My oldest kid will graduate college in a few weeks. She's shown some interest in investing and I was considering starting a self-directed IRA for her and funding it with $1500-2000. My thought is she can set up direct deposit of a small amount every paycheck, and start dabbling to learn the difference between various investments.

But is that the best approach and account type? What would you do?

Facts to consider:
- She will not have any debt
- Just turned 21 years old
- No clear plan for a career yet. She's taking some time off from school for a bit, then will see if she wants to go back for law school or maybe an MBA
- She'll lay low in the meantime and work full time, travel some, etc.
- No boyfriend and low likelihood she gets married or has kids any time soon
- She's responsible, but I still don't want the money to be completely liquid and she's smart enough to not pull it out if there's a penalty and taxes

hypeiv said:

---

I'd go with a Roth IRA from one of the low fee/free brokers (Schwab, Vanguard, etc)

Note that she can only put in if she has earned income in the year you are putting in for. So if she isn't reporting any income for 2022, she can't contribute to an IRA this year. The IRS doesn't care where the funds come from as long as you don't contribute more than the amount the person reports as income for that year. I contribute on behalf of my nephew who is 16, but only up to the amount he earns at his part time job.

---

Thanks for that advice. She works while in school and makes decent money for a college kid, so that shouldn't be an issue.

As a practical matter, I assume I should set it up as a completely new account in her name only. But is there a way to set it up through my Schwab account then transfer it to her later without me worrying about the tax consequences? I doubt there is.

Boy Named Sue said:

---

hypeiv said:

---

I'd go with a Roth IRA from one of the low fee/free brokers (Schwab, Vanguard, etc)

Note that she can only put in if she has earned income in the year you are putting in for. So if she isn't reporting any income for 2022, she can't contribute to an IRA this year. The IRS doesn't care where the funds come from as long as you don't contribute more than the amount the person reports as income for that year. I contribute on behalf of my nephew who is 16, but only up to the amount he earns at his part time job.

---

Thanks for that advice. She works while in school and makes decent money for a college kid, so that shouldn't be an issue.

As a practical matter, I assume I should set it up as a completely new account in her name only. But is there a way to set it up through my Schwab account then transfer it to her later without me worrying about the tax consequences? I doubt there is.

---

Just sit down with her and have her create a checking account with Schwab, then fill out the online paperwork for a ROTH. When that's done, write her a check and have her deposit it with the phone app on the spot. Then suggest she buy an index fund and forget about the account until next year.

What about a partial down payment on a house? Get her building wealth in real estate early in her career.

I plan on matching my kids Roth IRA when they get out of college. Both of my kids are heavy savers, but doing so right out of college is the single best advice I can give them.

Aggiemike96 said:

---

What about a partial down payment on a house? Get her building wealth in real estate early in her career.

---

I'd say this point in the OP probably doesn't make buying a house the best decision, or at least not the first choice.

Quote:

---

- No clear plan for a career yet. She's taking some time off from school for a bit, then will see if she wants to go back for law school or maybe an MBA

---

htxag09 said:

---

Aggiemike96 said:

---

What about a partial down payment on a house? Get her building wealth in real estate early in her career.

---

I'd say this point in the OP probably doesn't make buying a house the best decision, or at least not the first choice.

Quote:

---

- No clear plan for a career yet. She's taking some time off from school for a bit, then will see if she wants to go back for law school or maybe an MBA

---

---

Yeah, buying a house probably isn't practical right now since she doesn't know where she'll end up or even when. However, an AirBNB is something she specifically mentioned wanting to do. So, I guess we could try to figure out a way to go that route. But I'm not prepared to give her more than $2k right now, especially since I'll be paying off her student loans before she has to start paying on them (hopefully the 529 will recover in the meantime).

I really just want to get her off on the right foot, with tangible proof of the benefit of saving so she'll be motivated to do more of it. I'm open to any and all ideas.

I'm confused. She's about to graduate but has no career plan? You also mention law school or an MBA might be a choice? WTF?

Are you going to let her learn how to make it on her own anytime soon? Sure seems like she's in no hurry to make decisions if you're continuing to underwrite her lifestyle.

Maybe consider tying your magnanimity to her doing SOMETHING.

Boy Named Sue said:

---

htxag09 said:

---

Aggiemike96 said:

---

What about a partial down payment on a house? Get her building wealth in real estate early in her career.

---

I'd say this point in the OP probably doesn't make buying a house the best decision, or at least not the first choice.

Quote:

---

- No clear plan for a career yet. She's taking some time off from school for a bit, then will see if she wants to go back for law school or maybe an MBA

---

---

Yeah, buying a house probably isn't practical right now since she doesn't know where she'll end up or even when. However, an AirBNB is something she specifically mentioned wanting to do. So, I guess we could try to figure out a way to go that route. But I'm not prepared to give her more than $2k right now, especially since I'll be paying off her student loans before she has to start paying on them (hopefully the 529 will recover in the meantime).

I really just want to get her off on the right foot, with tangible proof of the benefit of saving so she'll be motivated to do more of it. I'm open to any and all ideas.

---

If you want her to be motivated to save, then why not set up some kind of matching system for her? For every dollar she puts in her IRA, you will match $1-2.

We started ROTHs for each of our kids when they were in Junior High (yes they had earned income)

I feel like that is the best financial gift you can give them other than any college funds. Great idea as a graduation present!

Who are some other low fee/cost providers?

12thMan9 said:

---

I'm confused. She's about to graduate but has no career plan? You also mention law school or an MBA might be a choice? WTF?

Are you going to let her learn how to make it on her own anytime soon? Sure seems like she's in no hurry to make decisions if you're continuing to underwrite her lifestyle.

Maybe consider tying your magnanimity to her doing SOMETHING.

---

LOL. You mad bro? Jealous much? You come across agitated and angry, and you have no idea of their situation other than the little info he provided. Go grab a gummy and take the edge off.

Boy Named Sue said:

---

htxag09 said:

---

Aggiemike96 said:

---

What about a partial down payment on a house? Get her building wealth in real estate early in her career.

---

I'd say this point in the OP probably doesn't make buying a house the best decision, or at least not the first choice.

Quote:

---

- No clear plan for a career yet. She's taking some time off from school for a bit, then will see if she wants to go back for law school or maybe an MBA

---

---

Yeah, buying a house probably isn't practical right now since she doesn't know where she'll end up or even when. However, an AirBNB is something she specifically mentioned wanting to do. So, I guess we could try to figure out a way to go that route. But I'm not prepared to give her more than $2k right now, especially since I'll be paying off her student loans before she has to start paying on them (hopefully the 529 will recover in the meantime).

I really just want to get her off on the right foot, with tangible proof of the benefit of saving so she'll be motivated to do more of it. I'm open to any and all ideas.

---

Wow I didn't know about this with 529s. Apparently you can use them to pay off student loans. Great thing to know when the market crashes right as you're needing the 529 to find college.

Interesting, I was thinking I wanted my son to pay student loans for a while so he understands debt then assist in paying them off.

Anyone know if dividend/interest income in a kid's UTMA/UGTA account counts as annual income for establishing a Roth IRA for that kid?

It will not. Pretty much has to be w2, self employment or independent contractor income.

gigemhilo said:

---

We started ROTHs for each of our kids when they were in Junior High (yes they had earned income)

I feel like that is the best financial gift you can give them other than any college funds. Great idea as a graduation present!

---

What did the kids do to earn income in junior high? Always curious when I see posts like this. Do you own your own business?

I had a neice who made over $500 babysitting one year. Her parents schedule c'd it and then I put the total amount she claimed as taxable in the Roth IRA on her behalf.

GE said:

---

Wow I didn't know about this with 529s. Apparently you can use them to pay off student loans. Great thing to know when the market crashes right as you're needing the 529 to find college.

---

Yes, I set the planning horizon to age 23 instead of 18 for all my kids. Used it to pay for some things as we went, of course, but left the bulk invested.

Ag13 said:

---

gigemhilo said:

---

We started ROTHs for each of our kids when they were in Junior High (yes they had earned income)

I feel like that is the best financial gift you can give them other than any college funds. Great idea as a graduation present!

---

What did the kids do to earn income in junior high? Always curious when I see posts like this. Do you own your own business?

---

Yes - I own a business. They mowed the yard there and did other yardwork as needed. I gave them a paycheck as an "allowance". Nothing extravagant, just a small amount per month in line with what you would pay for that role.