We are giving our son some money to open an account so he can start to learn about investing. I was leaning toward opening a Roth IRA for him but wondered if a brokerage account might be better because the money is more accessible (or perhaps that is a negative, haha). Curious if any of you have done this or have any suggestions.

Thanks.

Robinhood or ThinkOrSwim/Charles Schwab are a couple to look at as they have a good mobile app and at his age, having a mobile app is important (kids do everything on their phones).

is he going to be actively trading?

if not i'd consider something like acorns. keeps it simple, and you can set up small routine deposits to keep funding it over time

I agree on the Acorns account. I set one up 6-7 years ago just because they were giving a free $100 for signing up and it seemed simple enough with small amounts you don't really notice. It has well into 5-figures in it right now just doing small round-ups/deposits. Interestingly enough, it has performed amazingly since I opened it with over a 43% return.

permabull said:

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Roth IRA is a great idea but it will only work if he has earned income from working.

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He has worked but not made enough to have to file a tax return.

BClark said:

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permabull said:

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Roth IRA is a great idea but it will only work if he has earned income from working.

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He has worked but not made enough to have to file a tax return.

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He still can file the return and then claim the Roth IRA. I have had my kids do it after they graduated. It also made them eligible for Covid dollars (I hated all the handouts but if they were being given, I am glad my kids could collect).

I would recommend a full service company like Schwab. He can have a brokerage account, Roth, IRA, checking and credit cards. Their research systems are adequate.

Open a taxable account at a firm that is likely to be a long term solution for all of his non-401k accounts (I like Schwab for one stop shopping). This may save him from hassle of managing multiple platforms and perhaps consolidating later. Let him trade actively but discourage day trading and derivatives. Focus on picking individual stocks and ETFs. Help him seed the Roth when he has his 1st job out of college.

Kansas Kid said:

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BClark said:

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permabull said:

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Roth IRA is a great idea but it will only work if he has earned income from working.

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He has worked but not made enough to have to file a tax return.

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He still can file the return and then claim the Roth IRA. I have had my kids do it after they graduated. It also made them eligible for Covid dollars (I hated all the handouts but if they were being given, I am glad my kids could collect).

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He need not file a return to do the Roth IRA, only needs to have the earned income. If below the filing threshold, then don't file the return and contribute the proper amount into the Roth. There is nothing to "claim" on a tax return relative to funding a Roth IRA.

one safe place said:

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Kansas Kid said:

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BClark said:

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permabull said:

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Roth IRA is a great idea but it will only work if he has earned income from working.

---

He has worked but not made enough to have to file a tax return.

---

He still can file the return and then claim the Roth IRA. I have had my kids do it after they graduated. It also made them eligible for Covid dollars (I hated all the handouts but if they were being given, I am glad my kids could collect).

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He need not file a return to do the Roth IRA, only needs to have the earned income. If below the filing threshold, then don't file the return and contribute the proper amount into the Roth. There is nothing to "claim" on a tax return relative to funding a Roth IRA.

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Agreed he doesn't have to file but by filing the return, it starts the statute of limitations so if he were ever challenged on the amount claimed, he has a safe harbor. I would assume his tax return would take 15-20 minutes and it would start teaching him about the process. It would also make him eligible for a stimulus check if the government did a process like 2020 with Covid relief. For those, I don't think there was any way to get the money if you hadn't filed a return.

I would do the same thing with estate taxes where you want to file the return even if you are below the threshold because you then have documentation as to the stepped up tax basis that once enough years pass, it can't be challenged by the IRS.

BClark said:

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We are giving our son some money to open an account so he can start to learn about investing. I was leaning toward opening a Roth IRA for him but wondered if a brokerage account might be better because the money is more accessible (or perhaps that is a negative, haha). Curious if any of you have done this or have any suggestions.

Thanks.

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To me the main thing is to consistently put something aside. Whether it is $50 a week, or $400 per month, but start early and don't stop. I did that with our three children and set up automatic funding such that I didn't have to remember to put money in their accounts.

In our case, we did not put a great percentage of the amounts we set aside in retirement accounts. I owned my own businesses and they were on the payroll so having earnings was not an issue. Most of it what we set aside went to brokerage accounts. As it has turned out, they are all working at places with 401(k) plans with good company matches. Two of the three used the surplus funds to buy houses with, the other is about to buy a duplex (rental property) and some of the money he puts in the deal will come from his monies set aside long ago.

Petrino1 said:

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Bonfire.1996 said:

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My new high school grad did fidelity. It's great. Easily linked to his everyday bank account.

And get them into picking individual companies. Teach them about risk. Buy them books. Show them how Warren Buffett invests. Tell them to invest in companies they know that make products they love.

Ignore everyone telling them to focus on index funds. Ignore it whole cloth. When they begin to use tax advantaged accounts like IRAs and 401ks they will have plenty of index funds to choose from for a lot of money.

If your kid finds a passion for investing and for picking stocks with a good decision making process, their returns will crush the market.

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Warren Buffet has been pretty consistent in recommending putting your money in S&P 500 index funds lol.

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Does he do that? No. He picks and chooses companies while rubes invest their money into BlackRock, Vanguard, and StateStreet, pumping up the overall S&P 500 through volume buys.

Meanwhile, Buffets Berkshire Stock outperforms as does the investments he makes inside of it.

Buffet is the classic "do as I say, not as I do"

Kansas Kid said:

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one safe place said:

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Kansas Kid said:

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BClark said:

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permabull said:

---

Roth IRA is a great idea but it will only work if he has earned income from working.

---

He has worked but not made enough to have to file a tax return.

---

He still can file the return and then claim the Roth IRA. I have had my kids do it after they graduated. It also made them eligible for Covid dollars (I hated all the handouts but if they were being given, I am glad my kids could collect).

---

He need not file a return to do the Roth IRA, only needs to have the earned income. If below the filing threshold, then don't file the return and contribute the proper amount into the Roth. There is nothing to "claim" on a tax return relative to funding a Roth IRA.

---

Agreed he doesn't have to file but by filing the return, it starts the statute of limitations so if he were ever challenged on the amount claimed, he has a safe harbor. I would assume his tax return would take 15-20 minutes and it would start teaching him about the process. It would also make him eligible for a stimulus check if the government did a process like 2020 with Covid relief. For those, I don't think there was any way to get the money if you hadn't filed a return.

I would do the same thing with estate taxes where you want to file the return even if you are below the threshold because you then have documentation as to the stepped up tax basis that once enough years pass, it can't be challenged by the IRS.

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To each his or her own, but there is nothing "claimed" on his tax return regarding a Roth IRA. It appears nowhere on the return, nor is it disclosed within the return. Thus filing a return when none is required changes nothing with regard to the Roth contribution, and provides no safe harbor.

As to a stimulus check, he wouldn't get anything if he was a dependent on his parents return and if he doesn't make enough to have to file, he is someone's dependent. The stimulus payment that the parents get would be based on the number in the household, but the kid gets no stimulus payment. Back when that was going on, there were discussions about parents not having filed a return possibly needing to do so to get the proper stimulus payment if they had dependents the IRS did not know about.

On the estate tax return, filing a return when not required might be a good idea when there are items within the estate that, when valued, put you close, but not over, the threshold for filing. The IRS has their shot at challenging them. Once the statute expires, they do not have a shot at the estate tax return. However, the mere filing of a return does not mean the valuations used are accurate. If, ten years later, you sell an inherited asset, the IRS can ask about the cost basis you used in your individual return. This is true not only for stepped up basis assets, but for assets acquired by check some 10, or 20, or 50 years prior.

if he had earned income, he can do a ROTH IRA up to the amount of income made (box 1 of W2). No need to file a tax return as the IRS should receive that information on their end regardless if you file a return or not.

At this point in the year, he would be making a 2024 ROTH contribution based on his 2024 total income.

Bitcoin and let it ride!