[UGMA] account for my kid to invest his own money?

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Topic Author
mc510
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[UGMA] account for my kid to invest his own money?

Post by mc510 »

My young teen has become interested in investing, probably just a couple of hundred dollars at first. It appears that I have to create a UGMA account for him, though he'll be using it in a way that differs from the way that they are usually described. Is there any issue with doing that? If he ends up putting most of his savings into this account and then decides that he'd like to buy a car or something before turning 18, can he withdraw the money without restriction or penalty (or, technically, can I withdraw on his behalf)?

My accounts are at Vanguard where I have Flagship status. Anyone know if Vanguard will be a good place for this tiny UGMA account, or recommendations about a brokerage that would be better? I haven't been able to find any information on Vanguard's UGMA account minimums, fund minimum purchase, account management fees, etc. FWIW my son is interested in buying shares of an index fund (or, I guess, an index ETF if that works out better).
Last edited by mc510 on Tue Dec 14, 2021 1:22 pm, edited 2 times in total.
dbr
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Re: UGTM account for my kid to invest his own money?

Post by dbr »

I don't think the rules for custodial investing are different than for anyone else opening an individual account. I could somehow be wrong but it doesn't seem like it would be.

As far as withdrawing money, the custodian has to do it and follow the reasonable rules for a custodian taking out the money. I'm not sure a person under 18 can even buy or own a car, but that might be different in different states.
Doc7
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Re: UGTM account for my kid to invest his own money?

Post by Doc7 »

Are you referring to a UGMA or a UTMA? I do not know of a UGTM.
aristotelian
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Re: UGTM account for my kid to invest his own money?

Post by aristotelian »

How young? Fidelity now offers a teen account that is a true individually owned brokerage account for 14+. The only difference is that parent has access for monitoring (not transacting). My kid uses it for the debit card, not yet for investing.
sidwin516
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Re: UGTM account for my kid to invest his own money?

Post by sidwin516 »

my kids have UTMA loved.com accounts and Fidelity UTMA. they can buy stocks with the accounts. easy platforms to use.
Topic Author
mc510
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Re: UGTM account for my kid to invest his own money?

Post by mc510 »

Doc7 wrote: Tue Dec 14, 2021 12:37 pm Are you referring to a UGMA or a UTMA? I do not know of a UGTM.
Whoops; I mean UGMA. I'll fix in original post to avoid confusion. Thanks for the correction.
dbr wrote: Tue Dec 14, 2021 12:30 pm I don't think the rules for custodial investing are different than for anyone else opening an individual account. I could somehow be wrong but it doesn't seem like it would be.
Makes sense, but too bad for me and my kid. If he starts off with $200 he won't hit the minimum to purchase any VG fund, or even one share of VTSAX ETF. Maybe I can find some non-VG SP500 fund with an ultra low minimum, or an index ETF with a sufficiently low share value (SPLG looks like an option). I'm also open to creating "his" account at a different brokerage, as long as there are no account management fees.
aristotelian wrote: Tue Dec 14, 2021 12:39 pm How young? Fidelity now offers a teen account that is a true individually owned brokerage account for 14+.
Shoot, mine has only just turned 13.
sidwin516 wrote: Tue Dec 14, 2021 1:08 pm my kids have UTMA loved.com accounts and Fidelity UTMA. they can buy stocks with the accounts. easy platforms to use.
Hmm, loved.com looks interesting ... no minimums or fees? Is there any catch?
Last edited by mc510 on Tue Dec 14, 2021 1:21 pm, edited 1 time in total.
dbr
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Re: UGTM account for my kid to invest his own money?

Post by dbr »

Why not start the account with a few thousand dollars so that a selection of possible ETFs can be purchased?
Topic Author
mc510
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Re: UGTM account for my kid to invest his own money?

Post by mc510 »

dbr wrote: Tue Dec 14, 2021 1:13 pm Why not start the account with a few thousand dollars so that a selection of possible ETFs can be purchased?
Well, just because that's a different sort of decision that we haven't thought about. Right now we're just dealing with the fact that he has a few hundred dollars of savings and is interested to invest some of it.
dbr
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Re: UGTM account for my kid to invest his own money?

Post by dbr »

mc510 wrote: Tue Dec 14, 2021 1:17 pm
dbr wrote: Tue Dec 14, 2021 1:13 pm Why not start the account with a few thousand dollars so that a selection of possible ETFs can be purchased?
Well, just because that's a different sort of decision that we haven't thought about. Right now we're just dealing with the fact that he has a few hundred dollars of savings and is interested to invest some of it.
It may be that it is just not practical to invest with a portfolio of a few hundred dollars.

Here is a list of Vanguard funds and ETFs with current price quotes. I am not sure about minimum amounts though:

https://www.mutualfunds.com/fund-compan ... ard-funds/
Boglegrappler
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Re: UGTM account for my kid to invest his own money?

Post by Boglegrappler »

Just as an FYI, its my understanding that certain taxable income in an UGMA or UGTM is taxable to the parents at their rate. There are thresholds below which it is taxed to the child. It's worth getting informed about this. The rules have changed back and forth a bit in recent years.

Good luck.
aristotelian
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Re: UGTM account for my kid to invest his own money?

Post by aristotelian »

mc510 wrote: Tue Dec 14, 2021 1:10 pm
aristotelian wrote: Tue Dec 14, 2021 12:39 pm How young? Fidelity now offers a teen account that is a true individually owned brokerage account for 14+.
Shoot, mine has only just turned 13.
My mistake, the Fidelity teen account minimum age is 13 so yours qualifies. https://www.fidelity.com/go/youth-account/overview
dbr
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Re: UGTM account for my kid to invest his own money?

Post by dbr »

Here is the Fidelity Youth Account brochure: https://www.fidelity.com/bin-public/060 ... ion%20fees.

I am a little confused how it is possible for a minor to engage in what appears to be a contract, but the brochure does detail the involvement of the parents including being legally liable.

We do know Fidelity is not an irresponsible fly by night operation.
shess
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Re: UGTM account for my kid to invest his own money?

Post by shess »

If the interest is in investing a few hundred dollars and watching it go, perhaps just buy the share yourself in your account? It has many of the same problems of not having enough to buy a full share, but you can always just round up to a full share and tell them they own a fraction of it. Just remember to allocate them proportionate dividends.

Yes, doing it this way it's "your" stock and not "their" stock. But, realistically, investments held by a minor in your care are effectively "your" investments in the sense that you are in charge and you can make decisions and you get the tax consequences. Later on you can just gift them their piece of the action, your choice as to whether to gift them the entire share or cash them out or whatever. Cashing them out is probably easier.

If your kid is the kind who just wants to stand back and think about it, that'll work. If they're the kind who wants to read Reddit and invest in Gamestop, there aren't any real solutions to give them the ability to bet their few hundred dollars entirely on their own, so they won't be happy with any solution you find for it.

[Don't ask about that last paragraph. See the two sentences? I have two kids.]
Doc7
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Re: [UGMA] account for my kid to invest his own money?

Post by Doc7 »

For what it is worth (not much)



My son is 6 years old and has an allowance of $4.50 a week in 3 categories: $1.50 each to Spending (toys), Giving (church/etc) and Saving.

Fidelity has a minimum recurring transfer of $10.

Therefore, I have an auto purchase set up in a UTMA Account of $19.50, on the first day of each calendar quarter, which buys a fractional share of the total market mutual fund FSKAX (which is 1.50 / week). Each month I log in and show him this account and compare it to the 2 other allowance (literal) jars that are sitting on the shelf, and talk about what owning a piece of a US company means.

Not sure that Vanguard doesnt have the same thing?

We just celebrated his account crossing $100.00.


All I need to do is once per year, log in and change the auto transfer amount if he's gotten a "raise" in his allowance.
sidwin516
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Re: UGTM account for my kid to invest his own money?

Post by sidwin516 »

mc510 wrote: Tue Dec 14, 2021 1:10 pm
Doc7 wrote: Tue Dec 14, 2021 12:37 pm Are you referring to a UGMA or a UTMA? I do not know of a UGTM.
Whoops; I mean UGMA. I'll fix in original post to avoid confusion. Thanks for the correction.
dbr wrote: Tue Dec 14, 2021 12:30 pm I don't think the rules for custodial investing are different than for anyone else opening an individual account. I could somehow be wrong but it doesn't seem like it would be.
Makes sense, but too bad for me and my kid. If he starts off with $200 he won't hit the minimum to purchase any VG fund, or even one share of VTSAX ETF. Maybe I can find some non-VG SP500 fund with an ultra low minimum, or an index ETF with a sufficiently low share value (SPLG looks like an option). I'm also open to creating "his" account at a different brokerage, as long as there are no account management fees.
aristotelian wrote: Tue Dec 14, 2021 12:39 pm How young? Fidelity now offers a teen account that is a true individually owned brokerage account for 14+.
Shoot, mine has only just turned 13.
sidwin516 wrote: Tue Dec 14, 2021 1:08 pm my kids have UTMA loved.com accounts and Fidelity UTMA. they can buy stocks with the accounts. easy platforms to use.
Hmm, loved.com looks interesting ... no minimums or fees? Is there any catch?
loved is simple. has a smart app. i tried buying and selling. deposit and withdrawal. it all worked. fractional shares and theme still etf. only downside no quicken auto download.
Topic Author
mc510
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Re: [UGMA] account for my kid to invest his own money?

Post by mc510 »

Thanks everyone, this give me some great options to look into! I'll report back on what we eventually select.
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Wiggums
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Re: UGTM account for my kid to invest his own money?

Post by Wiggums »

Doc7 wrote: Tue Dec 14, 2021 12:37 pm Are you referring to a UGMA or a UTMA? I do not know of a UGTM.
UGMA stands for Uniform Gift to Minors Act, while UTMA stands for Uniform Transfer to Minors Act. UTMA allows for more maturity time before handing to it over to the beneficiary (up to 25 years), depending on the state, while the UGMA matures at 18 years.

http://www.differencebetween.net/busine ... -and-utma/
"I started with nothing and I still have most of it left."
Topic Author
mc510
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Re: [UGMA] account for my kid to invest his own money?

Post by mc510 »

Thanks again to all. We are going to go with the Fidelity teen investing account.

Although my own money is at Vanguard, it offered little for my kid. He doesn't have enough money to reach the minimum investment in VG mutual funds, or to easily buy full shares of VG ETFs. He could buy non-VG mutual funds that lack hefty minimum purchases, but I couldn't think of any reason why he should do this at Vanguard.

Loved.com looked good on features, fractional purchases, lack of fees, but it offers only a highly curated selection of ETFs. They show a few on the web site and they're either managed or very specialized indexes, and they wouldn't send me the full list.

Fidelity checks pretty much all the boxes. Both the teen account and UGMA would work, and I couldn't think of any reason to do UGMA so teen account it is. I have mixed feelings about the debit card that comes with the account; I don't think that "spending money" and "investing money" should be in the same account, but we'll probably just tuck it out of the way for the time being.
thesandman
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Re: [UGMA] account for my kid to invest his own money?

Post by thesandman »

mc510 wrote: Tue Dec 14, 2021 12:24 pm My young teen has become interested in investing, probably just a couple of hundred dollars at first. It appears that I have to create a UGMA account for him, though he'll be using it in a way that differs from the way that they are usually described. Is there any issue with doing that? If he ends up putting most of his savings into this account and then decides that he'd like to buy a car or something before turning 18, can he withdraw the money without restriction or penalty (or, technically, can I withdraw on his behalf)?

My accounts are at Vanguard where I have Flagship status. Anyone know if Vanguard will be a good place for this tiny UGMA account, or recommendations about a brokerage that would be better? I haven't been able to find any information on Vanguard's UGMA account minimums, fund minimum purchase, account management fees, etc. FWIW my son is interested in buying shares of an index fund (or, I guess, an index ETF if that works out better).
Thanks for your follow-up email. I'm in a similar boat with my 10 year old. He's too young for the Fidelity teen account, so I will be going with the UGMA account and hopefully they have an option to convert to a teen account later
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