Uniform Transfers to Minors Act

I would like to support them further.

Where else can you do that? I put in things like 529 accounts, Roth IRAs for kids, UTMA accounts, or just general taxable accounts, allowance, giving the kids allowance or spending money.

All of those are competing for the same dollars that you'd put into a child IRA.

And so we've talked before about the waterfall, which maybe is not the best metaphor.

That might be just not that much, a thousand bucks here or there.

But I think that's important to have taxable accounts.

That could be in UTMA accounts that are for them.

So you can put money into there and use it for summer camps.

now as a minor you cannot open your own bank account on your own right you will have to have a parent sign on that bank account with you.

Most bank accounts for minors are going to be what's called a UTMA, a Uniform Transfers to Minors Act account, just meaning that, yes, it's your account, yes, it's your money, yes, the person signing for you, your custodian, is on that account, and they are the one that has legal ability to direct that account on your behalf.

but they have to do so in a fiduciary capacity to you, right? So they can't just like take your money out of your account, but they have to be on that account.

And so if you get like a physical pay stub, would you have to put it into a bank account? Like, is there anything else you could do with it or would you have to put it in a bank account?

What other kinds of investment accounts might parents consider for their kids?

So next up is two different types of custodial brokerage accounts, the UTMA and the UGMA, or Uniform Transfers to Minors Act and Uniform Gifts to Minors Act accounts.

You still with me?

I have to say UTMA and UGMA sound like, like two trolls under the bridge that you have to, like, solve these riddles three.

Do you get where I'm going with this?

Yes, absolutely.

Okay, so our friends UTMA and UGMA, they are custodial brokerage accounts [laughs], um, and, uh, they're invest- which means they are investment accounts opened and managed by parents on behalf of a child.

You can use them for medium to long-term savings.

And I'm going to read this one to you because it identifies exactly the problem I want you to understand.

It says, "Please note that if a beneficiary is a minor at the time of death of the insured, it may be necessary to delay the payment of the death benefit until a court appoints a guardian to manage the minor's assets." Before naming a minor as a beneficiary, we recommend consulting an attorney about your options, such as creating and naming a trust or designating a custodian for the minor's assets under your state's Uniform Transfers to Minors Act.

So think about what just happened.

My court-ordered parenting plan told me to name my minor child as the beneficiary, and my life insurance company is now warning me about the potential consequences of naming my minor child as the beneficiary.

This is exactly the disconnect I'm talking about.

And Protective doesn't just warn me, it actually gives me another option.

It asks whether I want to leave Oliver as the beneficiary or instead name a custodian under the Uniform Transfers to Minors Act, usually called UTMA.

UTMA is basically a way to leave money to a child while naming an adult to manage it for them until they reach age twenty-one.

Before we jump into the types of accounts to save for kids, I think people are kind of stepping back and thinking about, okay, now these Trump accounts exist.

How does that work within the realm of 529 plans, UTMAs, custodial accounts like Roth IRAs? Just adding one more account to this idea of experiential avoidance, right? So one more thing to optimize on the path to and through financial independence.

Sean and I recently wrote that book, Tax Planning to and Through Early Retirement, and there's two chapters focused on giving gifts to family, including minor children as well.

But before I wanted to jump into the nuts and bolts, we don't want the product to lead the plan.

And then lastly, only lastly, go into the optimization and the mechanics of, okay, we understand our motivations.

We understand our sufficiency.

And if at that point you decide, yes, we are still going to save for junior, whether for education or other purposes, then we can look at the mechanics, our choices, the 529, the Trump accounts, the custodial accounts, those UTMAs, UGMAs, the custodial Roth IRAs when they have earned income.

And then lastly, our own taxable brokerage accounts as parents and how we can understand the flexibility and restricted use of each of those accounts.