The Smattering Podcast 77: Robert Brokamp on Investing For Kids 

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Jason Hall: Hey, everybody. Welcome back to The Smattering where we ask the hard questions about investing, and investing with kids and investing for kids. I'm Jason Hall joined as usual by Giuseppe Santorini. Also called Jeff Santoro, the voice of the people. Hey, Jeff. 

Jeff Santoro: Hey, how are you? 

Jason Hall: I'm good. I'm good. And, we often say we're excited and it's going to be a good episode because we're always excited. They're always good episodes. Always. 

But this one will be particularly good because as I said in the intro about kids. We've got a two-parter. This is going to be a two part show. This week we're going to be talking about investing for kids, and finances for kids. 

Next week. The second part is going to be investing with kids. And we've got a very special guest who's joining us for both of those episodes.

Jeff Santoro: We do Robert Brokamp who is a financial guru at the Motley Fool. I know you've had the opportunity to work with him on Motley Fool related things. I've met him for the first [00:01:00] time when we recorded this interview with him, and he's just a wealth of knowledge of all things from retirement planning all the way through the accounts you'd want to open for kids and stuff. So it was a really great conversation. 

And like you said, it's going to be two parts. We'll have the next one out next week. 

But before we go to the interview with Bro, I just want to really quickly thank the continued ratings and reviews we're getting from folks. We got another Apple podcast review, a five star rating. So that's really helpful and a nice review written up. So if you guys could continue to do that for us, we would really appreciate it and help more people find the show. 

Jason Hall: Yeah. I'll second Jeff's thanks for that. We really appreciate that. Thanks for helping us build our audience. Thank you for being a part of the show, making it what it is. 

Without further ado onto Bro and investing for kids. Welcome Robert Brokamp, senior advisor at the Motley Fool. Do a ton of work, most of your work is focused on retirement stuff and financial planning, that kind of thing. So welcome so much to The Smattering. It's good to have you here. 

Robert Brokamp: It's an honor. Thanks for having me.[00:02:00] 

Jason Hall: If it's an honor, you clearly have never listened to our podcast a single time.

Robert Brokamp: Jason, you and I go way back, Jeff, not so much, but Jason, if you're doing something, it's gotta be good. 

Jeff Santoro: Yeah. It's an honor now. We'll see how it is at the end, Bro.

Robert Brokamp: This has been a dishonor to be on your podcast.

Jason Hall: Well, let's kick things off because a lot of, you know, a few of our listeners are, have been around The Fool and are familiar with you and know your story, but there's a lot of our listeners that do not.

So tell us about your job at The Fool and then also your origin story, how you came to investing. 

Robert Brokamp: So I'm going to do that in reverse order and bring you back to the early 1990s when I graduated from college. I actually started college at a seminary. I thought I was going to be a priest. And then I thought, well, maybe I'll be a doctor or a teacher.

So I majored English pre med. Graduated from college. I thought, well, I'm going to try teacher first and then maybe go to med school. So I was a teacher at elementary school, Washington, DC. And since we just finished Halloween season, I'll just point out that if you watch the exorcist, the school I taught at was like in the background.

And I used to walk down [00:03:00] the exorcist steps on the way to public transportation. So that was a lot of fun.

Jason Hall: Is that foreshadowing something?

Robert Brokamp: One of us will be possessed by the end of this podcast. Anyway. So as an elementary school teacher, not making a lot of money around $17,000 a year, which even back in the early 1990s, it's not a lot of money. And so I decided I got to learn how to make the most of money. 

So I started reading books, listening to radio shows, using what was then a relatively new thing called the internet. And I found what was then a relatively new company called the Motley Fool. And I just learned all these things about personal finance. And my first thought was like, why weren't we taught this stuff when we were kids? Why am I just learning this stuff now? 

So I became kind of obsessed with it, and I called my high school English teacher's husband, who was a broker for Prudential Securities, and I said, I, do, should I be in the financial services industry?

And he said, yes, but you should come back to Florida where I grew up and be part of my practice. So I worked as a financial advisor with Prudential Securities for a couple of years, helping this group manage $200 million.

But I still kept an [00:04:00] eye on the Motley Fool. And I thought, I would prefer to work for what was then what we call the dot com rather than wear a suit every day and cold call people about municipal bonds. So I joined The Fool in 1999 as an editor because, you know, I knew some of that- 

Jason Hall: That Prudential muni bond gig, that sounds a lot more fun than a bunch of young people doing stuff on the internet. 

Robert Brokamp: Tax free growth. Who could want anything more? Yeah, so I joined the Motley Fool as an editor knowing that I really wanted to be a writer, but I was just getting my foot in the door. And I was an editor for several years, gradually took on more and more writing tasks.

And then we launched a service called Rule Your Retirement in 2004, of which I am still the Lead Advisor. And I'm also the co-advisor of a service called Total Income. I'm a contributor to the Motley Fool Money Podcast.

And I do some internal stuff. So I'm on the Motley Fool 401k committee. And also on a small group of people, we call the wallet team that encourage, basically financial wellness with our employees, because even though the Motley Fool is about [00:05:00] investing and money, the vast majority of our employees are not actually financial experts.

So we do things like hold classes, financial health week, do little messages and emails to nudge people toward making better financial decisions. 

Jason Hall: Yeah. That's something that you mentioned, I think is really important is, The Motley Fool is not that different from a lot of other organizations in that regard, is that you have, like the business that you do and in a lot of times you have, maybe a plurality of employees that like, they're focused on that thing, either dealing with customers, selling that thing, or actually making that thing or managing the making of that thing.

But then you have all these other people that do stuff like run the IT department or handle human resources, or they're in accounting and they don't actually do the thing that the company does.

And having, for something like financial planning and just basic money smarts, and like, that's the whole core of what we're trying to help people like just regular people figure out with this podcast, it's pretty important [00:06:00] for a business like The Fool to have an internal group, to help the people that do the other stuff, like actually eat their own cooking too.

Robert Brokamp: Yeah, as I often say, the employer is the nexus of someone's financial life. They provide the paycheck, they provide the retirement plan, they provide the health insurance, life insurance, disability insurance, flexible spending accounts, all kinds of things. 

An employer has so much power to influence some sort of financial wellness in their employees. And that's what we try to do with the Motley Fool. And so far, it seems to be working. Like we have a 96 percent participation rate in our 401k, which is extremely high. The average is closer to 80, 85 percent and sometimes closer to 70%, depending on which industry you're looking at.

Jason Hall: So let's, we can spin that and say that if, if the employer is the nexus of the employee's financial life, the parent is the nexus of the child's financial life. So the two episodes that we're recording with you; investing and kids. 

The [00:07:00] episode today that we're doing, this is investing for kids because there's investing for your kids and teaching your kids about financial wellness. And then there's our next episode that'll come out next week, or if you're a little bit behind anybody that's listening to this, it's the episode that follows this one is investing with kids, which is a totally different topic.

So let's say a couple, let's start at the very beginning, kind of like with your origin story, you took us past. You're, all the way back to before you knew what you wanted to do, figuring out what you wanted to do. Couples plan and have kids together at some point in the future. 

Is there anything that they should talk about or plan before kids are even around? 

Robert Brokamp: Yeah, so the first thing I would say is if there are any trips or adventures you want to take, do them now before you have kids. Because once you have kids, it's not impossible, but it's difficult to do it. So first of all, do that. Get that out of your system. 

Jason Hall: More expensive too. 

Robert Brokamp: Yeah, exactly. And then the [00:08:00] number one concern, of course, is child care. Child care costs between $10,000 to $20,000 a year in this country, depending on where you live.

So you have to think about, are you going to get child care? Is someone going to stay at home with kids? Maybe if you're both remote workers, you work at home, maybe you can swing that sort of thing. Something my wife and I did for the first year or so of having kids. So that's the first thing to think about.

In terms of your job and those types of things, the other thing that's important to think about once you have kids is, that's an opportunity to reevaluate your benefits, right? We're- not we're all- but many people who work for employers are now about to enter the open enrollment period where you choose your benefits, your health care plan and all that stuff. And then you're set for the year unless there's a life event.

And having a kid is one of those life events where you can change your benefits in the middle of the year. And you certainly, especially if you're going from, you know, a childless couple to having kids, you definitely will want to reevaluate your benefits.

You'll probably want to change your health care plan. You want to consider a flexible [00:09:00] spending, dependent care flexible spending, and many employers offer benefits specific to families, so that's a great opportunity to evaluate your benefits because you're gonna have different needs at that point.

Jeff Santoro: Yeah, I remember when I started my first job, all that benefits stuff sort of went over my head. I was just so caught up in the whirlwind of getting my first job and then I did exactly what you said, Bro. I had chances down the road when we had kids to kind of take a second look, think if this is the right thing for me. So I think that's solid advice. 

Robert Brokamp: Yeah. And some of those benefits are related to things you probably haven't even thought about like life insurance, right? If you don't have kids, you probably don't need life insurance, but once you have kids, you definitely have to get life insurance. And you can often get that through your employer. Sometimes it's provided through the employer and then you can buy some extra. 

And then the other thing that's important to do is your estate planning. Like, once you have kids, you definitely have to have a will, maybe a trust, update your beneficiary designations because you want them to be taken care of in case. Very sadly, something happens to you.

Jason Hall: Bro, you mentioned maybe a trust there and I'm curious your thoughts on this. Do you think [00:10:00] that having kids, a trust is even more useful, more valuable in terms of simplifying ownership of assets and making sure things are taken care of. Or is it kind of neutral?

Robert Brokamp: No, I would say it's worth considering. Of course, I don't want to give advice, but I'll tell you that we got to trust and I'll tell you why. First of all, anything that is not in a trust and not, does not pass by designation by beneficiary form, like an IRA or a retirement account or life insurance goes through probate.

And probate is the legal process of validating oil and distributing assets. And it is a pain. It's a pain. But if anything is in a trust, it bypasses probate, and that's important because you want to be able to have access to that money as soon as possible. 

And the other thing to consider with kids is money is not in a trust. They could inherit it either outright or when they reach the age of majority, and that depends on the state, but it could be as young as 18 years old. And most 18 year olds probably are not in a position to be inheriting a lot of money. So [00:11:00] what my wife and I did in our trust is, the kids would get the money over periods, you know, some at 18, some at 22, some at 25, some at 30.

So it's all spread out. It's protected. It's being managed for them, but they don't get this large lump sum at age 18. And at a point when they may not be making the best financial decisions. 

Jason Hall: Yeah, we've actually, we've... Bro this is something I've heard you talk about before multiple times and speaking with our attorney when we initially set up our trust. And since when we've revised it, we've done the exact same thing again. It's one of those things that it makes the process. ... it's one less thing to worry about, right? Number one, not just for you, but also when you're not around, if you're not around. It's one less thing for other people to have to worry about and make those important decisions about 

Robert Brokamp: too.

Yeah, I totally agree. And I like the point that you highlighted an attorney. Because we at the Motley Fool are proponents of do it yourself investing if you feel capable, but we're not fans of do it yourself estate planning. You should definitely see a [00:12:00] qualified, experienced attorney for that. 

Jeff Santoro: So assuming you have all those things figured out, when we first had our kids I kept thinking of it kind of in two buckets, right? 

There's all the, there's the money you might get. You know, someone writes a check to your two month old baby and you know you have a cash for the kid that you have to figure out like where to put. But then, so you're gonna get money over time with birthdays and holidays and things like that. But then there's also the big bucket of saving for college. 

So I think I'd like to hear your thoughts on that second thing first, you know. Saving for college is this ridiculously daunting thing to think about now. I mean, I know my parents were lucky. I was lucky. My parents could pay for my college, but it was just so much less expensive even 30 years ago. 

So what are your thoughts on how early should new parents start thinking about saving for college? And what are the best ways to do it? 

Robert Brokamp: Well, start as soon as possible, if you can, with the caveat that your retirement is your number one priority, right?

So parents should be making sure that they're saving up for their [00:13:00] retirement first. If you're fortunate though, and you have some money left over, then start saving for college. It is expensive. And I think it's important to keep expectations reasonable with your kids.

I live in Virginia. We have lots of great public schools. So we told our kids we will pay for a Virginia education. If you go outside of Virginia or you go to a private school. You're going to have to come up with a way to make the difference. And you know, our kids are like, okay, I'll stay with a Virginia state school. So that's where they've worked out well for our kids, but you still have to save.

And I'll just start with the account that is by far the most popular. And that is the 529 savings plan named because you know, with that exciting name, it comes from the IRS code. It's sort of like a 401k in that you put money in and you choose how to invest it. It's up to you. 

You'll have a choice of many mutual funds to invest the money. The money grows, tax deferred, and then withdrawals are tax free as long as they are used for qualified education expenses. And there's a lot of expenses that are qualified, including up to $10,000 a year for [00:14:00] elementary and secondary expenses, and then unlimited for college, room, board, necessary equipment, tuition, things like that.

 Every, they're sponsored by states, run by financial services institutions generally. So every state has one, but you don't have to choose your state's plan. You might get a tax benefit for choosing your state's plan. 

So for example, here in Virginia, if you contribute to the Virginia plan, I can deduct up to $4,000 on my Virginia state tax return. Not federal. Just Virginia State and there that's the way it is for most states. There are a few states that will give you a deduction if you contribute to another plan. But- so start by looking at your own plan first. And if it's good, it's probably the way to go. 

And I'll just mention that there is also the 529 prepaid tuition plan where you basically the line on that as you paying. You're paying for tomorrow's tuition at today's prices, but now only nine states offer those. So there used to be, almost half the states did, but [00:15:00] they weren't adequately funded. So most states have killed those plans, but it might be something to consider if you're in one of those nine states that still offer them.

Jason Hall: A couple of questions and thoughts about 529s, Bro. 

So when evaluating these plans, one thing you mentioned, I think is certainly a key reason to stay with your state's plan is if they allow you to take that, the contributions as deductions from your state income taxes. That can be enough to help offset fees, which can be, frankly, they can be sizable. Some states, the fees that the operators charge to run these funds and these plans can be borderline egregious, frankly, for what they're offering. 

So, if, my question for you is if somebody is shopping from one state to the next, is that typically the thing that they may want to focus on, is maybe they're in a state that they don't get good reasons from the state to stay within the state plan and the state plan, the fees are the issue. Is that generally going to be the reason why they might shop across state lines? 

Robert Brokamp: Yeah, it's generally fees. And then there [00:16:00] also is some, you know, you have to make sure that you have good funds in there, right? So you would look at the funds. And if the funds don't perform particularly well these days- like 401k's, they're going more and more towards index funds, which is perfectly fine by me.

Fortunately, there are groups that will rate 529's. So Morningstar every year does a rating of 529 plans. And savingforcollege.com is a great website that also rates them, and it rates them according to whether you're a resident or not. So those are good places to start if you want to evaluate 529 plans.

Jeff Santoro: Yeah, that's what I did because I live in New Jersey and there's no tax benefit for using New Jersey's plan. So I use Morningstar and a couple other resources to just, do the best I could to find one that was considered to be good, and that's where, that's what I went with. 

Robert Brokamp: Yeah, that's the way to go. I mean, the ones that are generally considered very good. You choose one of those and you're going to be fine. 

Jason Hall: So I've got, I've got a couple more questions about the 529. 

So one is, [00:17:00] there's been a recent change. There's one thing a lot of people concerned about with 529s is, is over-contributing, right? Maybe they're fortunate and their kid gets a great scholarship or they go to that state school and there's good financial aid where they don't, they have, there's leftover money. They don't have any other kids.

What do they do with that excess money? It's like the ultimate high quality problem to have. But there's some new legislation that I believe it's in law now, it's passed into law, where those excess funds can be converted into a Roth. Is that correct? 

Robert Brokamp: Yes. So let me step back a little bit and just say, this money is for college, right? So if you don't use it for college, you'll pay taxes on the growth and a 10 percent penalty. So it's not just a matter of like, oh, I don't need this money. I'm just going to take it out. 

Jason Hall: If you, if you take it out.

Robert Brokamp: Right. If you take it out. So, so that's what you're getting to the point of like, now I have all this money in this account. I don't want to take the money out cause I'll pay taxes and penalties. What should I do? 

You can transfer it to qualifying relatives, siblings, nieces, nephews. If you're the parent, you can actually transfer it back to yourself if you [00:18:00] plan to go back to school, or you could just hold on to it until you have grandkids and imagine how big it would be then to use for your grandkids. 

But as you point out, thanks to the secure act, well secure act 2. 0, which was passed at the end of last year, starting in 2024 you can gradually move up to $35,000 that's in a 529 to a Roth IRA for the benefit of the beneficiary.

There are a lot of rules about it. The money has had to have been in there for a while, and it basically counts as that person's Roth IRA contribution for the year. So this year, the annual limit is $6, 500, and you can't contribute to a Roth or any IRA unless you have earned income. So for this to work, the kid will a, have to have earned income. Of at least up to $6, 500 and then you can only move that $35, 000 over in $6, 500 annual increments. 

So I think it's wonderful that they're making this available, but it's not as simple as saying, like, oh, this money left [00:19:00] over. I'm going to convert the whole thing into a Roth IRA. There are some rules you definitely have to pay attention to. 

Jason Hall: It basically follows whatever the Roth contribution rules are for that year. Once you meet all the other qualifications for transferring it from the 529 to the Roth. 

Robert Brokamp: Right. And that, and it counts as their Roth IRA contribution for the year. So they can't do this Roth thing and then contribute another $6, 500 from their income that it counts as the contribution for the Roth.

What I think is interesting is because it's so new, there's some rules that are still being ironed out. Is it possible to change the beneficiary back to yourself and then you can contribute to an IRA for yourself? I've heard experts say they think that will be possible, but I have not seen it definitively from the Treasury Department or the IRS, so I can't say for sure.

But I think there'll be even more flexibility built into this as we enter 2024 and more people try to do this. 

Jason Hall: Unless they explicitly say no, you know somebody's going to at least test it right?

Robert Brokamp: Exactly. Exactly. 

Jason Hall: So my last question was thinking about the [00:20:00] 529 and there's other different, instruments too, but I want to make sure we ask this question. When you start thinking about need based financial aid. What are the implications for funding these sorts of retire- these sorts of college savings vehicles? 

Robert Brokamp: So, the thing you need to understand about financial aid is any income or assets that are owned by the child or earned by the child will have a greater impact on aid than income or assets owned by the parent.

When it comes to 529s, the assets are considered owned by the person who opened the account. So if you're the parent, you open the account, it's your asset, so it have a lower impact on financial aid than if it were if that were an asset owned by the kids. But it will still have an impact on financial aid. There's no question about it. 

I will say that, you know, I have, one kid has graduated from college and I have three kids in college now. And if you've made a decent income and saved a decent amount of money, um, don't expect a whole lot of [00:21:00] aid anyhow. So I, for most people who are, you know, professionals and doing a good job of building a financial life, you're probably not going to get a whole lot of aid anyhow.

So I wouldn't, you know, go through somersaults to avoid it. But if you do have a school in mind, all of their websites on the financial aid portion of the website has something called the EFC calculator, expected family contribution. You can put in your information and it'll give you an idea of how much aid you could get. And if you're on that borderline, then it does make sense to maybe do some things to make yourself look more eligible for aid. 

Jeff Santoro: So the one other question I had, and I think it kind of brings right into the next thing I wanted us to talk about, which is the Coverdell account, which is another college savings account.

There's no income requirements with the 529, right? There's no limit to, well, I mean, I know there is a limit to what you can contribute, but it's very, very high. But I know with the Coverdell, which I think you'll talk about next, there is one. 

So can we just talk about that piece of the 529 and then maybe transition right into what the Coverdell 

Robert Brokamp: is?

Right. So there [00:22:00] is no income limit on a 529. Anyone can contribute. And there are no annual limits on a 529. There's, there are lifetime limits and they vary from plan to plan. They're as low as like a $250, 000, I think it's in Alabama, or maybe it's $235, all the way up to California. And I think that's $529, 000, at least it used to be. Maybe it's up to $550 now, but it depends on the state. 

So most people are fine. What you do have to consider, though, is a gift from the parent. So, anytime you make a gift above $17, 000, you have to file a gift- it's form 709 -with your tax return. It doesn't mean it will be taxed, but you do have to file it.

529s have this funky five year gift, it's not an exclusion, but it basically allows you to give five years worth of gifts all at once. That's a little weedy there, but that's the really only thing you have to consider about, when in terms of contributing money to a 529. And as you say, the Coverdell is pretty different when it comes to all of those types of [00:23:00] things.

Jason Hall: Yeah, the Coverdell, we have a Coverdell that we funded for our son the first couple of years of his life. And then, through good fortune, we're not able to fund it anymore. 

But it's like, I think of it, it's like really, it's like the Roth for college savings because like any Roth IRA at most brokerages, you could buy whatever you want, right? You have total flexibility about how you can invest the funds. And with the 529s, you're limited to what the fund provider that manages the fund offers you, which is basically all index funds of stocks and bonds and, and money markets and various mixes of those things. But what are your thoughts on the Coverdell?

Robert Brokamp: Yeah, that's the main benefit of the Coverdell is that, especially if you are someone who likes to invest in individual stocks, it's, the Coverdell is the way to go because you can't do it in the 529. 

So the Coverdell is great when it was first came out in the late nineties, it's called the Education IRA and people found that confusing. So they switched to the Coverdell, named after a senator from Georgia. And the problem [00:24:00] with the Coverdell is there are several drawbacks. So one is being what you sort of suggested there, Jason, and that there are income limits. Once you're above a certain income limit, you can't contribute anymore.

However, there are ways around it, because you could just gift the money to someone who's below those income limits and then they make the contribution. So if you want to do that, it's possible. Plus, you can only contribute $2, 000 a year, which-

Jason Hall: This portion of our show is sponsored by Sam Bankman-Fried.

I'm kidding. I'm kidding. It's a legal, legitimate way to do it. It is, 

Robert Brokamp: it is. 

Yes. Yes. For other tax cheat ideas... No, I'm just kidding. 

Yeah, so that works. So, but anyways, $2, 000 a year, which, you know, for most families, honestly, that's a lot of money, but if you're lucky enough to be able to contribute more, that is a limit. But if you start when the kid is just born, you know, that's $36, 000. So that'll pay for, ideally with some growth, at least a year, maybe more of college. 

And the other big limit to it [00:25:00] is, unlike the 529, which you can let grow forever, generally speaking, and then pass it on to your grandkids, the money does have to be used by age 30 for a Coverdell. And I'm pretty sure you can't make a contribution after the kid has reached age 18, but also if you, if there's more in it than you need, you can transfer it to other relatives.

Jeff Santoro: So I know there's other ways you can save for your kids college. And I think that sort of blurs into the next part of what we want to talk about, which is just saving and investing for your kids while they're still young, and not old enough to understand how all that works. 

So maybe talk a little bit about other ways you could theoretically save for college, like brokerage accounts and things like that, and then also maybe then we can kind of pivot into other ways you just might want to help save for your kids future. 

Robert Brokamp: Yeah, I mean if, you don't need to use one of these accounts. The benefits are great. I should add, by the way, like you said, Jason, it's the Coverdell is like the Roth that the growth is tax free as long as you use it for qualified expenses.

So that's that all is very attractive. [00:26:00] But, you know, you could just save it a regular old brokerage account. You're going to, it's not as tax efficient, but you can do it.

The question there, and you might want to do that just because you're not sure the kid will go to college or whatever, right?

Jason Hall: Optionality, right?

Robert Brokamp: Yes, exactly. The question there though, is, are you going to do an account in your own name or are you going to have an account in the kid's name and if they're not, if they're a minor, then it has to be an UGMA or an UTMA or a custodial account.

The benefit of just keeping it in your own name is you retain control. So you don't have to worry about, you know what, if your kid grows up and is not very responsible, they won't get the money. The down- and, and because it's a parental asset, it won't have as much of an impact on financial aid eligibility. The downside is that you'll have to pay taxes on it, and parents are generally at a higher tax rate than kids. 

So if you give it to the kids, it's in again, an UGMA or an UTMA. Most states these days, the UTMA is the way to go 'cause there's more flexibility. 

But it's the kid's asset. They need a custodian or a guardian on the account, but [00:27:00] once they reach the age of majority, it's their money and they can spend it however they want. And you can't prevent it when you, once you put money in a custodial account, it's an irrevocable gift. 

Jason Hall: So, and these are, and the age of majority is different from state to state. So it's important to know what your state is, the age of majority, 18, 21, I think maybe some states might even be older than 21. 

Robert Brokamp: Yeah. I think there are a couple that up to 25, which you, if you elect it.

Jason Hall: Right, right. 

Robert Brokamp: But the downside is it's considered an asset of the kids. So when you file for financial aid, it will have a bigger impact on aid eligibility. So those are the pros and cons of going either way with those 

Jason Hall: Now, there's something that's, I don't know if it's new or not, but it's certainly newer to me But the kids Roth is something that I think is really interesting. The idea that as your kid has earnings, you get that first paper route or babysitting the neighbor's kids , right on up to actually having a quote unquote real job. That you can contribute, again up to their earnings, up to their earnings, you can contribute in their name into a Roth IRA. 

[00:28:00] So talking about the amazing compounding power of time, putting that to work when a kid's. 12, 13 years old can be remarkable. What are your thoughts on that? 

Robert Brokamp: Yep. Totally agree. And we've done it for our kids. So as soon as they had jobs in which they received a paycheck, and you know, some was a lifeguard, I mean, my kids have worked at Starbucks, at Target, all kinds of jobs like that, as a gymnastics coach. As soon as they earn money you can open a Roth IRA for them and contribute to it. 

And some parents will do matching contributions. Like you have to put some in, but we'll match it. But my wife and I have just funded it. I mean, we're proud that they're working to begin with and we're happy to fund their Roth IRAs. As you point out, it has to be up to their amount they earn. So if they earn a thousand dollars in a year, you can only contribute a thousand dollars.

But it's a great educational tool. My kids have helped me open the accounts. They see the money go in and then they have to start making decisions about how to invest it. 

Jeff Santoro: Yeah, we did the same. My son got his first job this past summer, and we did the same thing. I waited till the [00:29:00] end of the summer so I could get all his meager paychecks together and deposit a little bit from the total amount. And then yeah, we matched it as well. 

Just like you said, teach him how that works. I was trying to explain to him that hopefully one day you'll have an employer who does a match, and this is how that works. Just to kind of teach that lesson. 

Robert Brokamp: Yeah, that's great.. 

Jeff Santoro: I guess just to wrap up this, this part of the conversation, and then just again to encourage our listeners to come back to our next episode, where we're going to continue our conversation with Bro and we're going to pivot to investing with kids, how to kind of involve them in that process. 

So the last question I think we have is just what resources are out there that you think would be beneficial for people to know about for any one of the things we just talked about.

Jason Hall: And feel free to shamelessly pitch anything with which you have financial association. 

Jeff Santoro: Yeah, of course. We don't hold back there. Yeah, we shamelessly pitch everything on this show. So go ahead. 

Robert Brokamp: Well, then you can always visit Fool.com, which has a whole section is devoted to, I mean, we talked about two things, really, mostly investing for kids and college, but we touched there on retirement. So [00:30:00] there's lots of good information at the Motley Fool's free website. 

I mentioned another great resource, and that is savingforcollege.com. And it's to me, the go-to resource for anything about how to save for college. 529s, Coverdells, financial aid, how it works. And it's important to whenever you are getting any information off the web that you're getting an updated article. We've already talked about the secure act 2.0, which has already changed some things about retirement accounts and in college savings accounts. And savingforcollege.com does a pretty good job of updating their articles.

And then on the retirement side, even though we only talked a little bit about retirement, I'm a big fan of IRAhelp.com. It's the website of Ed Slott. Ed's sort of considered the nation's IRA expert. He's a big personality, has written all kinds of good books. But he has a whole army of CPAs that answer questions about IRAs there. 

And you'll see things like, for example, one of you mentioned babysitting money, right? There's actually a big debate about whether you can use babysitting money to fund a [00:31:00] Roth IRA. And, you know, I defer to the folks on websites like IRAhelp.com about whether that's something that the IRS will frown upon or not. Like I said, it's debatable. Hopefully though, if you decide to do it, the IRS won't come after your 13 year old daughter. 

Jason Hall: Well, for, for those listening while you're driving down the road, when you get stopped, check out the show notes, we'll have links in the show notes for this, and of course the podcast transcript that we report on our newsletter, you can go to TheSmattering.net and you can get the full transcript. And there'll be links throughout that as well. So be sure to check that out. 

Bro, thank you so much for this first episode and look forward to talking to you for the next part. 

Robert Brokamp: Such a pleasure. Thank you very much.

Jason Hall: Everybody, welcome back. I hope you enjoyed the first part of our conversation with Robert "Bro" Brokamp, investing for kids. Jeff and I, we're going to, what are we going to do, Jeff? We're going to talk a little bit about our own personal experiences with this, right? 

Jeff Santoro: Yeah. We thought it'd be fun on the second part of the show to talk about what we took away from the interview. And then also maybe share [00:32:00] some things that we're doing or have done with our kids, and we're hoping that people listening will share with us things that they've had success with, with their kids, you know, in whatever way is easy for you to contact us and chime in on the conversation. We'd appreciate it.

So I guess my first question for you is what's what stood out to you from our conversation with Bro? Anything as a first point of conversation, anything jump out? 

Jason Hall: Yeah, I think the one thing was, just doing it and getting it going. That's one of the things he talked about that, and in the second part, which we'll run next week, we've already recorded that. But you lay so much of the groundwork of your kid's success and understanding these concepts and actually taking it to heart and making it part of their life. But through the investing for, if you wait to start it the day your kid's old enough to understand it, it's just like investing for yourself. The biggest regret so many people have is waiting too long. And with your kids, don't wait, don't wait. [00:33:00] 

Jeff Santoro: Yeah. We started pretty early on after having kids, but I wish we had started even earlier, just looking back now that I'm only a few years away from having to start paying for college with one of my kids.

The thing that jumped out to me, and it was something he said very quickly at the beginning and we didn't really dive into it. But I've heard Bro say it before on other podcasts, which is if you have any desires to do like big trips or excursions, do it before you have kids, from like a time and financial perspective. And I really thought that was good advice because I think it's easy to get, if you're, especially if you're a planning type, it's easy to think to yourself, oh, I need to, I need to be ready for this. I have to save, I have to save. 

But I think you and I both know now that we have kids, you look back at those years where you didn't, and you think to yourself, ah, I should have done that extra thing I wanted to do because it just gets a lot harder. So I thought that was something that was interesting that we didn't really dive into, but he definitely, that was a [00:34:00] point he made.

Jason Hall: Yeah. I. My wife and I were both 40 when our son was born, and we got married when we were in our mid twenties. So I could totally relate to that, because for a long time we didn't think we would have kids. So we just did all the things. It was pretty, it was pretty cool. 

And here's another part of that I think is neat, and I thought about this a little bit when Bro brought that up is having had kids a little bit later, and having had that time to travel and experience the world, now I'm really excited about going back to some of those places, and sharing them with my kids. So, that's another kind of neat thing about it

. But, this was kind of sprinkled through the whole thing, was the idea of, you know, still rewarding yourself. And we talked about that in the second part, we'll talk about that more next time around. But one thing that really stood out to me that I think is really important too was save yourself first.

Jeff Santoro: Yes. That was going to be my next point. 

Jason Hall: Don't skip out on your retirement savings to save for your kid's college. 

Jeff Santoro: Yeah. And I've heard that said by multiple people [00:35:00] before. And again, I think I've heard Bro on a lot of podcasts. So there's, I'm like blending my Bro knowledge here, but the idea that-

Jason Hall: Blended Bro.

Jeff Santoro: Blended Bro. Someone should make a wine called blended Bro.

Anyway, I heard him or someone say, you can pay for college down the road. You can't pay for retirement down the road, you know, which is just the point, drives the point home that you need to prioritize your own retirement saving first. Because once you know, you don't have another chance to do that, you know? You can always take out a college loan, you can get financial aid, there's other ways to pay for college, even if they're not the best financial way, you know.

Like I'm sure you'd rather pay with cash than take out a loan if you had a choice between the two, but there is no way to pay for your retirement other than to just keep working, right? So- 

Jason Hall: I want to illustrate how powerful compounding is in a way that can really, I think maybe hit it home. And I think it hits home for two things. Both making sure you don't skimp on your own retirement savings to save for your kid, but also if you can, start as soon as you can [00:36:00] for your kids is, if you think about just the compounding power of stocks. 

We use the S&P 500, that average annualized return. The market's historical average doubles your money about every eight years, right? 

So if you delay retirement savings eight years, you have to put in twice as much money to get to the same goal. If you delay 16 years, it takes four times as much money to achieve the same goals, right? So if you figure, I'll just wait, I'll just wait 10 years before I start saving for my retirement, it's going to cost you more than double the amount of money to make up for that lost time. So it's super duper important.

Jeff Santoro: Yeah, I've heard other people who are not financial advisors, just people who talk about this kind of stuff, say, go so far as to say they don't, like saving for college is literally the last thing they do, right? It's like, their order of operations is [00:37:00] build up the emergency savings, max out the 401k, max out the IRA, buy more in a brokerage. And only then if there's anything left over, contribute to a 529 for college. 

So I don't know if I'd want to go that far personally. I mean, this is obviously not investing advice, but, so I think there's a lot of interesting perspectives out there. 

It, I think what's hard if you're our age, and you were lucky enough to have your college paid for by your parents, or maybe you had to take out a small loan to cover it. I just think that's a hard thing to wrap your head around. 

Like my mind's, I'll just talk personally. My mindset is, I want to be able to do for my kids what my parents were able to do for me. My parents, I'm very lucky. I'm blessed. They, they could pay for my undergraduate education. I don't, I didn't have any undergraduate college debt at all. And I know that that's not the case for everybody.

But I also don't know if my parents... 

aardvark: Half our audience now hates you, Jeff. 

Jeff Santoro: That, well, look, I'm, hey, being honest. 

Jason Hall: The other half already did. 

Jeff Santoro: No, but here's my point. Here's my point. I don't know if my [00:38:00] parents now... Like if they had the exact equivalent job now could do the same thing because of how much college has gone up in cost.

So for those of us who were lucky to have that privilege growing up, it's difficult to even, you know. And I, and my wife and I do fine. Like we do just as well, if not better financially than our parents do. But we're probably going to struggle more to pay for our kids college just because that's how much college has gone up compared to, you know, everything else in life.

So yeah, I just thought that piece of the conversation, the whole save for yourself and also just, thinking about all the different ways to save for college. I just thought that was really interesting. 

Jason Hall: The one that jumped out to me the most, it was just like, huh, is it's like, it's the rich people figuring out how to game this system thing. And I guess, honestly, maybe, I guess I'm in that boat as the rich person now, because, frankly, like, the Coverdell ESA, love it, I think it's such a great tool to, especially for people that are savvy, to fund something, and the great thing about, the [00:39:00] Coverdell ESA, you could open that and just buy like the cheapest S&P 500 mutual funds, index funds. You don't have to, you can avoid a lot of fees that come along with the 529s. Which is kind of neat. So I think that's kind of cool.

But it's capped like a Roth IRA. It's capped how much you earn, it can affect how much you can put, up to like, once you earn more than a certain amount, you can't put anything in it . 

But Bro pointed out that you could gift the money to somebody who earns less and they could contribute it to your child's Coverdell ESA. And I'm like, man, rich people figure all the things out. 

Jeff Santoro: Yeah. I didn't learn about, I had never even heard of the Coverdell until I don't know, 2020, 2021. And by that point, we weren't able to contribute to it either. But I did think about trying to see if like my parents could open one up for my kids. So I could just have them pick an index fund or pick a stock.

So let's talk a little bit about what each of us does for our kids , and just, we'll limit it to things we've done on the college savings side, because that [00:40:00] was really the focus of this part of our conversation.

So I'll start by saying basically all we have in terms of college savings for our kids, other than I have some cash that I'm keeping on the side that I took out of the market a few months ago, just because I'm now three, two and a half, three years away from starting to pay for college. So I'm trying to stick with the anything you need in the next three to five years should not be in the market rule. I took some cash, took some stuff out of the market and just keep it in it- 

Jason Hall: and your timing. It's, you're so fortunate too with interest rates having skyrocketed. That cash is going to generate some yield now. 

Jeff Santoro: That made the decision a hell of a lot easier. I might've dragged my feet on it a little bit.

So I have that. And then we've had 529s for both of the kids ever since they were little. And I just, it's a, it's a regular monthly debit from my checking account, which I think is the way to go. 

If anyone does open these accounts, like try to automate that kind of a thing, because you will find ways to not do it if it's not a automated thing. [00:41:00] But I'll be perfectly honest, like we're putting as much into it as I think we can, we can afford to. Again, paying ourselves first, worrying about our retirement first. 

Jason Hall: Right. And also still, let's be honest, trying to have a good quality of life too. 

Jeff Santoro: Oh yeah, for sure. Yeah. But I'm, I know it's not going to be enough to pay for all of their college. You know, like I, I know that. Especially my older one, maybe my younger one, I'll obviously have a couple more years, you know, in the market. 

Jason Hall: A couple more years for two for tuitions to go up. 

Jeff Santoro: Will tuition go up higher faster or slower than the return in my 529 over the next six years? Yeah, so that's what we do. You know, it's, it's basically that little bit of cash I have, and then the 529. 

What about, I know you said you have the Coverdell, and I think you have a 529 as well. 

Jason Hall: Yeah. So we opened the Coverdell, like I said, he was an infant. And we opened the Coverdell, and we were able to fund it for a couple of years. And honestly, we've been really fortunate with the timing and frankly, my stock picking acumen and the timing of the pandemic. I made [00:42:00] some opportunistic moves that have really paid off in a, you know, relative, because you're limited in the small amount you could put in the Coverdell to begin with. It's done pretty well. 

The downside is that I dragged my feet on starting the 529 because the Coverdell had done well and we only relatively recently in the past year or so opened the 529. 

We live in a state that has two things. Number one, they give you up to a certain amount they'll let you deduct contributions from your state income tax. And it's also a state that the sponsor of the plan has good funds and doesn't have egregious fees. So, that's one of the things that we talked about with Bro. And I asked him, are these the things you look for? And he said, yeah. And I'm fortunate that we're in a state that that's a situation where it just makes sense that the state's plan makes the most sense.

So we went with the state plan and Fidelity sponsors it. And it's, they've got some pretty decent funds. Yeah, this is not a, not making a recommendation for anybody for Fidelity, but they do have a pretty good plan and [00:43:00] it's available in multiple states. So yeah, that's basically, that's basically what we've done at this point.

Jeff Santoro: Yeah. And I mean, I have brokerage, I have custodial brokerage accounts for both of my kids. And my older son had a job this past summer, so he's got a Roth IRA, but I don't view those accounts as being for college. And they're not a lot of money. That was one of the things that Bro pointed out. Anything like a UDMA or a UGMA, or a broker, you know, any brokerage accounts those are in, they're considered kids assets, and they can have a higher impact on financial aid. They're such small amounts for my boys. They're just starter accounts to get them to learn. Like, I don't anticipate that being a huge impediment.

Jason Hall: Yeah. So technically your kids are trust fund kids, but it's- 

Jeff Santoro: Yeah, except it's trust fund based on my bad sock picking at the height of the market. So I'll hand over the accounts. It'll be in the red. So congratulations, boys. I lost you money. 

Jason Hall: Congratulations, kids. Here's an invoice for... You're going to have to cover this. You're going to have to-

Jeff Santoro: Basically, congratulations on turning 21. You owe me money. 

Jason Hall: There you go. That's funny. So I'll, I'll [00:44:00] talk more about it after the next episodes and the investing with kids, but , we've done something with Tate that I think is pretty interesting that I think some people might appreciate. 

Jeff Santoro: Yeah. The only other thing I wanted to mention was one thing that we've done. I don't know if you're in this boat too, Jason, but like when family members give my kids checks for their birthdays or Christmas or something like that, I just deposit those right into the 529. I just do like the mobile check deposit thing.

You know, my mom is big on, you know, she writes a check for the birthdays and for the holidays and she writes "for college" on the memo. Actually she usually "writes for college fund". And one time she left the D off and just wrote for " college fun". So... So I told her I was just going to buy a six pack, you know, 30 pack of beer and give it to him.

Jason Hall: Just buy them a BevMo gift certificate. 

Jeff Santoro: But that's just another way I've found a way to add to the. To the college money. 

Jason Hall: Yeah, that's smart. That's, that's a good, that's a good way to do it. Okay, friends as usual, we'd love to give our thoughts on these hard investing questions, whether it's for the grownups or for the kids, the kids that [00:45:00] are going to be the grownups. 

We give our answers. You got to find yours though. You can do it. People like Robert Brokamp can help give you great ideas about how you can find them, but it's up to you to find them on your own. You can do it. I believe in you. Alright Jeff, we'll see you next time. 

Jeff Santoro: See you next time.