Stock Market

Your kids want to buy Roblox stock? Heed these warnings first

A year of pandemic living for many preteen kids has meant remote schooling, maybe no summer camp — and a ton of Roblox.

Traffic on the tween-centric gaming platform has soared since the pandemic tied much of daily life to screens and now more than half of Roblox’s approximately 32.6 million daily users across 180 countries are younger than age 13.

Roblox began trading on the New York Stock Exchange on Wednesday. Shares obtained a $45 reference price on Tuesday. By mid-day Wednesday, Roblox

shares were trading above $73.

So maybe now your kid wants to play Roblox on the stock market too.

At a time when more people are getting into the stock market — for better or for worse — parents might be more inclined to say ‘yes’ to the idea.

Those parents could buy a share in their own brokerage account. Or, they could use a custodial trading account to do it. Those accounts enable parents to buy stocks, bonds, mutual funds and other assets on their child’s behalf. But beware of the tax consequences that lurk — not to mention the weird family dynamics and resentments that can bubble up if investments go wrong.

Joshua Mungavin, principal and wealth manager at Evensky & Katz, is not a fan of a custodial account devoted to stock picks, especially when it’s a new stock freshly hitting public markets. “This is not an account to bet in, this is an account to take care of the child. … I don’t think it’s a good idea for financial purposes or education purposes,” he said.

Related News  SEC's climate change proposal gives Main Street investors no voice. Here's how to make yourself heard.
Custodial accounts are not 529 accounts

A 529 account comes with special tax advantages geared towards schooling. Distributions are not subject to federal income tax and state income tax (in most states) when used for specified educational purposes.

Custodial accounts do not have those tax advantages on school-related use. “If your primary goal is to invest for education, 529 plans offer the greatest tax advantages, control and flexibility. Custodial accounts can be good options to transfer wealth for just about anything else,” wrote Richard Polimeni, director of Bank of America’s Education Savings Programs.

Whose account is it anyway?

In a custodial account, parents, grandparents or other adults can make the investment decisions in the account. Still, the account is considered to be an asset owned by the child, according to Fidelity Investments.

Once the child formally becomes an adult in the eyes of the law, the account goes under their control. The age varies from 18 to 25, depending on the state, Fidelity Investments said.

It’s the child’s money, even though the parent is managing it. If the money vanishes in a losing bet or poor management, Mungavin said children could hold it against their parents.

Whether there is profit or loss, the experience will help shape a child’s views on investing, he added. A jackpot stock pick could teach the lesson on the merits of potentially gambling in the market, Mungavin said. “If it goes poorly, the child sees the stock market with bit of skepticism rather than seeing the individual stock risk.”

Related News  What can you do after you are fully vaccinated? The CDC finally has an answer

Another word of caution: The presence of a custodial account can weigh heavily into the financial aid decisions are college makes, because the account is treated as the child’s asset. (The Federal Application for Student Aid, the FAFSA, says 20% of a child’s asset is available for college, but it’s up to 5.64% for an asset in the parent’s name, including a 529 account.)

But then again, if Roblox shares surge, maybe selling the stock to defray college costs is a way parents can get some satisfaction from all that time their kids were playing on the platform.

What about taxes?

While custodial accounts do not have the education-geared tax advantages, they do bring some tax breaks. Still, the breaks need to be carefully considered, Mungavin cautioned.

For a stock sale from a custodial account that happens at least one year after purchase, the first $2,200 of profit are not taxed, according to Edward Zollars, a Phoenix, Ariz.-based accountant at Thomas, Zollars & Lynch.

Beyond that point, the rest of the money is taxed at the parent’s marginal income tax rate, Zollars said.

If an investment turns into a losing bet, the Internal Revenue Service will let taxpayers offset their gains with those losses. If there are more losses than gains, the IRS allows an annual capital loss deduction up to $3,000.

Related News  Biden campaign staff barred from trading stocks without approval — and no TikTok

That’s a tax buffer for the risks, but Mungavin and Zollars noted a kid might not have other income where they can apply the loss deduction.

If the brokerage account is owned by the parent, they said at least they’ll have the income and they can put the loss deduction to use.

“There’s much less downside protection give on the custodial account,” Mungavin said.

For more updates check below links and stay updated with News AKMI.
Life and Style || Lifetime Fitness || Automotive News || Tech News || Giant Bikes || Cool Cars || Food and Drinks


Show More

Related Articles

Back to top button

usa news wall today prime news newso time news post wall