My Fiance Discovered a Secret Childhood Stock Account—What I Learned About Investing for Your Kids
My fiance's grandparents funded a custodial account for him in the 90s—a move which comes with major financial implications now that he's an adult.
TL;DR
- Children are increasingly becoming the "new investor class" through custodial accounts (UGMA/UTMA) and "Trump Accounts."
- Custodial accounts belong to the child and come under their control between ages 18-25, with funds usable for any purpose but subject to capital gains tax upon sale.
- Trump Accounts function like traditional IRAs, with funds controlled at 18 but subject to income tax and a 10% penalty for early withdrawal before age 59½ (with exceptions).
- Financial therapists and planners stress the importance of discussing finances early and often with children to avoid frivolous spending and ensure understanding of tax implications.
- Basic financial hygiene (spending less than you make, saving, investing) should be taught alongside specific lessons about investment accounts and compound interest.
- Understanding the power of compound interest and delayed gratification is crucial for children to make informed decisions about their financial future.
- Clear communication about the intentions behind investing for a child helps them align their inheritance with their personal goals, whether for retirement or homeownership.