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Why a UTMA Account is an Awesome Way to Help Kids Save

When it comes to helping kids save money, there are just so many different options. Of course, you could go with the traditional savings account. However, those generally don’t keep up with the rate of inflation, so they will actually be losing money. There are also money market accounts and CD’s, which can be some other better options. And if your child has any earned wages, then you can open up a custodial Roth IRA for them. Roth IRA’s can earn the highest market returns of an average 8%. But, if they don’t have any earned income, you can’t use those types of accounts. This is where a UTMA account comes into play instead.

What is a utma account?

A UTMA account is a Uniform Transfers to Minors Act account. This is a custodial account that is for taxable investing. Which is slightly different than a Roth IRA account, in that anything your child withdraws from the account in the future will be taxed.

We opened all of UTMA accounts at Fidelity, since they are one of the few that have custodial accounts. Initially, we planned to open all of the Roth IRA’s and UTMA’s with Betterment, since that is where our Roth IRA’s are. But, we found out that they don’t support custodial accounts yet, so that wasn’t an option.

Since I had an old 401k with Fidelity, it just made the most sense to stick with them. Plus, their customer service is amazingly helpful. So, if you decide to open either a Roth IRA or a UTMA for your child, you can call them and they will walk you through the whole process.

HOw can it be funded?

UTMA accounts can be funded through any account you care to connect to it. They don’t have the restrictions that Roth IRA’s do when it comes to the funding or where it comes from. What this means is that you can attach any account with EFT (Electronic Funds Transfer) capability to each UTMA. Most banks won’t open anything other than a savings account for younger children, which don’t have EFT functionality, though. So, if you have younger children, you will probably have to fund their UTMA accounts with your own checking account.

Initially, we found out that some of the kids had savings bonds purchased for them when they were first born. Instead of just letting them sit there earning very little interest, we decided to cash them out and put the money into their UTMA accounts instead.

However, you can put money into these accounts at any time for any reason. So it wouldn’t just have to be from old savings bonds.

We also found that some grandparents like to give money for birthdays and holidays. Or they send us a check to get their gifts and we don’t spend all of it. So we have started putting that “extra” money into their UTMA accounts also. This way it will really help the kids in the future because they don’t even realize the money is there. And, they aren’t just getting more toys for us to break our toes on. Bonus for us!

With that being said, here are some ways you can think about funding your children’s UTMA accounts:

  • Old savings bonds
  • Extra birthday money
  • Allowance money
  • Side hustle money (kid’s lemonade stand, yard work, etc.)
  • Money for good grades
  • Gifts (just because)

teaching about investing

One of my favorite things about these accounts, besides how easy they are to fund, is that it helps us teach them about investing. Even the youngest one, at the ripe old age of 8, has found this to be a lot of fun.

Once you put money into the UTMA account, it just sits there in a money market earning basically nothing until you choose your investments. The kids can invest in mutual funds, individual stocks or ETF’s.

Teaching them the difference between the three is just the beginning of the lesson. Once they grasp the different types of accounts, then I let them find companies they are interested in. I had to explain what publicly traded meant a few times, but once they got that concept, they were on a roll.

After they wrote down a list of everything they were interested in, then came the extra fun part for me. I like for the child to see how certain assets are performing before they decide whether to pull the trigger or not. There are many different places to look up ticker symbols to find out how they are performing.

Marketwatch is a good one to start with because it is very in depth. But, if you can’t remember where to go, you can always just type in the ticker symbol in the Google search box and the first thing it usually pulls up is how the stock is performing.

I like to make sure the kids see how an asset has been performing for the past 6 months, 1 year and 5 years. A lot of times this has changed their mind about purchasing a certain fund because they don’t like how it has been performing.

I answer all of their questions to the best of my ability, but I don’t want to choose for them. This is a huge learning experience for them while they are young, so I don’t want to push them one way or another. After all, if they lose money on their choices right now, it won’t really hurt them financially in the future. So this a great time to get their feet wet.

utma account summary

Overall, opening up a UTMA account for your child is a great way to help save for their future. While these accounts are a bit different than Roth IRA accounts, they operate fairly similarly with rate of returns. These accounts have the potential to net your children some great interest on money they aren’t spending while they are young. Which means they have the opportunity to create a decent sized nest egg before they leave your nest.

Plus, you get to teach them about investing and the stock market. Which is a great lesson to learn while they are young. I know I wish my parents would have taught me more about it when I was younger, because I would have been a much savvier investor in my early twenties. But, you can’t change the past, only the future. And that is exactly what we are trying to do with our children by opening up UTMA accounts for them now.

Have you heard of a UTMA account or opened one up? If so, what has been your experience with them so far?

Have You Considered Buying Family Gifts for Christmas?

With the holidays quickly approaching, it is time to start thinking about gifts. At least, that is what is on our children’s minds right now. From our perspective, trying to figure out the best way to approach Christmas gifts for the kids without killing our wallet is always a fun game. So, we are considering buying only a family gift this year instead of individual gifts. Here is our thought process and how we hope it might help us save some money on the holidays.

Costs

This may not be the most cost effective way for every family to approach Christmas gift giving. But for us, as a family of 7, the holidays can get pretty darn expensive. My spouse and I don’t usually get each other anything, which helps reduce our costs. But, if we did decide to swap gifts, that would just increase the overall cost of Christmas in our house.

The usual average that we spend per child is $40 – $50, which equates to approximately $200 – $250. This doesn’t include anything for us, but if we did, that would tack on another $80 – $100. This being said, what we spend is still a whole lot less than what the average American spends on Christmas gifts.

These studies show a few different figures for holiday gift giving. The majority of us plan to spend more than $1000 on gifts, or somewhere around $885 per person. That is insane!

For us, on the path to financial independence (FI), that is just not something we can justify. But, for those of you who do spend that much on Christmas gifts, then the family gift could really save you some serious cash.

Family Gift Options

In order to save some of our hard earned money, the option of just one family gift we can all enjoy sounds appealing. It also means less boxes, wrapping paper, tape and bows. After all, those cost money too!

A few of the options we are considering are:

ASTC Membership

This membership has a passport program that lets you use it at museums all over the United States, and in a very select few other countries. If you have a membership near you, then you can get into all of the other museums listed on the passport program for FREE. On top of that, once you buy the annual family membership, you get into that museum for free whenever you want too.

They also send out special events and discounts specifically for ASTC members that you wouldn’t otherwise get.

The membership can range in price depending upon where you live and which museum happens to be closest to you. For us, we have 3 in our immediate area to choose from. They range between $85 – $140 for the annual membership and cover all 7 of us. We purchased one last year to Marbles and go there quite often now. Since each visit to the museum would cost us $5 per person, no matter what, we make our money back in less than 4 visits. And this doesn’t include all of the other museums we have been able to use our membership at to get into for free. I really love this option!

Trusted Housesitters Mini-Vacation

We have used Trusted Housesitters for two trips now and it has saved us a ton of money. If we can find something close enough to us that might only be for a long weekend, then this may be the way to go. Since we get to stay for free when we travel through Trusted Housesitters, the only things we would have to pay for are the extras. We always pack food when we travel, so that cuts down on the costs. Ultimately, this option would still probably be the most expensive though. My best estimate on costs would be somewhere between $200 – $300.

Ping Pong Table

Getting a ping pong table for downstairs is something we have been considering for a while now. It is something fun that we could all end up partaking in, and can be done when the weather isn’t as nice.

I have been leaning towards one that converts into a pool table also, so that it would be multi-function. I have found quite a few used options that range from $75 – $200. Therefore, this might be one of the top runners also.

Family excitement

Ultimately, whatever we get the kids for Christmas, they almost immediately forget about. The toys end up on the floor, or broken. The video games get old and then they are bored. They just don’t have the staying power. And, it really divides our family since they are all off doing separate things.

We continually try to find ways to unite us and keep our communication at a high level for more family unity. So the idea of getting one big family gift instead of a bunch of smaller individual ones appeals to us on all levels.

Plus, if the gift is something we can all do together, or enjoy together, then it creates more overall family excitement. Since the holidays are supposed to be a time to celebrate family and those you love, this idea just makes more obvious sense to us.

takeaway

Overall, it appears that it will cost us less money to buy one family gift for us to enjoy versus individual gifts for everybody. Plus, the family gift will be something we can all enjoy together to create more unity in our family, as opposed to separate us. Since we are always searching for ways to save ourselves more money and create more family cohesion, this seems like a win-win to us.

Have you considered buying a family gift instead of individual Christmas gifts? If so, what was your thought process behind the decision?

Holiday Gifts

One Fantastic Way to Save a Bundle on Holiday Gifts!

I don’t know about you, but as our family keeps getting larger so does the cost of our holiday gifts. Due to this, we keep coming up with more and more creative ways to pile more presents under the tree for less. Sometimes, this can be tricky, since all of the kids want everything they see, plus we have family to buy for. And this doesn’t even include the food! But this year, we found yet another way to save money and keep below our budget.

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My Favorite Things: Gift Ideas for the Holiday Season

Great Holiday Gift Ideas for Everyone
Great Holiday Gift Ideas for Everyone

As Christmas nears the corner and Hanukkah is in full swing, I thought I’d share a few of my favorite things for your holiday gift-giving list. Here at the Frugal Farmer household, we’re not much in favor of the “popular” gifts but prefer classics that will stay on your list of things to enjoy for a long time to come, so here they are. Check out the list and see if there’s anything below that might bring a smile to the recipients on your gift-giving list.  Read more