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What's the Best Account to Use to Buy Stock for Your Kids?

By Motley Fool Staff - Feb 12, 2018 at 6:08PM

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Helping your children get a jump-start on investing is wise, but is there a simpler way to do it?

In this segment of the Motley Fool Money podcast, host Chris Hill, Million Dollar Portfolio's Jason Moser and Matt Argersinger, and Hidden Gems Canada's David Kretzmann answer the query of a listener who wants to get his kids some stocks, but thinks the rules around custodial accounts look somewhat cumbersome. Is there a smarter or easier way to put shares in his offsprings' hands? And what approach might you take to picking those stocks?

A full transcript follows the video.

This video was recorded on Feb. 2 2018.

Chris Hill: From Sam Khater, Sam asks, "What is the best account to buy stocks for my kids? I looked at the custodial account and noticed that the rules and regulations are kind of cumbersome. Is it a good idea to buy under my name and then gift it to my kids when they become adults? Thanks, and keep up the good work." What do you think, David?

David Kretzmann: As someone who's been the recipient of a custodial account, that's the type of account I started using when I was 12, my dad and I set up a custodial account. I had access to the account, but it was in my dad's name. You can set it up where a parent or guardian has control of the account, but the minor can also be involved. Similar to setting up a custodial saving account, a pretty similar process there. Then, really, once I turned 18 or 19, I was ready to take control of the account, basically just called up the brokerage. It was a pretty straightforward process. As the parent or the guardian, you will have to deal with the tax implications. But for getting young people involved, ideally either you're investing for your kids, or maybe helping loop them into the process and get familiar with buying and selling stocks. So, a custodial account, I think, it is pretty straightforward and easy way to go.

Hill: Or, maybe, if things go sideways with your kids, maybe stick them the tax bill.

Kretzmann: Why not?

Jason Moser: I like that solution either way.

Hill: Jason, broadly, when it comes to buying stocks for your kids to the extent that you can get them involved, how do you like to approach that? Because, I know you've done that with your daughters.

Moser: We really just talk about the things they experience in their everyday life, the things that they're using, the trends that they're seeing at school. Being able to look at life as they see it, and then recognizing the opportunities that are out there. There's sometimes they'll not realize that maybe a company owns something that all of their friends use, or there's this big opportunity that's up and coming. So, it's really about seeing the world through their eyes.

Hill: So, maybe not Boeing. For as great as Boeing has done in the last six weeks as a stock, maybe not Boeing.

Moser: Well, we all jump on planes, Chris, but that doesn't mean I want to invest in one.

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