Being a parent is a huge responsibility. Caring for your child from the time they are in the womb all the way through to adulthood… you always want the best for your kids. This is why it’s so important to think of and plan for their future. One of the best ways you can help your children is by investing in their future.
If you’re looking for an easy way to give your child a jump start, a great way to do so is by setting up a UGMA account. If you aren’t familiar with what that is, it stands for Uniform Gifts to Minors Act and let’s chat about it.
A UGMA account is an investment account that allows you, as the parent (or guardian), to invest on behalf of a minor. This investment will be held and managed until the child reaches adulthood. Even though the account is in the child’s name, the guardian will have control over the investments until the child reaches a certain age, typically 18 or 21. This age depends on your state regulations.
UGMA accounts have no income or contribution limits and no early-withdrawal penalties or restrictions on how the funds are used for the child. Basically, these are easy-to-open accounts used to invest in stocks, bonds, mutual funds, and more… all to give a child a better future.
A really nice feature of this type of an account is that family and friends can make contributions to the account. There are no contribution or income limits and contributions are made with after-tax dollars (meaning donors don’t receive an income tax deduction). However, please know that once a deposit has been made into this account, it is permanent. The transfer cannot be reversed once placed.
Have you ever had a family member say… I don’t know what to get “____” for their birthday or holiday gift? Having the ability to make deposits for your child can be a great option. Knowing they are investing in your child’s future would make a meaningful gift.
If there ever becomes an emergency for your child and he/she needs some money before they turn the age of majority in their state, you are allowed to make a withdrawal. There are no withdrawal penalties, but the reason has to be an expense that benefits the beneficiary.
If I piqued your interest in setting up a UGMA account for your child, you can easily do so through a bank or a brokerage institution. Happy saving!
*Please note: Since these assets are owned by the minor, they do count on their application for federal financial aid for college. This could potentially decrease their eligibility. How Does a Uniform Gifts to Minors Act (UGMA) Account Work? (investopedia.com)
This would be perfect for my oldest son.
ReplyDeleteIf I ever had children I would open a UGMA account for them.
ReplyDelete