Many parents and guardians worry about saving for their children’s futures. Especially since the cost of college tuition has been rising even faster than inflation, ordinary savings accounts are becoming less and less attractive as vehicles to save for a child’s education and future expenses.
A common alternative, the trust fund, is also imperfect. Trust funds are expensive to set up, locking people of more moderate income levels out. But there is an alternative even to trust funds that negates this hurdle, making it accessible to the majority of Americans.
A Uniform Gifts to Minors Act (UGMA) account offers many of the benefits of a trust fund, without the high entry barrier. It allows a minor child to own property such as stocks, bonds, or real estate, in a trust managed by a custodian (who can be a parent).
UGMA accounts are tax-advantaged, and any money put into them is considered a gift to the child (so up to $15,000 per year is tax-free under the new tax laws). Income earned from assets in the trust are taxed at a special child rate; the first $1,050 is tax-free, and the next $1,050 is only taxed at 10%. Any amount above that is taxed at the parents’ rate.
Assets held by a UGMA account pass to the child upon reaching the age of 18, 21, or 25, depending on the applicable state laws. Their tax-advantaged status is extended for full-time college students up to the age of 24.
UGMA accounts can be set up by most banks and financial institutions, including American Homeowner Preservation. With our low investment minimum of only $100, it’s easier than ever to start giving a child you care about the gift of investment income. It’s also a great opportunity to start teaching them the value of investing, planning for the future, and compounding returns.
If you’re looking for a way to start saving for a child’s future, a UGMA is a great place to start. It’s also perfect for giving a gift that lasts longer than a new toy or gadget. Visit https://www.ahpfund.com/ugma to get started.
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