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Starting the kids early, before they even know it.



March 23, 2011 – Comments (27) | RELATED TICKERS: LUK , BAM , SLW

I have some good news my fellow Fools. There is a second Ismymotor offspring on the way! The due date is somewhere in the first week of August. Next Monday Mrs. Ismymotor and I will have the pleasure of learning if the little one will wear a pink or blue Jester's hat.

Over the last two years I have been contemplating setting up a trading account for our kids. I just want to do one account, divide it down the middle when the time is right. But that will be decades down the road. I don't plan on letting them know about the account. My ultimate plan is to wait 25 to 30 years before I surprise them with the news. I know that is a long time to stay mum. But that's how I do things.

I plan on starting out with just a little money for the year, $500. As time goes on I will increase the annual amount. I may even be able to secure some additional funds from the grandparents. I am going to limit my initial purchase to three companies. Two of them I already hold in my IRA. The third I plan on purchasing this year.

If you are a parent/guardian and have put a similar plan into action please share your experience with me. I am eager to learn from those that have walked this path before me.

With warmest regards,

Big Poppa Cato

27 Comments – Post Your Own

#1) On March 23, 2011 at 5:08 PM, lquadland10 (< 20) wrote:


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#2) On March 23, 2011 at 5:12 PM, kdakota630 (29.00) wrote:

Congratulations, and I like your investment idea.

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#3) On March 23, 2011 at 5:33 PM, Momentum21 (97.44) wrote:


this might not be in keeping with your plan but do you have a 529 plan setup? the investment options are not particularly flexible but there are tax benefits... and it would also be a good way to secure additional funds from relatives. the sounds of contributing to education rather than deferring a gift might be more enticing.  

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#4) On March 23, 2011 at 6:29 PM, binve (< 20) wrote:

Congrats to you and Mrs. ismymotor on #2!

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#5) On March 23, 2011 at 6:40 PM, Turfscape (< 20) wrote:

Congrats to you and your wife!

I've been working with the little ones on savings: getting them excited about dropping coins in their piggy banks and then taking that to the bank once a year (ages 5 and 3). Also setup a 529 college savings plan, and use a Upromise credit card to fund it.

I looked at the advantages of taking cash rewards from a credit card instead and funding a 529 myself with that money instead, but the difference was negligible...this way it's funded automatically. My inherent laziness (and I am indeed a lazy, lazy man) won't interrupt the college savings. And, Grandma and Grandpa are contributing to the same account with their card.

Beyond that, I've been including the 5 year old in financial discussions. I made a few stock purchases recently, and explained to my girl that we now own a small part of these two companies...

I haven't set up any investments for either child, but it's my intention to provide them with a stock purchase as a high-school graduation gift. They choose the stock (after proving to me that they understand the business) and I'll provide them $1000 worth of that stock (the amount may change in the 13 year interim, depending on value of dollar and whatnot...but concept remains the same).

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#6) On March 23, 2011 at 6:47 PM, whereaminow (< 20) wrote:



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#7) On March 23, 2011 at 8:03 PM, HarryCaraysGhost (87.82) wrote:

Congrats Cato!

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#8) On March 23, 2011 at 9:45 PM, dwot (29.03) wrote:

Congrats! I just watched the youtube link.  I think Harry's trying to tell you your boys can swim, lol.

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#9) On March 23, 2011 at 10:10 PM, SultanOfSwing (32.42) wrote:


Both my kids 529 plans' have been "underwater" for years.  The "aggressive fund" they're invested in is underperforming the S&P500 by a pretty large margin.  I'm seriously considering eating the penalties and with the balance starting a trading account for each child.  From what I learned here on CAPS and other places, I think in about 5 years I'll have some multiple (2x, 3x, 5x) of where the 529 plan balances would have eventually ended up, and that's after taxes.

Don't take this as advice.  It's simply what one Fool is thinking of doing.

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#10) On March 23, 2011 at 10:18 PM, outoffocus (23.86) wrote:

Congrats on the little Ismymotor.

Train a child in the way he should go, and when he is old he will not turn from it. ~ Proverbs 22:6

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#11) On March 24, 2011 at 7:54 AM, lemoneater (57.37) wrote:

Glad to hear your news. Let us know pink or blue :) 

Just think how much better off the world would be if more dads delighted in their kids and treated them as a gift from God which they are.

I heard about "socks and bonnets" when I was five. Strange numbers in a newspaper, but not something to wear. How odd!

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#12) On March 24, 2011 at 9:05 AM, tmathe85 (< 20) wrote:

My Dad did this for me. Set up an index fund that tracked the S&P and put in like $1000 a year. Gave it over to me when I turned 18. I had been investing since I was 13 so I didnt just go out and blow it and it really is a great way to get your kid off on the right direction.


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#13) On March 24, 2011 at 9:28 AM, Valyooo (34.54) wrote:


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#14) On March 24, 2011 at 9:54 AM, JaysRage (78.08) wrote:


Mine is 1 year old, and I'm already contemplating the time when I will officially introduce him to the stock market.    I'm more concerned about introducing the concepts and the knowledge than I am about saving up money.    I want to help him learn to save his own money and then eventually learn to actively invest it.   

Whatever your strategy, your little one is very fortunate to have someone who is looking out for him/her in this way! 

Again congratulations!   It's a new adventure every minute! 

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#15) On March 24, 2011 at 10:32 AM, catoismymotor (< 20) wrote:

Thank you, everyone! We are excited.


I scratched the surface a few years ago about 529s. We have a friend that has set them up for her three kids, heard all about them from her. I came away from the discussion not liking the idea. However I should do some DD on them before I brush them aside. I like your idea about how to approach the grandparents. Providing to an education fund instead would be more rewarding to them. Thank you for the ideas.


Thanks for sharing your experience with the 529s. It is easy for me to think of myself in your place. As I stated above I need to do some DD on the plan before I dismiss the idea.


I am not familiar with the Upromise credit card. I hate credit cards. But maybe, just maybe, I can be convinced to take advantage of this idea. I'll have to look into it.


I am glad he did that for you AND helped you start doing your own at 13. Starting you that early has given you a serious intellectual and financial head start. You are already ahead of 99.99% of the population. I hope you continue this idea, make it a family tradition. By the way; How old are you? What is the best investing lesson you have learned since you opened your account at 13?


Just think how much better off the world would be if more dads delighted in their kids and treated them as a gift from God which they are.

Amen. Too many dads around the world think of their kids as being burdensome mouths to feed. Each child you bring into this world or adopt into your family is an opportunity to make the world a better place.

Don't worry. :) I'll let everyone know if it is a boy or girl. My wife may have to post for me if it is a girl because I'll be a nervous wreck. The idea of a girl freaks me out. They are so different from boys. Honestly a healthy kid is all I want, with ten fingers and ten toes.

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#16) On March 24, 2011 at 10:50 AM, TheClub55 (< 20) wrote:

Look into the coverdall account for college funding... its limited to 2k per year (after tax dollars like a roth IRA).  But you remain in full control of where the dollars are invested - stocks, bond, and even options (you can even pick crappy mutual funds). 

I had started a 529, but they are just are just a ripoff to the investors and gift to the mutual fund industry - high fees, crappy choice, etc.  Goint to close that account this year, its underwater so I believe you don't pay pentalty on the principle (that has already been taxed). 


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#17) On March 24, 2011 at 10:57 AM, Jbay76 (< 20) wrote:

First off, I have to say everytime I raed your threads, or even see your avatar, I can't help but think of Inspector Cluzo in the Pink Panther, yelling out Cato's name..... I am not sure if you chose that name becuase of the pink panther, the green hornet or something remains a mystery unsolved

But, congrats!

My wife and I plan on startign a family late next year and ths topic has come up several times.  I too want to start an investment account for the kids when they arrive and I also don't want them to know about it until their mid-20's, early 30's. I do nto want to start a 523 becuase I don't want to pressure them into going to school if they don't want to.  In fact, I have drems one of them becomes a pro srufer and I become their agent but I digress.

My question is, what type of investment account can a parent set up that:

1) Hides the funds from the kids until you're ready for them to take them

2)  You and the kids are co-owners of the account

3) You don't end up paying for the taxes on the gains when shares are sold and the "kids" arenow payign their own taxes

Does such a thing exist?


Great post and best of luck to all the parents!

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#18) On March 25, 2011 at 10:56 AM, SweetMircha (77.48) wrote:

Congratulations on the upcoming addtion to your family. Now you'll be a pro at it.

I like your thoughts of setting up a stock account for your little ones, especially if you buy some good dividend payers for their future to help ride out the corrections over the years. In a way I think its better than setting up a registered education savings plan where they'd be locked into using it for only 1 pupose-higher education. Or you can do a bit of both also.

I like it.

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#19) On March 25, 2011 at 4:30 PM, catoismymotor (< 20) wrote:


Thank you. I must keep my secret safe. But just between you and me, I have been known to launch vicious attacks from the inside of refrigerators. :)

As for question #1 I say just don't let them know about it. Pray you stay healthy long enough to keep control of your finances. It would be a shame to have one of them be granted power of attorney over your finances and thus the surprise be spoiled.

And question #2 can be answered by setting up the account as a POD (Payable On Death). That way if you die early the account goes to them. That would make for a bad day: 1) You are dead. 2) Fate screwed you out of your Ed McMahon moment. I would not worry about setting up the account with them joint on it. That would mean you'd have to make them aware of your plans, dodge questions. I don't know if you can set up a trading account as a custodial account or not. 

And lastly, #3. I don't know. The IRS has some rules about the receiver of a one time cash gift not having to pay taxes on it. I don't know what the dollar limit is. When the time comes I'd probably need to talk to someone about how to legally limit the impact taxes would have on the payout. But that is years away.


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#20) On March 25, 2011 at 4:40 PM, catoismymotor (< 20) wrote:


I am still looking into the education accounts/options. My initial concern is about the kids not going to college. Even though my three year old clearly takes after his mother (she has a Ph.D) he may choose a road that does not lead to higher education. The little one in the oven may choose not to go either. I am thinking that I'd rather face taking a tax hit and keep the options open than pigeonholing the money for a purpose that may never be realized and potentially never redeemable.

You are right. I could do a little of both.

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#21) On March 25, 2011 at 4:42 PM, catoismymotor (< 20) wrote:


Thank you for the suggestion. I will.


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#22) On March 29, 2011 at 11:18 AM, Jbay76 (< 20) wrote:

"But just between you and me, I have been known to launch vicious attacks from the inside of refrigerators. :)"  LOL Cato....that's too funny.  On a side note, those Pink Panther movies were the only ones that left me crying hard from laughter when sober, sobriety being the clarifer here.....

As for legal gifting amounts, one is allowed to gift 10K a year before the amount gets taxed.  That may change when the young ones get older.


AS for the P.O.D. account, doesn't tht interfere with setting up an investment account to  give away to the kids once they are old enough? I'm glad you are goign through this exercise now so that I can learn from it.

Many Thanks!

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#23) On March 29, 2011 at 11:35 AM, Jbay76 (< 20) wrote:

Hey Cato,

I just saw this on E-trade, an IRA for minors.....fwiw.


on a side note, if you don't mind me asking...what brokerage company do you use?

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#24) On March 30, 2011 at 8:54 AM, catoismymotor (< 20) wrote:

Jbay76, thanks for the link. I'll be sure to look into it. And thanks for the IRS information.

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#25) On March 30, 2011 at 8:55 AM, catoismymotor (< 20) wrote:



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#26) On March 30, 2011 at 9:08 AM, Jbay76 (< 20) wrote:

Congrats Cato!!!!!

Now its time to get the gun mounted on the wall and start saving for the wedding in the future as well! :-)


Never mind on the brockerage info, I just switched to Fidelity

Congrats again and good luck!


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#27) On March 30, 2011 at 9:44 AM, catoismymotor (< 20) wrote:

...and start saving for the wedding in the future as well! :-)

The horror! The horror!

The idea of dropping the same amount of cash I would spend on a new really nice car for a series of parties, a ceremony and a dress is an idea that gives me the chills. I'm sure Stockholm Syndrome will set in by the time she is five, will part with the cash more easily when the time comes.

Thank you for the congrats.

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