4 Ways to Give a Young Child a Wealthy Future
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Hey, everyone, welcome back to finance friday. It's another special edition of money girl where I answer any burning money question that you have. And today, stop.

IT comes from Ashley sea. SHE left a great voice mail. E here IT .

is hi Laura. My name is actually, see, I can not thank you enough for all of the incredible content that you share with us. I am a thirty three year old new mom to a little six months old girl. I have a question or two question.

The first is trying to figure out how you can, through all the financial advisor to mayor, may not be produced ary, and ask question of them to know if they're going to be a good fit for you and give you honest advice. I think IT would be really helpful to hear how you can trust them through a few of questions that you ask and that you can ask multiple advisers to then compare. no.

And then the second question is, if I want to set up my daughter, SHE, six months told for financial future that enable her to have financial freedom, what are the accounts and strategy you you'd recommend so that I can get her up and running? So far i'm setting up a five twenty nine, and I know that there is a lot of parked with do legislation around converting five twenty nine, should he not? And going to school, i'd like to just hear you know how to be investing uh and in what kind of account open up. I really appreciate all of the work that you do for everyone who listens. Um you are contributing to a series of lives that uh are gonna Better off because of the education afford of all to have to thank you again.

Thank you so much for your generous words and great questions. Actually, first, this podcast will review several excEllent ways to invest for a Young child, giving them a secure financial future. Then i'll discuss how to find the right financial advisor.

I appreciate you listening to episode eight hundred eighty five of money girl. I'm Laura atoms and award winning author, financial speak, money spokesperson and consumer advocate. Please reach out to me if you're interested in in collaborating for a speaking event or P, R.

campaign. As always, you can reach me using my contact page at Laura d atoms dot com. That's also where you can sign up for my free newsletter called the money stack.

Subscribers get my money success tool kit, which includes a financial planning book and a personal financial statement calculator to assess your financial situation, eckles and track your wealth is a great tool to have at the end of the year, and definitely a great one for the new year. You begin planning. If you have a money question, i'd love to feature IT.

Here, you can send me an email using the contact page and Laura d atam. Stock com, or do what Ashley did in call three zero two three six four zero three zero eight. Okay, let's talk about four ways to make a Young child wealthy.

If you're apparent, saving for your own financial goals is essential before setting aside money for your kids. Of course, SHE wants the best for your children, but you also need to make wise decisions for your financial future. So if you can genuinely afford IT, we're gona cover four ways to invest for a Young child's future.

Okay, the first is to contribute to a five twenty nine plan opening. And regularly contributing to a five twenty nine college savings plan is a great way to pay a child's future education expenses. So i'm really glad that ashly mentioned doing that already is a good choice, since most families will have school expenses.

What I love most about a five twenty nine plan is that you can contribute on any schedule that you like, and you can choose investments from a menu of options like mutual funds or exchange traded funds. You can use the five twenty nine no matter how much you earn, and the maximum annual contribution limit depends on the plan you choose. But I could be over six figures per student depending on your plan.

Once you ve got money in the account, you can make tax free. Five twenty nine withdraws to pay qualified education expenses. So those are things like tuition fees, books, required equipment and room and board funds in a five twenty nine plan can be spent at us, are credited schools and certain foreign institutions.

For example, you could live in florida, participate in a new york five twenty nine plan and use the funds to send a child to college in california, or even thanks to the tax cuts and jobs act, you can also spend up to ten thousand dollars per beneficiary a per year tax for e on elementary and secondary school expenses. So that allows parents to withdraw funds for a Younger child attending a public, private or religious school. Note that funds in a five twenty nine belong to the owner, who is typically apparent.

M account can have one designated beneficiary. That's the future student. And to save for more than one child, you must generally open an account for each of them. However, you can also change a five twenty nine beneficiary to another family member, or even roll over funds to another five twenty nine trigger ing taxes.

Another new option created by the secure two point o act allows you to roll over unused five twenty nine funds to the beneficiaries, or auth I R A, if they qualify for one by having earned income. But there are several restrictions you have to follow. For instance, the five twenty nine must have been open for at least fifteen years, and the lifetime rolled over limit is thirty five thousand dollars per beneficiary.

Also, you can't transfer five twenty nine contributions or their earnings that were made in the past five years due to the benefits of a five twenty nine, including its tax advantages, flexibility and high contribution limits. It's an excEllent account to say for a child's education. Additionally, your five twenty nine funds are a smaller factor in the calculation for financial aid and some other options that will cover.

Now the main draw back of a five twenty nine is that if you would draw funds for non qualified expenses, you have to pay income tax, plus a ten percent penalty on the portion attributed to earnings. So you want to try not to put more in a five twenty nine then you believe your child will need for school. And if you have more money to invest, you want to use one or more options that i'm gonna cover next.

So the second way to make a Young child wealthy is to open a custodial account. In most states, minors can own investments or any financial products in their names. Therefore, you can only transfer assets to a minor if you create a trust or open a custodial account.

There are two types. One is called a uniform gift to minors act that gets shorted to A G, M, U, G, M, A. Or the uniform transfer to minors act, that is shorten to U, T M, A or ut ma.

So depending on where you live, will give you access to one or even both of these types of accounts. You can set up ugma or uma accounts at most banks and brow kurage firms. These are special accounts that allow you to make investments on behalf of a child, like buying neutral funds or even real estate.

The account gets held by a custodian, which can be apparent or even somebody else, but the account is illegally owned by the child. Parents can withdraw from a child's custodial account to cover expenses that benefit the child, like paying for the child's education or their health care. The account assets then automatically transferred into the child's name when they are an adult, which is usually at age eighteen or twenty one, depending on where you live.

The main benefit of using ugma or uma account is giving a child as much money or assets as you like. There are no annual limits or spending restrictions, plus a portion of the accounts investment earnings gets tax at your child's income tax rate, remember? And they technically illegally on the account.

So that can reduce taxes because it's getting tax that their lower tax rate rather than the parents, presumably higher tax rate. Since putting money in a custodial account is a gift from a parent to a child, IT comes with potential gift and estate tax implications. However, it's easy to avoid trigger ing the federal gift tax by contributing at most eighteen thousand dollars annually as a single taxpayer or thirty six thousand as a married couple.

If you file taxes jointly, those are the limits for twenty twenty four. Now you may not oh, give taxes. If you exceed those limits, however, additional amounts would count toward your lifetime.

Give tax exclusion limit and it's pretty high. It's thirteen point six million for twenty twenty four. So it's not likely that most people are going to exceed that, but you just do need to keep a record of IT if you exceed the the annual limits. Now the downside of ugma and uma accounts is that once the child to reaches the age of majority, parents have no control over how the child spends that also, custodial accounts are considered an asset of the child, as I mentioned, which means they are a more significant factor in the calculation for financial aid than accounts owned by a parent like a five twenty nine plan, plus, unlike a five twenty nine custodial accounts, don't receive any tax benefits.

So a kap dio account is a great option if you have more to invest for a child than, let's say, you know, they are going to spend on education and you aren't concerned about losing control of those funds once the child becomes an adult are the third way to set a childhood for success is to use a broken account. So let's say you do want more control over investments for a Young child than you would get with a custodial account. You want to consider opening a broken age account in your name.

You can always ear mark money in account for a child. That way, as the account owner, you can freely access the funds until you choose to give them to your child when they become an adult or whatever age you dem appropriate, or you can simply keep the account funds in your name and make a child the beneficiary of the account if you die. The flexibility is an upside of investing for a child in your own badge account.

The downside is you're going to be paying taxes on earnings at your tax rate rather than your child's tax rate. Remember that the custody account, you're able to pay taxes at the child's lower tax rate. And as I mention, you must be mindful of the gift tax rules.

If you give a burgers account to a child, you know, no matter their age, are in the fourth way to ensure the future wealth of a child is to purchase life insurance. In addition to investing for a child, you can also ensure their financial future by purchasing a life insurance policy. In fact, every parent should have life insurance so their minor children would be financially secure after their death.

Life insurance is a contract that pays one or more beneficiaries after your death. Depending on your budget in your needs, you can choose term insurance or permanent insurance. Term life insurance payer benfica aries, a cash benefit if you die within a particular time period, such as in ten or twenty years, but a permanent life policy covers you for your entire life, and IT may also accumulate a cash value that you could tap or grow for a child's benefit if you're relatively Young and healthy.

A half a million dollar twenty year term life policy, they cost you less than three hundred dollars a year. Now if you get life insurance through work, that's great, but you may need more coverage depending on your financial needs and your family size. Having life coverage equal to ten times your income is a basic rule of thun.

You may need more or less, or if you don't have any dependence, you may not need life insurance at all. Also remember that if you leave your job for any reason, your life insurance coverage at work ends. Therefore, it's wise to have your own life policy in addition to the coverage that you get through an employer.

The downside of vine life insurance is that IT typically only benefit your child once you die. However, if you choose a permanent policy that builds a cash value over time, you could have IT to pay expenses, such as for a child's education. So actually, like those are my top recommendations for accounts to use when you're thinking about investing for a child or securing the future of a Young child. The first ever key .

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Now let's talk about your other question about how to find a financial adviser. So before you choose a financial advisor, I want you to get familiar with the following types of advisors. Based on how they get pay.

You kind of need to understand the landscape. You've got commissions, advisors. They earn summer all of their income from third parties as sales people. For instance, if you buy a mutual fund through them, the adviser may receive a commission from the fund company, and they do have to give you suitable advice, but typically they are not fiduciaries working exclusively in your best interest. However, I want to make sure you understand that many financial products like life insurance, is always sold on commission through a licensed broker.

So paying a commission to an advisor isn't necessarily a bad thing as long as you understand if there's an a potential conflict of interest for you know what they're recommending for you. Another type are called the only advisers. These advisors earn money from services by charging an hourly rate.

They may charge a flat in your rate or even a percentage of your assets under manage called A U. M. The fee structures will vary by company of, for instance, some might charge one percent, some might charge up three percent of the total value of your reportable folio.

Obviously, the the lower the Better. For example, if you having one hundred thousand dollars report folio that they manage, a one point five percent v means you pay fifteen hundred dollars early for their management and advice. So that gives an advisor an incentive to grow your portfolio because the bigger of the portfolio, the larger their fee will be.

And there are other advisers who work exclusively with clients just to create financial plans charge a one time fee, uh, that's flat or maybe even hourly, ranging from a few hundred dollars up to a few thousand dollars, depending on which you need. Another type are fee based advisers. These actually combine a commission and a fee only model by charging a percentage to manage your portfolio and sell investments on commission.

Or they may charge a flat fee just to help you create a financial plan and they'll receive a commission if you purchase any recommended products. Again, what's important is understanding how your advisor gets paid and avoiding any potential conflicts of interest. They're also robot advisors, which are online investing platforms.

They typically offer low cost management using algorithms and preconstructed portfolios, typically of exchange strait funds or mutual funds based on your risk tolerance and investment goals. They also may provide human advisors for a fee or once report folio exceeds a limit. Another aspect of working with financial advisers that needs to be clarified is their various professional certifications and designations, which can you know sound really confusing.

But i'm going to go to the most common ones. You'll often hear registered investment advisors, or R I A. This is a common designation.

These folks are licensed to sell investments, and they are registered with the federal securities and exchange commissioner, S. C. Or even state authorities, R I S must act as your fiduciary, and they could be the only or fee based advisors.

You'll also see certified financial planners, or c fps. They must pass rigorous exams that cover many financial topics, including investing, retirement taxes, insurance and planning. They must have three years of qualifying work experience.

They have to adhere to a code of ethics and stay up to date by completing annual continuing education. In addition to C, F, P, S, you might also see chartered financial analysts or cfs. They must also pass exams covering investing, accounting, professional ethics, economic security analysis and portfolio management.

They must have at least three years of qualifying work experience, among other requirements. And you may also see chartered financial consultants or C F, they also must pass an exam that covers financial planning, investing, taxes, insurance and estate planning. And they have to have at least three years of qualifying work.

And lastly, most people have heard of certified public accountants or cpa. They must pass a rigorous exams in accounting, and they specialized in taxes and tax preparation. So which type of financial advisor is best for you depends on factors like how much do you have to invest, the products that you want and the services that you need, like investment management, business advice or tax preparation or all of the above.

Some investment advisers only work with high networks, individuals or preretirement es, but many advisers accept clients with smaller portfolios. So getting back to actually this question. How do you find a great financial advisor? This is a really tough question to answer because everyone's a little different.

Some people want to work with people in person. Other people are OK having a remote relationship. Actually, I would say to get recommendations from any of your friends, any of your family members who are working with a financial advisor that they really like.

So start asking around. You may be surprised that people say, oh yeah, you know, I have somebody that i've been working with and I think they're great. If you have no idea where to start, there are various organizations that you can visit online and even put in your zip code to return back um some of the professionals in your area.

So for instance, you might visit the national association of personal financial advisors, that's N A P F A dot work. There's also the certified financial planner board. And you might also check the garrett planning network, G A R R E T T.

All of those allow you to search for and verify the credentials of professionals in your area and nationwide. Now once you've got, let's say, a couple of people that you think, okay, these three people would be good. Just to start, you can research any advisor status and their background using the S, C, S.

Investment advisor public disclosure. And i'll put a link to that in the shower notes. You can also go to vinas broker check database.

That's a broker check da dot org. Again, that broker check F I N R A done org. That's an important step to ensure that no disciplinary actions or significant complaints were filed against somebody you're thinking about working with. You can also do a google search for a professional name plus words like complaints or their name and disciplinary action. So you know you can kind of do a little bit of just google searching to see if anything comes up that looks suspect.

Then once you've checked out a few people and they look good, i'm going to recommend that you meet with them either in person or over a video call, and you're looking to interview them just as much as they are looking to check you out. Now if you're married, you share your financial life with a partner. You should both meet with a potential adviser together. You want to be prepared to discuss your income, expenses, investments in your financial goals. I'm going to go through ten questions that you should ask each advisor and take notes about their answers, also maybe jump down notes about their personality and how they made you feel during the meeting.

Number one, what services do you offer or specialize? And if somebody says, you know that they only work with pre retirees or or that their specialty and you're a long way from retirement, you know, that may not be a good fat number two, do you have any account minimums to work with clients? Remember, I said there are a lot of advisers that will only work with you.

Few have, lets say, half a million or a million dollars. So find out right off the bat what is the minimum and will you satisfy that minimum? Number three, what types of clients do you typically work with? You want to make sure that they're working with people like you.

Are they working with people and you know they're twenty years and their thirties or are they only working with retirees and their sixties and seventies? Number four, what is your approach to financial planning? Leave this a very open ended so they can really kind of tell you from scratch how they're thinking about IT.

Are they somebody that is going to try to really watch the markets for you on a daily basis? Or are they thinking about investing for you over the long term? And the latter is.

Definitely where I would encourage you to be. So get a feel for what are they doing for their clients on a day to day basis and how are they going to help you achieve your goals. Number five, what are your professional certification? So remember all of those that I went through just find out where are they on that educational level.

Number six, how do you make money? Find out. Are they commissioned? You know, are they fee base? Are they a combination? Get them to really clarify for you how they're going to make money in your relationship.

Number seven, are you a fishy? Are there times you don't act as a so you want to make sure sure that you know somebody is going to be a fiduciary for you one hundred percent of the time? Number eight, how many times or how often would we meet annually? So find out what is their expectation?

Are they looking to meet with you once a year? Or they somebody that's gonna check with quarterly or monthly or even have more frequent contact? Number nine, what information would you need for me to get started? So if they're not asking you a lot of questions and really trying to understand your financial situation, you want to find out what you know.

What are they going to go off? What is important to them to get started? And number ten, are you available if I have questions or what I need to speak with somebody else so you want to find out, are they really going to be your adviser in your contact point? Or do they have an assistant you know that they are going to make you go through?

If so, you want to make sure that you meet with an other person and that they're qualified at sera. Um so just making sure that the person that you're speaking with is truly gonna be your contact anytime you have a question or a concern. Ash, I hope this helped you give your Young daughter a great financial head start and find a great advisor for yourself.

Remember, you can always change advisors or firms if a relationship turns out differently than expected, and no matter if you're just starting to invest or your approaching retirement, using an expert advisor can help you avoid many mistakes. Maxi zer returns and follow a sound financial strategy that's for now. I'll talk to you soon.

Until then, here's the living a Richard life money girl is a quick and dirty tips potest. I want to thank our amazing team, Steve Ricky burg, audio engineers. The show brand engagement is our director of forecast. Holy hutchens is our digital Operation specialist, Morgan Christians and is our advertising Operation specialist, deventer tAlland is our marketing and publicity associate and athenian l hoops is our marketing contractor.

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