Investing questions

[BleedBlueGold]

I would reconsider making Roth a part of your retirement plan. Having tax flexibility for major expenses in retirement is pretty valuable, plus no RMDs is something people do not appreciate until they are hit with them - think of it as another form of diversification.

If you think you will earn more later in your career and save enough to retire into a high tax bracket it is especially important to look at Roth before your a) make too much to contribute or b) too far down the road to build it up to a meaningful amount.

Also educate on the qualified early withdrawal options, you might be able to liquidate in conjunction with something that qualifies so you can avoid the penalty.

I disagree on the risk approach stated above. You can't take a tax loss if you lose it all so why bother? I think it is better to speculate with taxable money where you can hold winners to long term treatment and get tax relief on losers. More likely than not, you will be speculating it into oblivion before easy street.

Also if you are charitable, you can gift winners you do not want to own forever and reinvest with cash you would have given to your charities.

MBA CFA oversimplified advice that has minimal perspective on your total profile- take it for exactly how much you paid for it.

Thank you. All valid points and things I will consider.

 

[BleedBlueGold]

Custodial accounts for children at Vanguard....thoughts?

My Google search has turned up so much information that I don't know where to begin. I have an email pending to my adviser. I know some of you guys are CPAs, etc.

Notes:

-College is funded
-No earned income, so can't do a Roth for the child
-Just looking for a simple teaching method when it comes to saving/investing, but also provides a decent return.
-Consider it a "401Dave" (Ramsey's way of helping his kids pay for their first car), or a "wedding money" account, or a "down payment for your first home" account, or a "just keep it and let it ride forever" account.
-Do I need to approach the topic of a trust?
-For the record, I'm only talking like $50-$100/month contribution. Just something to help it grow.

 

[Rack Em]

Custodial accounts for children at Vanguard....thoughts?

My Google search has turned up so much information that I don't know where to begin. I have an email pending to my adviser. I know some of you guys are CPAs, etc.

Notes:

-College is funded
-No earned income, so can't do a Roth for the child
-Just looking for a simple teaching method when it comes to saving/investing, but also provides a decent return.
-Consider it a "401Dave" (Ramsey's way of helping his kids pay for their first car), or a "wedding money" account, or a "down payment for your first home" account, or a "just keep it and let it ride forever" account.
-Do I need to approach the topic of a trust?
-For the record, I'm only talking like $50-$100/month contribution. Just something to help it grow.

We just had our first kid and I'd like to hear thoughts on this too. I've thought about doing something like this for my future kids.

 

[wizards8507]

I don't really think they're worth the hassle. I'd just get a normal brokerage account with something simple like TDAmeritrade. That's how I save for cars.

Side-note. I know you mentioned that college is fully funded but for anyone who is still saving, max out your Coverdell ESA contribution at $2,000 per year before contributing to a 529.

 

[BleedBlueGold]

I don't really think they're worth the hassle. I'd just get a normal brokerage account with something simple like TDAmeritrade. That's how I save for cars.

Side-note. I know you mentioned that college is fully funded but for anyone who is still saving, max out your Coverdell ESA contribution at $2,000 per year before contributing to a 529.

I already have my own Vanguard Non-Retirement account that we use to pay cash for cars (among other things).

Why the ESA? It's education expenses only, correct? I'm not looking for that sort of limitation.

Basically, I want a savings account for my daughter, but something that gets better returns than your generic savings account at the local bank. Something she can access (w/o penalty) in the future for her own needs, as they arise. And something I can use in teaching moments to help her understand the value of saving/investing.

 

[connor_in]

<iframe width="560" height="315" src="https://www.youtube.com/embed/nsVI332hhQk" frameborder="0" allowfullscreen></iframe>

 

[wizards8507]

I already have my own Vanguard Non-Retirement account that we use to pay cash for cars (among other things).

Basically, I want a savings account for my daughter, but something that gets better returns than your generic savings account at the local bank. Something she can access (w/o penalty) in the future for her own needs, as they arise. And something I can use in teaching moments to help her understand the value of saving/investing.

How old is your daughter and at what age do you want to let her start accessing the account? I wouldn't give a teenager or even a college student direct access to any kind of brokerage-type account because they can mess things up in a hurry if they don't know what they're doing. I think the easiest thing is just a brokerage account in your own name where you do the saving and then transferring money to a checking or saving's account for the portion you want to allow her to access.

Why the ESA? It's education expenses only, correct? I'm not looking for that sort of limitation.

It wasn't a suggestion for you, as you said you already had college funded. But the advantage of an ESA over a 529 is that you get to pick your own investments and aren't pinned to whatever the 529 offers.

 

[BleedBlueGold]

How old is your daughter and at what age do you want to let her start accessing the account? I wouldn't give a teenager or even a college student direct access to any kind of brokerage-type account because they can mess things up in a hurry if they don't know what they're doing. I think the easiest thing is just a brokerage account in your own name where you do the saving and then transferring money to a checking or saving's account for the portion you want to allow her to access.

This is why I brought up forming a Trust. She's 2-yrs old. Age of majority in Indiana is 18. And I agree, handing over potentially $50,000+ to an 18-yr old is very risky. So preferably, I'd like her to be the beneficiary, but not until say age 25 or 30. By then it'll be closer to $100k but I will have hopefully raised her right and can trust her judgement at that point.

The idea is to start something for her now so it has time to grow, while also providing teaching moments. When she's old enough to mow lawns, hostess, etc. she can learn to put 50% of her own money into this account.

It wasn't a suggestion for you, as you said you already had college funded. But the advantage of an ESA over a 529 is that you get to pick your own investments and aren't pinned to whatever the 529 offers.

My bad. Missread your post.

 

[wizards8507]

This is why I brought up forming a Trust. She's 2-yrs old. Age of majority in Indiana is 18. And I agree, handing over potentially $50,000+ to an 18-yr old is very risky. So preferably, I'd like her to be the beneficiary, but not until say age 25 or 30. By then it'll be closer to $100k but I will have hopefully raised her right and can trust her judgement at that point.

The idea is to start something for her now so it has time to grow, while also providing teaching moments. When she's old enough to mow lawns, hostess, etc. she can learn to put 50% of her own money into this account.

My bad. Missread your post.

I still don't see the benefit of paying a lawyer to set up a trust. What's the advantage of the money ACTUALLY being in her name versus it being in your own name but you're just holding it for her? Do you trust your wife? Are you insanely wealthy? The only real advantage I see for a trust in your situation would be if you died and your wife remarried and you didn't want that guy getting at your assets.

 

[BleedBlueGold]

I still don't see the benefit of paying a lawyer to set up a trust. What's the advantage of the money ACTUALLY being in her name versus it being in your own name but you're just holding it for her? Do you trust your wife? Are you insanely wealthy? The only real advantage I see for a trust in your situation would be if you died and your wife remarried and you didn't want that guy getting at your assets.

What are the tax implications if I have a brokerage account in my name (ear-marked for my daughter), it grows to $100k over the next 25 years, then I transfer it to her? Is there a gift tax associated with that sort of move? Because that's what I'm worried about.

I don't know much about trusts other than it'd be a way for me to control the money until it ultimately goes to my daughter. I trust my wife, but she couldn't care less about financial stuff so it's just easier for me to handle it.

 

[Whiskeyjack]

I still don't see the benefit of paying a lawyer to set up a trust. What's the advantage of the money ACTUALLY being in her name versus it being in your own name but you're just holding it for her? Do you trust your wife? Are you insanely wealthy? The only real advantage I see for a trust in your situation would be if you died and your wife remarried and you didn't want that guy getting at your assets.

A trust could be helpful in case BBG and his wife die in a common accident, by avoiding the need for a conservatorship until his daughter turns 18, and by allowing him to ensure she doesn't get the money until she's old enough to manage it responsibly. But a well-drafted trust aint cheap, and the odds of them both dying together is extremely low, so unless there are other compelling reasons to do it (estate tax issues, asset protection planning, etc.) then it's probably not worth the cost and administrative hassle (at least not yet).

What are the tax implications if I have a brokerage account in my name (ear-marked for my daughter), it grows to $100k over the next 25 years, then I transfer it to her? Is there a gift tax associated with that sort of move? Because that's what I'm worried about.

Assuming IN doesn't have a state-level estate tax and your marital estate will be less than ~$11m at the time of your wife's passing, there shouldn't be any tax consequences.

I don't know much about trusts other than it'd be a way for me to control the money until it ultimately goes to my daughter. I trust my wife, but she couldn't care less about financial stuff so it's just easier for me to handle it.

There are three primary reasons to create a standard revocable living trust: (1) to minimize estate taxes; (2) to avoid probate; and (3) to gain protection against future creditors/ evil step spouses. Controlling how and when your daughter inherits pretty much falls under (2), because without a trust, you're limited to asset-specific beneficiary designations (which are blunt legal instruments) or testamentary trusts (which require probate to establish).

A trust may be worthwhile for you down the road, but based on what little I know about your age, net worth and family situation, it's probably not worth the money yet. Couldn't hurt to get a simple Will plan and long-term guardianship nominations for your daughter, though.

 

[wizards8507]

What are the tax implications if I have a brokerage account in my name (ear-marked for my daughter), it grows to $100k over the next 25 years, then I transfer it to her? Is there a gift tax associated with that sort of move? Because that's what I'm worried about.

Only if you're very wealthy. The estate tax exemption is at something like $5.5 million, and grows with inflation. So even if you exceed the $14,000 gift tax limit in a given year, the excess would just "eat" into your estate tax exemption.

Example: Normally, you can leave $5.5 million inheritance tax-free. You give your daughter a gift of $214,000. You can now leave $5.3 million inheritance tax-free.

I don't know much about trusts other than it'd be a way for me to control the money until it ultimately goes to my daughter. I trust my wife, but she couldn't care less about financial stuff so it's just easier for me to handle it.

I'd only go the trust route if you didn't trust your wife. Except for cases of the very wealthy (see above), I look at trusts as a way of getting around "normal" inheritance rules, i.e. you don't trust your wife but you want to leave money to your kids or you don't trust your kids but you want to leave money to your grand-kids, or you don't trust your kid at age 25 but you want to leave money to your kid when she's 35. That kind of thing.

 

[Irish#1]

This is why I brought up forming a Trust. She's 2-yrs old. Age of majority in Indiana is 18. And I agree, handing over potentially $50,000+ to an 18-yr old is very risky. So preferably, I'd like her to be the beneficiary, but not until say age 25 or 30. By then it'll be closer to $100k but I will have hopefully raised her right and can trust her judgement at that point.

The idea is to start something for her now so it has time to grow, while also providing teaching moments. When she's old enough to mow lawns, hostess, etc. she can learn to put 50% of her own money into this account.





My bad. Missread your post.

Wise decision. My father in law set up funds for all of our grandkids. My wife is the custodian. She doesn't plan on allowing any of them to have the funds until they are 25-30. That way they should be fairly mature and make reasonable decisions when it comes to money.

The accounts are in their names, so there is no tax implication for us, yet they can't have the funds until she approves.

 

[wizards8507]

A trust could be helpful in case BBG and his wife die in a common accident, by avoiding the need for a conservatorship until his daughter turns 18, and by allowing him to ensure she doesn't get the money until she's old enough to manage it responsibly. But a well-drafted trust aint cheap, and the odds of them both dying together is extremely low, so unless there are other compelling reasons to do it (estate tax issues, asset protection planning, etc.) then it's probably not worth the cost and administrative hassle (at least not yet).

Assuming IN doesn't have a state-level estate tax and your marital estate will be less than ~$11m at the time of your wife's passing, there shouldn't be any tax consequences.

There are three primary reasons to create a standard revocable living trust: (1) to minimize estate taxes; (2) to avoid probate; and (3) to gain protection against future creditors/ evil step spouses. Controlling how and when your daughter inherits pretty much falls under (2), because without a trust, you're limited to asset-specific beneficiary designations (which are blunt legal instruments) or testamentary trusts (which require probate to establish).

A trust may be worthwhile for you down the road, but based on what little I know about your age, net worth and family situation, it's probably not worth the money yet. Couldn't hurt to get a simple Will plan and long-term guardianship nominations for your daughter, though.

Dude. Wiz, Whiskey, Wooly, LLC. CPA, Attorney-at-Law, Investments. The alliteration is too good to pass up. We'd be so rich.

 

[Whiskeyjack]

Dude. Wiz, Whiskey, Wooly, LLC. CPA, Attorney-at-Law, Investments. The alliteration is too good to pass up. We'd be so rich.

Lebowski, Sobchak and Bala-Tik, PLC

 

[BleedBlueGold]

Thanks, Whiskey and Wiz. I forgot about the estate tax absorbing the excess of a gift tax yearly limit.


Irish#1, you just described what I want to do:

Set up an account. Someone responsible is in charge until the kids turn 25-30 yrs old. Then they get access.

What kind of account is set up for them so that it's in their names but someone else is in charge until a designated time?

This is the only reason I mentioned a trust. I open an account in the kids' name, appoint a trustee (myself or someone else I trust), contribute regularly (kids will also contribute for teaching monetary lessons), when they turn 25 they get the money. Is there a different way to accomplish this w/o a trust?

 

[Irish#1]

Thanks, Whiskey and Wiz. I forgot about the estate tax absorbing the excess of a gift tax yearly limit.


Irish#1, you just described what I want to do:

Set up an account. Someone responsible is in charge until the kids turn 25-30 yrs old. Then they get access.

What kind of account is set up for them so that it's in their names but someone else is in charge until a designated time?

This is the only reason I mentioned a trust. I open an account in the kids' name, appoint a trustee (myself or someone else I trust), contribute regularly (kids will also contribute for teaching monetary lessons), when they turn 25 they get the money. Is there a different way to accomplish this w/o a trust?

Sorry, I don't know what the official designation is. My father in law did this before he passed and worked directly with someone at Edward Jones. It wasn't until he passed that my wife found out she was the custodian.

 

[BleedBlueGold]

Sorry, I don't know what the official designation is. My father in law did this before he passed and worked directly with someone at Edward Jones. It wasn't until he passed that my wife found out she was the custodian.

No worries. Sorry about your father in law. Sounds eerily similar to my situation, only my wife doesn't have much interest in personal finance, so I'm left scrambling a lot of the times. Or worse, trying to plan for my own family's future, but being totally in the dark on things you mentioned above.

I have an email out to my adviser so at least this has provided me with some talking points.

Thanks, all.

 

[Rack Em]

Any advice on the best savings vehicle for a newborn. Obviously she won't need access to money for a long time. I'm looking for the highest interest rate knowing:
- I won't withdraw anything for probably 10+ years
- I want to be able to deposit money as she gets it (birthdays, etc.) without waiting for the account to mature and then reinvest like a CD

Open to any suggestions.

Edit: Am I looking for a money market account? Or are there other vehicles?

 

[koonja]

I’m looking at my 401k elections, which I do about once per year. I don’t know a ton about investing or the election groups, but wondering if anyone has any advice.

Currently:
1) FIAM Small Company Commingled Pool Class B (40%)
2) Vanguard Mid-Cap Index Fund Institutional Plus Shares (30%)
3) Wellington Mid Cap Opportunities Portfolio (30%)

I don’t know what the difference is between #2 and #3. They both sound like mid-sized US companies to me. Should I choose just one of these and combine the contributions?

Should I consider doing another group all together? US Analysts Strategy sounds cool, but I don’t really know if it’s wise.

Should I get wild and go foreign (American Funds EuroPacific Growth Fund® Class R-6)?

Is it bad to switch groups all together? Do I lose financial steam?

I’m 31 (as of Sunday), no children, although I am getting married in a couple of months. I’m not afraid of risk at this point, so I don’t want to lay up for a ~5% guarantee. And advice is appreciated.

 

[wizards8507]

20% Vanguard Total Stock Market (all NYSE and Nasdaq stocks)
20% Vanguard Institutional Index (S&P 500)
20% Vanguard Mid-Cap Index
20% Vanguard Small-Cap Index
10% Fidelity International Index
10% Fidelity Emerging Markets Index

 

[Irish#1]

No worries. Sorry about your father in law. Sounds eerily similar to my situation, only my wife doesn't have much interest in personal finance, so I'm left scrambling a lot of the times. Or worse, trying to plan for my own family's future, but being totally in the dark on things you mentioned above.

I have an email out to my adviser so at least this has provided me with some talking points.

Thanks, all.

Found out they are trust accounts with my wife as the custodian (as previously mentioned). They are theirs to do what they want once they reach the age of 18. Before they reach 18, my wife can withdraw money on their behalf as long as it goes to them for something like school, doctor, etc. Need to keep receipts in case of an audit.

Not that their parents have asked, but we've pretty much told them the accounts are untouchable for quite a while. Our preference is to give it to them once they hit age 25 or later to ensure it's used for something meaningful like a house or reinvested. Don't want to tempt them at an earlier age when there is a better chance of blowing it. We also have whole life policies for each of them.

 

[wizards8507]

We also have whole life policies for each of them.

Whole life policies are tremendously terrible financial products. Cancel them, buy term policies, and take the difference (which will be substantial) and invest it separately. Insurance and investments work better as two separate products than one combined product, which is essentially what whole life plans are.

 

[wizards8507]

ABDN EMERG MKTS INST 12.5%

SS GLB EQ EX-US C 12.5%

VANG INST INDEX PLUS 25%

VANG MD CP IDX IS PL 25%

VANG SM CP IDX IS PL 25%

Do this. The three Vanguard funds get you Small / Medium / Large cap domestic. Then you split your International between a broad-based International fund and an Emerging Markets fund.

 

[koonja]

Do this. The three Vanguard funds get you Small / Medium / Large cap domestic. Then you split your International between a broad-based International fund and an Emerging Markets fund.

Ok. And is it 'stupid' to all of a sudden stop contributing in one bucket, and start contributing in a new bucket that has $0 right now?

Or is it literally irrelevant if you switch from something you had been contributing to, to a new category all together.

 

[wizards8507]

Ok. And is it 'stupid' to all of a sudden stop contributing in one bucket, and start contributing in a new bucket that has $0 right now?

Or is it literally irrelevant if you switch from something you had been contributing to, to a new category all together.

Makes no difference.

 

[koonja]

Makes no difference.

Thanks Wiz. I really do appreciate it.

 

[RDU Irish]

For simplicity - pick an allocation and run it across the board (old and new $). I would up the international exposure - high probability it out performs US over the next few years.

 

[koonja]

For simplicity - pick an allocation and run it across the board (old and new $). I would up the international exposure - high probability it out performs US over the next few years.

Why (qu to you or Wiz) elect the

"ABDN EMERG MKTS INST" over the "AF EUROPAC GROWTH R6" for international? The latter seems to have lower costs/higher returns (I'm basing this on the 101 graph predictions).

 

[wizards8507]

Why (qu to you or Wiz) elect the

"ABDN EMERG MKTS INST" over the "AF EUROPAC GROWTH R6" for international? The latter seems to have lower costs/higher returns (I'm basing this on the 101 graph predictions).

"Emerging Markets" funds tend to be a bit more aggressive than "International Growth." Balancing the "Emerging Markets" with the other international fund I recommended (SSGVX) will give you better diversification.