This is what I am looking to do and seeing if anyone has a suggestion for brokerage to use. I want to open an account for my grandson with $5000 to teach him about investing in the future. He is only 1 right now. But I want to be able to invest in individual stocks and also stock slices. 529 plan only allows certain investments I believe. Coverdell ESA would be an option but I can only do $2000 per year and want to do $5000 this month. I know there are tax advantages to ESA over a custodial account but not worried about that I guess. Do you know of any brokerage that will allow a custodial account to pretty much invest in any stock wanted and also offer stock slices instead of having to buy whole shares? I am pretty sure Fidelity might and also Schwab but I believe with Schwab it has to be S&P 500 companies.
I expect you have invested in individual stocks and further you have done well. Good for you. I would guess college is at least 15 years away and maybe your grandson in 2035 will not have the prespective to realize puting the funds into some high flyer might not be a good idea. Maybe in 2035 you will have somewhat diminished capacity.
So I humbly suggest consider the S&P500. You might find this an informative read on the idea.
If you had set up and funded the account before April 15, you could have done $4,000 in one month - $2,000 for 2023 and $2,000 for 2024. But now that April 15 has passed, you are limited to the $2,000 contribution for 2024.
While the tax breaks for an ESA or 529 can be substantial (think Roth IRA vs. taxable account), I would point out that it’s not you that needs to be worried about taxes for the custodial account - it’s his parents. They will be responsible for filing the returns for any taxes generated by the account, at least until he’s 18. So be sure that they are okay with that responsibility before you set up a custodial account (presumably UGMA or UTMA) for him.
To avoid putting the responsibility for taxes onto his parents, you could also consider opening a POD taxable account in your name, listing him as the beneficiary.
I would also point out that there are some other considerations:
- The money in a UGMA or a UTMA is the child’s, so any spending from the account must be for the benefit of the child.
- Once the child reaches the age of majority (generally between 18 and 25, depending on the state) the money moves under their control, and they can spend it on whatever they want - drugs, cars, massive parties, etc.
- Assets owned by a student (like UGMA and UTMA accounts) are considered to be available to pay for college when figuring financial aid, while 529s owned by a grandparent don’t even have to be put on the list of assets considered for financial aid.
Here’s a post from Nerdwallet on brokers that offer fractional shares 8 Best Brokers for Buying Fractional Shares of April 2024 - NerdWallet
AJ