to invest some of it.


I decided against the UTMA acct for mine and just started sub accts under my main acct. I didn't like they they automatically get the $$$ by 25 (?) at least.
fka ftc
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Stive said:

fka ftc said:

Howdy Dammit said:

Don't tell the life Insurance company if you dip snuff
No doubt. I would even take the step of having any doctors you may see send you their personal health report they maintain on you before engaging in with underwriter. Seems trivial but I had a specialist that sent his personal notes, not my PHR, to the underwriter. Based on those notes, I was denied any coverage.

It was inappropriate of the physician to share that info, but the bridge had been crossed and burned behind it.
No it wasn't, you gave the insurance company permission to request the medical records when you signed the application/contract. Most doctor records have personal notes about patients as part of their medical file....that's how medical records work.

And intentionally withholding pertinent information is a violation of the contract between the individual and the insurer (not to mention the ethical aspects). If it's discovered within the first few years of the contract it's possible the contract would be voided should a claim occur.

There are a few insurance companies that won't hold snuff against you on a life insurance contract so if that's the stumbling block, look to those companies for coverage.
That may be your opinion on the matter, but the person I was dealing with had not seen the detail provided ever before. It was a doctor's personal not professional opinion that was included. If they wanted to describe a medical diagnosis, they should have made it formal.

To even insinuate that I was trying to deceive or intentionally withhold information from the underwrite is out of bounds.

This was a "patient is showing a trend to higher cholesterol. Patient smells like french fries and indicated from time to time they have fast food. Discussed with patient cutting back on fries and such."

Personal opinions of the doctor not ever discussed with patient should not be communicated as in this instance the doctor's assumption was inaccurate, which could have been corrected had they discussed with patient.
"The absence of the word accountability is not the same as wanting no accountability" -unknown

"You can never go wrong by staying silent if there is nothing apt to say" -Walter Isaacson
Farmer @ Johnsongrass, TX
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QBCade said:

Killin Me Smalls said:

I also set up a UTMA for each of my kids.

Any birthday or Christmas money they receive goes into that account and I buy stock shares with it. All 3 of my kids are under 4, so I imagine the money will start going into their pocket at some point, but hopefully I can also teach them to invest some of it.


I decided against the UTMA acct for mine and just started sub accts under my main acct. I didn't like they they automatically get the $$$ by 25 (?) at least.
It's age 18 (age of termination, age of majority). We just finished all the paperwork and the transfer went through today for our son. I remain an "agent/non compensated" for 3rd Party trading in the account...and he could have said "no" to this.
cjsag94
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Farmer @ Johnsongrass, TX said:

QBCade said:

Killin Me Smalls said:

I also set up a UTMA for each of my kids.

Any birthday or Christmas money they receive goes into that account and I buy stock shares with it. All 3 of my kids are under 4, so I imagine the money will start going into their pocket at some point, but hopefully I can also teach them to invest some of it.


I decided against the UTMA acct for mine and just started sub accts under my main acct. I didn't like they they automatically get the $$$ by 25 (?) at least.
It's age 18 (age of termination, age of majority). We just finished all the paperwork and the transfer went through today for our son. I remain an "agent/non compensated" for 3rd Party trading in the account...and he could have said "no" to this.


In Texas, UGMA age of majority is 18, UTMA isn't until 21.
QBCade
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cjsag94 said:

Farmer @ Johnsongrass, TX said:

QBCade said:

Killin Me Smalls said:

I also set up a UTMA for each of my kids.

Any birthday or Christmas money they receive goes into that account and I buy stock shares with it. All 3 of my kids are under 4, so I imagine the money will start going into their pocket at some point, but hopefully I can also teach them to invest some of it.


I decided against the UTMA acct for mine and just started sub accts under my main acct. I didn't like they they automatically get the $$$ by 25 (?) at least.
It's age 18 (age of termination, age of majority). We just finished all the paperwork and the transfer went through today for our son. I remain an "agent/non compensated" for 3rd Party trading in the account...and he could have said "no" to this.


In Texas, UGMA age of majority is 18, UTMA isn't until 21.


Ah, yes 21. Thnx for reminder. Still, that's why I didn't do the UTMA option. I'm not letting them have control until 30, unless they want it for a house down.
Sea Speed
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I am not sure where you live OP, but if you are interested in a lawyer to draft up your will and get everything all squared away in that regard, I have a good contact who did ours in the Clear Lake area. She was very easy to work with and got us all squared away and confident in what happens to our estate should we pass.
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