In this video I will guide you how to create investment accounts for children under 18 years old
And how to make your kids become a millionaire easily
Hello everyone. Merry Christmas.
Welcome everyone to my channel
If this is your first time watching my video
In this channel
I'll share my experiences about finance, investing, and how to save money
If this is what you are interested in, please consider subscribing
Every year when it comes to Christmas
What gifts do you often give to your children?
This year
Instead of giving gifts, giving toys, or giving money
I will give my nephew and niece a more meaningful gift
That is an investment account
When I first started to learn about investment and the power of compounding interest
I wish I knew about investing earlier
If someone taught me about investing when I was 18 or 20 years old
It's going to be different now
If my parents planned and invested for me earlier
I would have a lot of money now
Let me do an example
I was born in 1984
The annual average return of the S&P500 from 1984 to 2020 is about 11%
If my parents invested $10,000 in the S&P500 when I was first born
Only once, $10,000 from the year I was born
and leave it there until now
I will have about $486,341
You can see, the market goes up and down each year
But if we invest long term
the value of this package will increase over time
Time is a very important factor in the compound interest formula
and time is what children have
so today
I will open an investment account for my nephew and niece
and start investing for them
so that their way to their destination is not as long and arduous as mine
There are about 3 different types of investment accounts for children
The first type is the Roth IRA
The second type is 529
And the third is the Custodial Account
For Roth IRA accounts
Earnings on the account will be tax free
but with 2 conditions
1) The child must have earned income
2) The money in this account cannot be withdrawn until the child is 59.5 years old
Currently, I cannot open a Roth IRA for my nephew and niece because they don't work yet
When they are 15 or 16 years old, and getting a job
I'll make them open a Roth IRA
The second account is 529
Earnings in this account will also be tax free
But with 1 condition is the money in the account 529
must be used for educational expenses ONLY.
I have considered this account
But what if when my nephew and niece grow up, they don't want to go to college?
Each person will have a different will
I can force the child to go to school
But I can't force him to learn
So I will not open 529 account for my nephew and niece
I decided to open a custodial account for them
The custodial account is the same as a taxable brokerage account
This account will be used for children under the age of 18
Please note the following factors when opening a custodial account for your child
Firstly, custodial account is the child's account, under the child's name
You are only the account manager when they are under 18 years old
Even though you are the ones who contribute money into that account
But when the money is in that account, it does not belong to you anymore
you can buy/sell stocks in the account, invest in the account
But that money is owned by your child
You are not allowed to use the money in that account
If you use the money in that account, and the child finds out, he can sue you
The amount you can contribute to the custodial account each year will not be limited
will be counted as gift money for your child
but every year if you give someone more than $15,000
you must report to the IRS
So for the best, we shouldn't contribute more than $15,000 per year
Any income from this account
will also be taxed at the child's tax rate
such as the dividends or the capital gains we get when selling stocks
The first $1050 will be tax free
The next $1050 will be taxed at the child's tax rate
and earnings over $2100 will be taxed at the parent's rate
When the child reaches the age of majority specified by the state
control of the account must be transferred to them
The age of majority varies by state
but is generally between 18 and 25
The money in this account will count as the child's assets
and will likely affect the child's Financial Aid benefits in the future
What is Financial Aid?
Financial aid is money to help pay for college or career school
from the government to help students from difficult backgrounds
Please note
Not everyone is qualified for Financial Aid
only students with difficult backgrounds
will receive Financial Aid
When we first came to the U.S
Our parents worked low wages, and our families had many children
so when we went to college
Most of us had FInancial Aid benefits
But it's going to be different for our children
Our income now may be higher
and we don't have that many children
So the chances that our children have Financial Aid are very low
so please should consider this
Now I will guide you how to open an account in Fidelity
The reason I chose Fidelity to open an account for my nephew and niece
is because Fidelity has no minimum investment
That means I can start investing with a very low capital
Once you are on the Fidelity website, then click here
And you scroll down
Click here
In this section, click on "Saving for Education"
Right now the "Saving for Education" part
choose Custodial Account
Right here on this page
They will ask if you are already a Fidelity's customer
If you are already a Fidelity's customer then click Yes and enter your information to log in
If you do not have an account with Fidelity yet, then click No
And you have to create an account for you first
Then you will create an account for your child
I already have a Fidelity account, I will log in it
After you have logged in already
Then in the section right here
You will fill in your child's information
first name, middle name, last name
And right the part where they ask for that social security number
Then you click Yes and you enter the child's social security number.
Date of birth
After that, if the child is US citizen or not, you should choose the correct one
Here, you choose the state where the child lives
And below, please remember to check your address to see if it is correct.
And you click Next to complete this application
After your child is 18 years old and you want to transfer the account to him
then you click here
And click on Account Features
And click here
Then choose this one
Then you scroll down
Click here
And complete the transfer procedure
Here is my investment plan in these 2 accounts
This Christmas I will give my nephew and niece $100 each
Then, I will automatically deposit $20/month on each account
Holidays, Tet can be added
So each year, I invest in each account about $300
I will invest 1/2 of the capital in FZROX
and half of the remaining capital in FTEC
Why did I choose these 2 funds?
First, FZROX is the package that contains the US market
It is also quite similar to the S&P 500
The reason I chose this package instead of the S&P 500
That's because FZROX has no management fees (expense ratio)
Second, the FTEC is a package in the technology sector
The US stock market is divided into 11 sectors
And the technology sector is my favorite because of its rapid growth
So I choose to invest 1/2 of the capital in it
I have made videos about these 2 funds already
I will leave the link up here, please check it out
FZROX has the same growth as the S&P500 package
And FTEC, in the last 10 years, the growth is quite fast
But we don't know the future growth
In the past, it grew strongly, but we can't predict the growth in the future
So I'm just using an average of 10%
So for example, every year, I invest $300 in my nephew's and niece's accounts
With an interest rate of 10% per year
then after 10 years, they will have about $6000 each
Please note that the capital is very little
Each month I only contribute $20 to each account
Just imagine
If you invest $100 in your child's account every month
With an interest rate of 10% per year, after 10 years they will have about $24k
After 20 years, they will have about $83k
After 30 years, they will have about $238k
After 40 years, they will have about $638k
After 50 years, they will have about $1.6 million
Just imagine, from the day you gave birth to the child
Every month you contribute $100 to the S&P500
After 50 years, your child will have $1.6 million.
The purpose when i open custodial accounts for my nephew and niece
in addition to saving money for them
There is also another very important factor
That is I want to teach them how to manage personal finances, and how to invest
The mindset of a person is very important
If a child grows up has a good mindset about money and investment
Then in the future, they will make very wise decisions
But school does not teach them about personal finances and investing
they don't teach you about the Roth IRA in school
They don't teach you about Index Funds in school
They don't teach you about investing in school
They don't teach you about personal finance in school
They only teach you how to be a good employee
You have to believe me
I went to high school here, I went to college here, I went to graduate school here
Currently I am a college math professor
And I dare to confirm with you one thing that
In school curriculum, they don't teach personal finance
Every semester, I have to set aside at least 1 to 2 days
To teach your students about the Roth IRAs, about the Index Funds
investment and personal finance
Once the school didn't teach your kids these things
Then it is your responsibility to teach them
Hopefully this video will be an inspiration for you to get started
to teach your children or about personal finance.
Thank you for watching. Don't forget to like and subscribe. Bye.