Mutual fund for 7 year old?

Question

We have managed to save around $7,000 for our 7 year old son in a money market account at the wife's credit union.  In the mean time, our credit card balances have increased.  I was thinking about halting further savings into his account, and using the money to ward the credit card debt we have.
 Since the money market account bears less than 1%, I was thinking of moving that money into a mutual fund hoping for greater returns, especially since we may not be adding to the principal for a while.

The obvious questions are: is it a good idea, would it remain a joint account (us and him or just him), how will gains be taxed yearly/or upon withdrawal), where is the easiest place to start one?

Any other info is helpful.

I know a Roth IRA would be great for this amount per year, but since he's not employed (for many years), its not an option....right?

TJ K · Answer

You can open an account with an online broker (I prefer scottrade). If the money is in a custodial account, he will pay taxes on gains. He would need to have several thousand dollars in gains before he pays taxes though. The taxable event happens when you sell or collect dividends.

Consider putting the money in a College savings plan like a 529 plan (your state) or a Coverdell ESA (scottrade). I would invest in total a stock market index fund or ETF. Leave it and forget it - There will be ups and downs, just don't panic and sell it during the downs and you will be fine. I started mine before the great recession, they dropped to half but the have come back plus another 50% on top of that.  You could also do a Roth for yourself with his money (for his college). After 5 years the original contribution can be withdrawn tax free - just not the appreciation. Use the Roth to save for his college and as an emergency fund.

sanibel_999 · Answer

Your son needs to have income to put this into an IRA, so that is not an option at this time.
You should be able to set up some sort of custodial account for him.
Try contacting an investment company like Fidelity or Vanguard.  They have a nice selection of Mutual Funds to choose from.  Vanguard tends to have lower fees, but Fidelity has lower minimums to get started.
They should be able to tell you what types of accounts you can open for him and give you an idea of how the taxes would work.
Yes, there is a chance the market will go down, but if he is 7, my guess would be that you are investing for the long term and over time you should do ok with a mutual fund(s) or Exchange Traded Funds (ETFs.)  Yes, this is a good idea!

Below is a link to an article posted yesterday that mentions saving for kids - you might find it interesting.

? · Answer

1 Pay off debt and live within means, including savings for your self and family. 2 consider a 529 tax-deferred education savings plan for your son. The general stock market (S&P 500) has never lost money invested over any continuous 15 year period in US history.

Dee in CO · Answer

Don't put any money into the stock market, even through a mutual fund.  I lost thousands when the stock market collapsed in 2008.  What you want for your son is an annuity.

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Mutual fund for 7 year old?

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