Today, I’d like to CONTINUE our video series on different types of accounts investors should open…
In this video, I will start covering accounts that may not be top of mind, but can be extremely beneficial for frum families with a range of wealth, lifestyle, and personal circumstances.
First, let’s discuss the UTMA or UGMA Account: A Uniform Transfers to Minors Account (UTMA) or Uniform Gifts to Minors Act (UGMA) is a custodial account that provides a straightforward way to transfer financial gifts to minors without the complexity of a formal trust. The specific type of account, UTMA vs UGMA, depends on your home state. These accounts are useful for parents, grandparents, and guardians to give money to a child and invest on their behalf. When the child reaches the age of majority, which differs by state, they gain full control of the account and can use the assets however they choose.
This is a wonderful way to save for a child’s financial future. Contributing birthday gifts, bar/bat mitzvah presents, and other monies over the course of nearly two decades, can lead to the child entering the adult world with a meaningful financial cushion to start a business, buy a home, or help pay down student debt.
I always ensure that clients realize there are no tax benefits to these accounts. Additionally, there are no parental controls, which do exist with certain trust accounts. If the child is irresponsible upon reaching the age of majority, the funds still belong to them, and they can spend it as they please.
I consider this account type a lower priority item compared to accounts that save for your own future. If you do not have enough funds saved for your retirement, it will be challenging to find a family member to support you during these years. It’s far more important to ensure you are securing your own financial future before giving to kids and grandchildren.
Next are the 529 College Savings Account: A 529 account is the optimal way to save for a child’s college tuition. The money is invested, grows tax-deferred, and if the funds are used for qualified higher education expenses no tax is paid on the gains from these investments. Furthermore, some states offer an in-state income tax deduction or credit for residents who contribute to their home state’s 529 plan.
While this is a very useful vehicle, for many frum families it is a low priority item. The big concern is affording yeshiva tuition in elementary and high school. Paying for college tuition has far more options, including scholarships, financial aid programs, going to a cheaper school, going overseas to university, and taking out student loans. Yeshivas offer fewer options and it’s important for parents to focus on affording these near-term tuition expenses before focusing on college.
While I suggest 529 accounts to many clients, I also emphasize that given all their financial obligations, it is much lower priority than various other goals.
In my next video I will cover trust accounts that many frum families may want to consider based on their goals and objectives.