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I want to start investing for my grandchildren Since I have 4, is it better to set up 4 different accounts or one account for all the children?

bgh327, let me add a little to what TMFCookie said. First, what do you mean by “better”? There are two options: Better for YOU or better for your Grandchildren. Review both options and then decide.

Option 1: Better for you. The best way to go is to set up a Guardian Account. This is just an everyday, ho-hum, brokerage account that you can set up with any major discount broker (preferably on-line so as to maximize low commissions for trades). This account will be in your name and will be under your exclusive control from the time you set it up until you decide to give it to your grandkids. There is no maximum you can deposit (although gifts over $10,000 start to get the attention of the IRS…but to keep this post short, I'll skip over tax implications) You then earmark whatever percentage you want for each grandkid. You can save a ton on commission since you will only have to trade once and it will cover all portions of the account. When you pull it out, it's taxed at your rate. (OUCH!!) If you change your mind and prefer to go on a month long cruise in the Bahamas, you can always use this money for that and hope you grandkids can fend for themselves.

Option 2: Better for the Grandkids There is nothing like a sense of ownership to make sure that your grandkids keep visiting you over the holidays. You can set up a Custodial account commonly called a UGMA/UTMA account. These accounts belong to the grandkids and you can be the custodian. You treat each account separately. Hence, you would have to make 4 deposits, 4 trades, and pay 4 commissions every time. If you make your grandkids aware of their accounts, then they will know exactly how much they have saved up. You can not transfer between accounts otherwise you will be paying penalties. The accounts legally belong to the minor once they are of legal age in their state of residency. (If you keep it a secret from them, then you can transfer it whenever you want to, but the account belongs to them and you could not legally pull out any money for your own personal use) Once you do decide to transfer the account, the money is taxed at the kids rate. (If George W. is Prez, that rate will drop down to 10% for most 18 to 21 year olds)

Reccomendation: It's really up to you. The very fact that you are asking this question and you hang out in the Motley Fool means that you are probably one those caring, nurturing type of grandparent. (The other kind would have spent all the money on themselves by now and would be asking the grandkids for money) I would suggest that you make the extra effort and pay a little more on commissions and set up a Custodial Account for each grandkid to start. As they become adolescents, make them aware of it and offer any assistance in helping them become more aware of financial matters. Help teach them the responsibility that they need to grow up, manage their own account, and not become a burden on their parents.

Don't just give them money, give them the gift of learning how to manage the account themselves. (You can start teaching them as soon as they are old enough to know the difference between a penny and a quarter)

Hope this helps,


PS: Before the DRiP police comment on this post, I wanted to recommend something as simple as possible before expanding to different forms of reducing Commissions. Then again, with, the commissions are low enough to make the pain of setting up a DRiP account a non-issue. (NOTE: I do not use, but I have read good reviews of the service on this board)
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