One For The Money

• Improving investment returns with time [01:56]
• UTMAs and UGMAs [03:43]
• Setting up a kid Roth [08:10]
• The power of 529s [11:54]
• Turning a 539 into a Roth IRA for your kids [15:35]

Money invested in the stock market should always be for the long term. The short term poses a high level of risk, while the long term yields significant rewards. The amount of time invested in the market profoundly affects returns, as it is the exponent in the compound interest formula. Compared to other factors, time has the most significant impact on investment returns.

Maintaining a healthy lifestyle through diet and exercise can add time to our lives, but we cannot go back in time and invest earlier. However, we can encourage our children to invest as soon as possible to increase their investment time horizons.

The Uniform Transfers to Minors Act (UTMA) is a law that permits minors to receive gifts without the assistance of a guardian or trustee. The gifts may include money, patents, royalties, real estate, and fine art. Children can receive these gifts directly without an additional step involving parents, guardians, or trustees. While most of these gifts are arranged by parents to provide assets for their children, some minors have a guardian or trustee instead. 

An extension to UTMA is UGMA (Uniform Gifts to Minors Act), which expands the types of assets you can give. While UGMA only allows financial products like stocks, bonds, and mutual funds, UTMA includes both financial and physical assets. Once the child reaches legal age, they no longer require a custodian and can spend the money as they please. The age they become legally independent is determined by their state of residence, usually 18 or 21 years old, but each state has the option to adopt and amend the UTMA.

A college savings account, also known as a 529, is a great investment option for our children’s future. Currently, the total student loan debt in the US is a staggering $1.7 trillion, making it the second-highest consumer debt category after mortgage debt. Surprisingly, due to government regulations and unintended consequences, Americans owe more money on school loans than credit cards and auto loans combined.

529s may seem simple at first glance, but they offer a range of benefits beyond their basic strategy. You can designate any person as a beneficiary and even save for future college expenses or for children who have not yet been born. Additionally, changing the beneficiary is allowed at any time. Parents and grandparents can start saving now to ensure a brighter financial future for their heirs, taking advantage of the power of compounding interest.

Securities and Advisory services offered through LPL Financial. A registered investment advisor. Member FINRA & SIPC.

• The Psychology of Money: Timeless lessons on wealth, greed, and happiness
• Uniform Transfers to Minors Act (UTMA): What It Is, How It Works
• UGMA-UTMA Account: The Benefits of One | Vanguard
• Meaning & Purpose in Retirement, Ep #6
• The Psychology of Money, Ep #13
• The Cost of College and How to Pay for It - Part 1, Ep #15
• The Cost of College and How to Pay for It - Part 2, Ep #16
• Congress Just Made Changes to Your Retirement… Again, Ep #31
• The Brass Tacks on Small Business Taxes - Part 2, Ep #36