A UTMA for Every Child

This past week I took my stepson (almost 15) to see One Republic, The Script and American Authors at Red Rocks Amphitheater in Morrison, Colorado, arguably one of the best concert venues in the world. It was a great show and we had a fun night especially with our seats in the fifth row. We could see the bands clearly and could see the facial expressions and audience interactions that seats much further back missed.

When we bought the tickets a few months back, I wanted to share the experience with my step-son. We went on Stubhub.com and through the tickets and finally picked them out. When it came time to buy, he noticed the price. He was a bit taken back when he saw the cost. Combined our tickets were over $300. I told him that it was okay and that I had saved up money for just these types of experiences. Over the past year I have talked with him about Things vs. Experiences. We lean toward the experience side, but I would like him to enjoy both to a degree.

The other lesson that I tried to instill in him is the need to plan ahead if you want to have things or experiences. The reason I was able to spend the money on the tickets was because I opened a Uniform Transfer to Minor Account or UTMA account for him when he was born. At the time, I began making small, $25 per paycheck contributions into his account. Over the years, depending on circumstances, I have had to stop or have been able to increase the contributions into his account. Steadily it has grown, and because of this I have been able to pay for some pretty nice things and experiences over the past few years. He has recently shown a desire to camp, which isn’t a cheap hobby, so this could get more expensive.

As we mentioned in our article We Live in a Bubble, many of our experiences have come from our fortunate careers in financial services over the past 18 plus years. I was able to interact with parents and grandparents who started gift accounts for their children and grandchildren and gave tens and hundreds of thousands of dollars to their grown children for college, for down payments on cars and homes. I distinctively remember one grandfather who put a note on the gift certificate that accompanied the account which read, “Don’t piss it all away!” This, of course made me laugh, but it is a good message. This is exactly what I would like to instill in my step-son.

There are many places you can open a UTMA account, from your local bank, mutual fund company or brokerage firm. There are tax benefits that allow the earnings to grow tax free up to a certain amount (the first $1000 of income as of 2007). There are drawbacks, too. The balance of UTMA will be used against your child’s ability to qualify for financial aid for college. For this reason, many parents spend the balance on the child prior to applying for college.

Contributions into a UTMA account are irrevocable gifts to the child, no matter what age. This means you cannot take the money back or spend it on yourself. You may be able to designate an age that the child takes ownership of the assets, but once they reach that or the age of majority in the state you set the account up, they become the owner. At that age, they can do what they want with the money. You only have control over how the assets are spent when you are the custodian of the account.

Who knows what we will do next with my stepson’s UTMA money, but now that he’s old enough I let him have a voice in the choice. I hope to use it as a teaching tool to help him become #MoneyConscious. We hope that you too can share this experience with the children in your life whether your children, nephews, nieces, grandchildren or some other child’s life you would like to improve.

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