My earliest memory of money is keeping coins in a glass piggy bank my parents kept on top of the refrigerator. Now that my own kids are getting old enough to be curious about money, I’m mindful of the early lessons my husband and I can teach them.
One choice we made early on was to set our kids’ money aside in their own accounts. UGMA and UTMA accounts are one way for parents to save for their kids’ future. In our case, these accounts reflect the financial values of respect, creativity, and generosity that we want to model for our children.
UGMA stands for Uniform Gifts to Minors Act, and UTMA stands for Uniform Transfers to Minors Act. UGMA and UTMA accounts are both custodial accounts, meaning an adult manages the account on behalf of a minor. They’re also both irrevocable, meaning whatever goes in belongs to the child, no take-backs. That’s in contrast to something like a 529 account, where you’re officially the owner and can change the beneficiary whenever you like.
The main distinction to keep in mind when choosing an UGMA or UTMA is that while both accounts can hold cash and securities (e.g., stocks, bonds, mutual funds), only an UTMA can hold tangible property like real estate, a car, art, or heirlooms.
The firm my family uses to manage investments made it easy to set up an UTMA, so all three of our kids have this type of account. But if you’re only putting cash or securities in the account, UGMA and UTMA are roughly synonymous.
Here’s why we did it the way we did.
Our kids are lucky enough to have loving grandparents and even great-grandparents in their lives. Holidays like birthdays and even Halloween mean a card in the mail, often with some money slipped inside for a treat.
The problem is, it can be harder than it seems to figure out what to do when your 3-year-old gets a $10 bill. Our kids aren’t really old enough to manage money on their own. I don’t like the idea of encouraging them to blow card money on candy, and if I tuck their $10 into my purse for safekeeping, I’m worried we’ll both forget whose money it was.
Our family’s solution is to contribute these occasional gifts to the UTMA account and buy treats for our kids the way we normally do from our own budget. It feels like a way to honor family members’ intentions to give the money to the kids, without pressuring little kids to come up with an excuse to spend.
Both my family and my husband’s put high value on a college education. The two of us have graduate degrees and expect that our kids will have a four-year undergrad education, if not more. Based on their 7-year-old and 4-year-old career aspirations (marine biologist and doctor), they’ll need that foundation to follow their dreams.
But it’s also true that plans change, and part of being a good parent is supporting your kids for who they are, not who you think they’ll be.
My kid might decide to take a gap year between high school and college to travel or volunteer. Maybe she’ll skip college in favor of starting her own business or following an opportunity to work with a mentor. Funds in an UTMA or UGMA account can help with that. Unlike a 529 that can only be used for educational expenses, UTMA/UGMA funds can go toward anything. Even if my kids do go the college route, they’ll need to pay bills and rent deposits to get established after they graduate.
Putting money in an UGMA or UTMA can build over time to help my kids on their path to new adulthood. It’s also a tangible reminder for me and my husband now, that we’re committed to supporting our kids whatever their plans turn out to be.
Money can tie deeply into values, and this can become especially clear when you’re starting your own family. My husband’s family in particular emphasized saving money to help launch their kids as young adults. My husband grew up putting money from allowance or summer jobs into accounts to use later, and his parents also contributed money into an UTMA account for him. By the time we were married and ready to start house hunting, his account had about $50,000 in it, which we used for our down payment. It was important to him to “pay it forward” and start building a nest egg for our kids’ future, too.
Right now, our girls’ accounts are nowhere near that kind of cash. Besides birthday money, we contribute a little extra, but it comes out to a few hundred dollars a year for each of them. We’re juggling plenty of other financial priorities — 529 savings, retirement savings, life insurance, managing a household budget with high inflation. Our kids’ future down payment isn’t the most pressing item on the list.
I’ve noticed, though, that even with the stock market taking a hit, the UTMA funds show an overall 18 percent return. Little bits at a time still grow, especially when our kids are young and time is on our side.
As our kids get older and we can have more complex conversations about money with them, we can use their accounts as a starting point to encourage them to save or talk about the basics of investing. We may also aim to increase our contributions in line with our budget. It would be wonderful to prepare a meaningful nest egg for each of our girls when they’re grown, but we don’t have a specific target figure in mind. What feels most important at this point is getting started, passing down a value my husband learned from his parents’ generosity and making progress a little bit at a time.
If you’re interested in investing money in your child’s name, an UGMA or UTMA account makes this possible while your kid is still too young to enter into financial contracts (like owning stocks). Here’s how to get started:
Review your other financial goals: Generally, an UGMA or UTMA shouldn’t come before financial priorities like saving for retirement, so make sure your budget allows for those contributions first.
Compare UGMA and UTMA options: You can open an UGMA or UTMA through various financial institutions and brokerage firms. Some companies may set different rules regarding minimum investments, so review options and choose one that fits with how much you’re planning to contribute.
Designate a custodian: Most likely, you’ll choose to be the custodian of your child’s account until they come of age.
Open the account: A benefit of UGMA and UTMA accounts is they’re simpler than setting up a trust, so you often won’t need to work with an estate planning attorney or draft legal documents from scratch.
Parents provide for their children in lots of ways. From dinners we hope they’ll eat, to summer camps, college savings, and more intangible things like values and self-esteem, we’re always mindful of what our choices give our kids.
For some families, an UGMA or UTMA account can be one more way to combine practical gifts and thoughtful plans and values for your child’s future.
Fabric exists to help young families master their money. Our articles abide by strict editorial standards.
Fabric by Gerber Life exists to help young families master their money. Our articles abide by strict editorial standards.
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