Episode 3 | MITCH NIDERSTROS | Saving for Your Kids’ Future

How early should parents start saving for their children’s future? 👨‍👩‍👧‍👦

In Episode 3 of Beyond Your Money, host Mike Dukovich sits down with Mitchell Niderstros to discuss smart financial strategies parents can use to prepare for their children’s future.

From saving habits to long-term planning, they break down practical ways families can build a strong financial foundation for the next generation.

#BeyondYourMoney #YTSWealthManagement #FinancialPlanning #WealthManagement #SavingForKids #FinancialFuture #ParentingAndMoney

Disclosures

Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invest into directly.

Investing involves risk including loss of principal. No strategy assures success or protects against loss.

Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC.

Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.​

The principal value of a target fund is not guaranteed at any time, including at the target date.

Trump Accounts offer tax deferred growth on earnings. Family contributions are made with after tax dollars, and eligible employer contributions may be excluded from the employee’s taxable income. A one-time $1,000 federal contribution may be available for eligible children born between 2025 and 2028. Distributions are generally prohibited during the child's growth period and once permitted, are taxable as ordinary income and may be subject to a 10% IRS early distribution penalty if taken before age 59½. Contribution limits and other restrictions apply, and some rules remain subject to future Treasury and IRS guidance. Consult a qualified tax advisor or financial professional before making decisions.

Transcript

SPEAKER_00 0:08

And welcome to the latest edition of the Beyond Your Money Podcast. I'm your host, Mike Dukovich. Today I've invited our fellow partner and YTS advisor, Mitchell Niederstrass, to the show, and we're going to talk about something that is very near and dear to my heart as a father of three. And Mitch, I believe you have some children, right?

SPEAKER_01 0:24

Yeah. Yeah, one son.

SPEAKER_00 0:25

All right, one son. And we're going to talk about how we can save money for their future. So thanks for joining us.

SPEAKER_01 0:31

Look forward to being on it.

SPEAKER_00 0:33

So, Mitch, um, what we're going to talk about are the there's various ways of saving money for kids. And that could be for a parent or a grandparent or an aunt and uncle. You know, we get this question quite a bit. I have an extra dollar that I want to give to a child. What are the ways we can do that? A lot of people think there's one or two ways. Um, you know, there's there's really endless ways, but there's four main ways that I talk about with my clients at least, as far as how to put money away. And I I'm I presume you have the same uh experience.

SPEAKER_01 1:01

Yeah, yeah. There's uh about four different ways I think I I can think of off the top of my head. Um, you know, and depending on the goals that the client has, um, you know, when they want the child to have that money, things like that, what's the purpose of the money, you know, what is it going towards? Yeah. Um, you know, those all factor into that decision. But I'm right there with you. It's probably about four, I can think.

SPEAKER_00 1:22

Yeah. And and, you know, truth be told, a lot of parents want to be able to help their children financially. They want to be able to put money away. The first thing I always tell a client, whether it's uh usually a parent or certainly a grandparent, is rule number one, you want to make sure that you save for your retirement first. Okay, that's usually a rule of thumb for me. Um, you don't want to take that dollar that could be contributing to your retirement unless you know and you're fully comfortable with the fact that you're buttoned up. You know, if your financial plan needs help and that extra dollar can go towards you in your retirement, that's usually the first thing I talk about.

SPEAKER_01 1:56

Yeah.

SPEAKER_00 1:56

Don't even bother uh saving for the kids unless unless your financial plan is secure.

SPEAKER_01 2:01

100%. And that's one of the reasons uh when we first start working with a client, and even as we continue working with clients, um, we're constantly revisiting that financial plan to make sure, first and foremost, as you said, uh the long run uh retirement picture is set up and and ready to go and good to go. Um and from there, once you've established that you have that flexibility uh to look at the other goals, um, we can consider branching off onto things like saving for kids, right? Or insurance or whatever it may be. But yeah.

SPEAKER_00 2:31

So that's a huge point. Let's assume for the conversation we're gonna have today that we've already done that work, we've already done that analysis. These clients are buttoned up, the retirement plan looks great, and they have an an additional dollar they can do something with. Let's make that assumption moving forward. Okay, so um you mentioned it earlier. The word is goals. What are the goals? So, you know, I think when we're talking to a client about the money they want to give to a children, uh, a child, what is the goal? Is the goal for education? Is the goal for a wedding or a car? Is the goal for just rainy day fund? You know, so that's the first step. What are the goals um, you know, that that uh you're you want that money to accomplish? Let's assume um, you know, they just want something quick and easy, somewhere to put money, somewhere, you know, that's safe, available, accessible. Uh, usually the first place I talk about is is just a simple savings account or a checking account at the bank.

SPEAKER_01 3:24

Yeah, 100%. And I I think of that as being similar, uh, of course, uh in a banking form to just like your first piggy bank, right? So I know for my son, uh I have a piggy bank for him. I don't know if he quite understands that yet. Uh you know, he knows what it is, but doesn't know what it's for. Um similarly, as as as your child gets older, it's good to build uh financial discipline uh by ways of saving, right? And teaching those habits early to kind of embed that in them, at least as a father and as an advisor, those are uh kind of things that are important to me. So naturally I relay those things to clients. Um, but yeah, the savings account uh is really, you know, we think of that as a first step, right? It's it's getting money in an account, teaching your kid to save with some discipline. And then, you know, for current purchases, right? Things that are maybe coming on, coming up in the near future. Yep. Uh maybe uh, you know, your son or daughter wants to to buy a video game station or whatever it might be, right? Teaching them to sit, they have to save for those goals, not necessarily run to credit or debt or just go make impulsive decisions, I think is it's a good tool for those shorter term purchases.

SPEAKER_00 4:31

Yeah, absolutely. And it they're typically very easy to set up. Um they're typically at a bank, right? So you would have FDIC insurance on top of that. They're liquid, they're available, they're accessible. Um, now you're not gonna get any growth, right? You know, you're really not gonna have any investment opportunity there. It's it's more or less as you, you know, as you put it, it's a piggy bank. It's just now it's in a more formal uh way. And I love your analogy about the piggy bank. That's something um, you know, there was a point in my career when when um you know, it when there was a child born in a family, you know, one of the things that we did is we gave a book in a in a piggy bank, yeah, you know, to help clients teach that new child about saving and investing. So I I love that you're doing that as well. So, you know, that's that's one of the easier ways of doing it, just a traditional checking or savings account at the bank. You're at least starting to educate and and get them used to saving and putting money away. Absolutely. And I love that you're doing it with a goals-based approach. You know, do you want that, you know, a PlayStation or that Xbox or whatever they're you know, playing anymore? Yeah. Um, you know, and and this is a way to strive to achieve those goals.

SPEAKER_01 5:31

Yeah, and sometimes we'll have parents that receive money, maybe a lump sum of money, what we'll call it a tax refund, or um, you know, other various ways. Uh, and maybe they have an expense earmarked for their child, right? Whether it be hockey, travel team, or whatever, you know, things are expensive just for kids in general. Um, so it's a it's a good short-term way for parents to just kind of earmark and set money aside for maybe expenses they have to budget that specifically for their child, even if the child's not involved necessarily in the savings.

SPEAKER_00 6:01

Love it, love it. So um, you know, that's an option. You know, I I also um not I don't have any uh we'll say personal experience with these, nor do I have one to recommend, but I know there's several, but there are online apps, right? App-based services where you can set it up for a child where you can earmark money, it kind of flows through to this app. And now you're also teaching the child about, you know, just the digital finance. Um, and as I understand that you can save and invest in in certain ways there and are uh ultimately allocate certain dollars for certain expenses coming up. So, you know, there's a lot of new digital media type of investment tools that you can use. I can't recommend any uh specifically, but uh, you know, those are options as well.

SPEAKER_01 6:43

Absolutely.

SPEAKER_00 6:43

Let's talk about the elephant in the room when it comes to uh saving. This is kind of the second thing that we always talk about. Um, and and usually most of the time, this is one that I tend to recommend after assessing goals, and that's that's 529 college savings plan. So um a 529 college saving plan is a is a tax um benefit, okay, to those that are putting money in. And it depends on the state, okay, for for which you live. But for instance, in Pennsylvania here, the the giver of the dollar into the 529 plan does get a Pennsylvania state deduction for that. So there is a tax benefit on the front end. Uh, this money goes into a vehicle uh with a custodian, and there's all sorts of different custodians. Now they are tied to state plans. So they're kind of associated with a state. Um, you know, for instance, the American funds, uh, they are tied to the Virginia state 529 plan. Um, I believe John Hancock's plan is tied to Alaska's state plan. So depending on which custodian you go with, they are tied to a state plan, um, which is relevant with regards to your state tax uh deduction availability. Now, Pennsylvania, uh in Pennsylvania, it doesn't matter who you go with, you know, you can get that Pennsylvania state tax deduction uh from everybody. It's uh a reciprocal state in that regard. Um, but that money, again, that goes in, you get a tax deduction on the front end, you get to choose the investments. So, you know, you can have everything from very conservative to very aggressive. Uh, we can talk about that a little bit. That money will grow, you can add to it over time. And then theoretically, on the way out, if it's used for a qualified educational expense, it comes out tax-free. Okay. So there's a little bit of tax benefit on the front end, there's tax benefit along the way, and then it's tax deferred, and it's tax-free if it's used for qualified educational expenses. So this is a great way of putting money away for folks that have an educational mindset. Yeah. Is this something that you typically recommend as well?

SPEAKER_01 8:39

100%. And to your point, it's um, it's it's normally one of the top uh pieces of information we discuss when going through these strategies. Um quite honestly, the government has set these accounts up because, as I'm sure we all know, the cost of education is rising uh quickly and significantly. Yep. Um, and so how do you combat that, right? How do you how do you not only put money away but keep money growing uh towards that future goal of funding, at least part or for some people, all of that education, if that's a goal of theirs. And it's by uh means of investing, right? And so the 529 is really neat in that you can you know could create a custom allocation within there. Um, there's something called target date funds you can use within there.

SPEAKER_00 9:24

Let's let's talk about that. What what is a target date? Can you explain that?

SPEAKER_01 9:27

So target date fund, many of you have probably actually seen these uh in some way, shape, or form in your 401k plan. Um, many 529 providers uh allow access to something similar in their plan. The way it functions is uh while your child is younger, so let's say your son or daughter is just born, uh, you put money into a 529 within a target date fund. That fund is going to be more aggressive uh while that child is younger. So thinking of stocks to bonds, heavier allocation to stocks, not so much to bonds earlier on. The nice thing about that fund is it's gonna get more conservative as we approach the age of 18, right? Really when your child would start to have a need for these monies. Uh, and we want that because obviously there's volatility in the markets. Uh, we know that in the long term, that's how that's how you make money in the markets, right? Anything can happen on a short-term basis. So making sure that the investment is getting more conservative, uh more liquid as you reach closer to that goal, in this case 18, that's what those funds are designed for. And they're excellent tools, especially for hands-off investors, right? People that maybe don't know a ton about it, um, but want to make sure the money's in something that uh will grow, but you know, also be somewhat managed. Yeah.

SPEAKER_00 10:38

And it's appropriate and diversified as well. Yeah. Um, you know, I don't like using this term in our industry, but this is the one time I tend to use it when we're talking about target date funds, and that's set it and forget it. Yeah. Right. This is the one investment tool where you could comfortably feel that you are always in a good allocation because it's invested for a particular date. Yeah. And so that's a fine way of doing it. You can also do it to your point, a la carte, right? If you want to build a portfolio like that. Now, when we're talking about 529 plans, inevitably the the the first question that comes out of mom and dad's mouth or, you know, grandpa, grandma's mouth is what happens if Billy doesn't go to school? Right? What happens if Susie doesn't go to college? What what happens to that money?

SPEAKER_01 11:18

Yeah. Well, I I get that question all the time. Um, and you know, it's something even I think about myself because you you really, you know, as parents, you you um you can try to influence your kids one way or the other, but they're they end up being independent people and make decisions on on what they want to do with their life, right? And so it's something we have to consider anytime we look at these accounts. Um, up until really, I would say the last four or five years, restrictions are pretty tight on 529s, and really they are earmarked for education, right? Specific expenses. But the government has really broadened what falls under that umbrella now, right? So even things like trade school, right? So if your kid wants to become an electrician, a plumber, something more hands-on, doesn't really want to be uh in a four-year degree and kind of go through the the regular bookworks, um, you know, that route, then you know, trade schools are covered for certain qualified expenses now. K through 12. So maybe you have uh sending your child to a private school, right? We know that's expensive too. Sure. Um, books, um, room and board, tuition, even off-campus apartments up to, I believe, the amount uh that that can be charged on on campus. Yep. So these um plans are really have really opened up as far as flexibility goes on what they can cover, right? Uh, and then there has been very recent regist legislation put into place um, you know, for uh we'll call it kind of the ripcord, right? If if the child doesn't go uh to college and you have all this money saved, what do you do? Um now you're allowed to roll some of that money out to a Roth IRA. So instead of being education money, it can be geared towards retirement investments, still for your child and for their benefit. Um, I've had some families where maybe there's multiple kids involved and and we can actually change the beneficiary to another child on that 529. And and so there's a lot of ways to kind of combat that. Uh at the end of the day, it's it's there's no perfect solution for it, but the the legislation has certainly opened it up.

SPEAKER_00 13:19

There's uh without a doubt. I mean, it has gotten so much easier to to maneuver things, right? You you just mentioned the beneficiary change. That to me, in my practice, is probably the most common way we deal with that. Yeah. Where you know, Billy won't need it all or doesn't go to school or whatever. And so we just simply change his account to Susie, right? And so you just it's very easy to do. It's just a simple form. You can do that all day. Um, I've actually seen circumstances where grandma and grandpa um have 529s for the grandchildren. Billy doesn't go to school, so there's money left over, and they change the beneficiary from Billy's name to grandma's name, right? Because she takes uh you know, um uh knitting classes at the local uh you know community college. So she actually was able to use Billy's 529 account for her own uh bill. So it's pretty cool. So changing beneficiaries, very easy to do. Yeah um to your point, you know, there's a lot of costs, whether it's for K through 12, regular four-year schools, two-year JUCOs, grad schools, you know, more than likely there's gonna be some sort of educational need. So it's very flexible in that regard. The Roth rollover option is really cool, very new. Yeah, so there are restrictions. Um, but you know, that's an option now. Yeah. Um, also, if if if uh if Billy or Susie gets a scholarship or goes to the service, there's ways of getting money out of the 529 without any taxes or penalties in that regard, too. Um, but you know, ultimately to to that point, if the if none of these things occur, um and if you have to take that money out and it's not for a qualified educational expense, the worst case scenario is you would owe taxes and penalty on the gain. Right. So not what you put in, right? Not the contributions, but simply on the gain. So if you think about this, if you open up a 529 plan for Billy as soon as he's born, and that money has grown for 18, 20 years, 22 years, whatever, and there's money left over, um, you've had 18 to 20 some years of tax-deferred growth. That tax-deferred growth in and of itself is probably gonna take care of the taxes and penalty that you're gonna owe on that gain. So, um, in my opinion, if there's any remote possibility that this money is gonna be used for education, 529 plans with the tax benefits that you're getting and the investment flexibility, it's it's a great, it's a great way of going.

SPEAKER_01 15:31

I'm with you. I think it's an assessment of risk, right? So the risk of not doing anything and not having that money versus the potential chance of not being able to use it for anything, to me, it makes a lot more sense in most cases to implement the plan for the child.

SPEAKER_00 15:46

Um, one other thing I have seen too, and and this is um, you know, as I've grown in my career and our our clients are getting older and the students are getting older. Um, if Billy has money left in his 401k, for example, he's now 25, 26, there's still money in there. Maybe he gets married and has children. You can change it from Billy to Billy Jr. Right. And so now this 529 through the beneficiary change options, it almost turns into a generational educational account where it just has flown, you know, through through three or four generations potentially.

SPEAKER_01 16:15

And speaking of, I was just gonna say on the um, as far as generations go, something we see a lot in our practice, uh, we have a lot of grandparents that are interested in providing funding towards, you know, a grandchild, right? As far as education goes. So um that's something we see a lot. And I think, you know, grandparents are in a different stage of life. They've they've kind of made it a large, you know, long way into their retirement. Maybe retirement's not a concern. And more along the lines of gifting is, and so a lot of times parents and grandparents will work together. Up until a couple of years ago, grandparent owned 529s were somewhat frowned upon because of FAFSFA rules, uh, financial, you know, hurting the financial aid um eligibility. Now, uh with recent changes to financial aid, uh, it opens that up a lot more for grandparents to really be able to contribute uh towards a child's goals.

SPEAKER_00 17:05

That's great. And and um, you know, one one last thing on 520s, and we'll move on to another uh potential savings vehicle, but very flexible on who can contribute to it. Yes, right? You know, you could own it for your son, but really anyone can contribute into that 529 on your son's behalf. So pretty cool with regards to that as well. Absolutely. Um hypothetically, if a if a parent or grandparent comes to me and says, Hey, I want to I I want to put some money away for for Billy, um, but uh I I want it to be earmarked for something else. We have a specific goal, whether that's a car or a wedding or senior trip or something like that, that is, or or braces, right? You know, something that is specifically not school. One of the other vehicles that we have seen and used in the past, and and they were used more often, I think years ago, but it's a trust account, whether that's a UTMA or a UGMA, um, this is a trust account, right? That can be opened. Uh, it's actually owned technically by the child, okay, uh, but there's a custodian involved, or think of it as almost like a trustee, someone that's in charge of that account, someone that makes investment decisions on that account. Um, this is another vehicle where you can have open investment flexibility. So there you can pretty much, you know, invest in whatever you want. So there is that risk, you know, that we have to consider. Um, the investment decisions we have to consider. There's a little bit of a tax benefit in that that is the child's account. So theoretically, any income or thing, uh uh dividends, things of that nature that would uh that would be amassed in that portfolio flow through to the child. So there is a little bit of a tax benefit because theoretically the child's not working, doesn't have a lot of income. And it can come out of that account pretty much for anything, right? Anything for that child's behalf. And uh so so you know, there is a lot of flexibility with regards to that. Now, the one issue uh with these accounts, you know where I'm going. Main one, yeah. Yeah, the the main issue is is that age of majority, and it depends on the state, but here in Pennsylvania, that age of majority most of the time is 21. Yep. Okay. So at age of majority, that utma, for example, is no longer under the control of the parent or the guardian. It is now Billy's, yeah, right. And so this 21-year-old now has complete control, whether he knows it or not, whether the parents want that or not, Billy now has complete control of his Utma. Okay, so that's a concern for a lot of people.

SPEAKER_01 19:33

Yeah. I would say that's a pet peeve of mine, right? And everybody approaches this and looks at this a little differently. As far as our practice goes, I would say compared to other education or um child savings accounts, we probably have the least amount of utmas, and it's for this concern, right? Um, I was 18 once. Um you were 18 once, right? And I'm sure as all all as parents, we we know 18 is is the the legal age, right? And PA it's it's 21 for the Utma, so it's a little, it's a little further out. But um I was 21 once, too. 21 once, yeah. So, you know, kind of thinking about that and you know, knowing that you put money away for years and years, you've invested it, and that's your hard-earned dollars, right? Um, only to not really know what what your child will do with it, right? Maybe they do something very constructive, and so for some people, it's a good vehicle. Um, some people own it in tandem with a 529. We'll talk about that kind of stuff later. Yep. Um, but yeah, that that is why I think a lot of parents I talk to shy away from it, uh, just because that money is is the is the child's at and PA, it's it's age 21, and it's a little too soon for most people.

SPEAKER_00 20:42

Yeah. And as you might imagine, you know, I think every advisor that's been in the business for a little while has that horror story, so to speak, where uh mom or dad diligently put money into an UTMA and you know, everything is is good and gravy, and and we have some growth in there, and everyone expects you know Billy to grow up to be a responsible human being, a responsible adult. Uh, but at some point Billy finds out that that account is his and he takes it and does something really stupid with it. Yeah. And and you really can't do anything as the parent once that the the child reaches age of majority, it is theirs.

SPEAKER_01 21:16

Yes.

SPEAKER_00 21:16

Mom and dad have no control over it. So if Billy calls me and says, hey, I'm 21, give me my money, we have to give it to him. Right.

SPEAKER_01 21:22

Right.

SPEAKER_00 21:23

And so that's the one risk that you run with those Atmas or trust accounts in general, um, is you have no control once a child reaches age of majority. One one question I always get is, well, can I take it out and and move that money? And the answer is no. When when you're making a uh a contribution to one of these trusts, it's irrevocable. Yeah. And that money can only come out for the benefit of the child. So keep that in mind. If you want to have if you want to have flexibility on how you use it, you know, that's about as flexible as it can get.

SPEAKER_01 21:51

Right.

SPEAKER_00 21:51

But you also lose complete control at age of majority. So, you know, one of the ways I get around that, okay, is is is the fourth option. With regards to saving for kids. And that's simply by opening up a non-qualified account. I like to keep it in mom or dad's name or joint. Okay. But you earmark that. You you kind of have a an accounting, a mental accounting that that account is for Billy, right? It's in mom or dad's name or both. You can invest whatever you want. You can, you can, um, you know, there's no contribution limits or anything like that, like there are for 529s. Um, you can buy whatever you want, theoretically, from an investment standpoint. You can take it out for whatever you want. Uh, but the nice thing is, this is your account. This is mom and dad's account. You have just mentally accounted for that account to be Billy's. Right. Right. Um, we can actually also nickname that account. Yeah. Right. So that's mom and dad, but it's for the benefit of Billy.

SPEAKER_01 22:46

On your statement or on the online.

SPEAKER_00 22:48

So that you know that that account is is for the child. Uh, but what's nice about this strategy that you don't have in the Utma is that you have complete control forever.

SPEAKER_01 22:58

Absolutely.

SPEAKER_00 22:59

Right.

unknown 23:00

Yeah.

SPEAKER_01 23:00

And I'd say we compared to the Utma, have substantially more accounts that are that are simply just earmarked for children. Um, you know, whether it's alongside of $529 or just in general, um, this gives you the ability as the parent to say, well, maybe I want to, I want this to be for a college graduation gift, right? Yep. Um still the same investment flexibility to your point. Um, only somewhat of a downfall is that, you know, you're paying the the taxes for the interest and dividends at at your own tax rate, right? Which for parents, of course, having all the income on the return is is a little bit higher most of the time, of course. Um, but definitely something we use uh in our practice a lot more frequently than the UTMA account. The only other piece I would add to this, um, some parents talk to us about, you know, what happens if we pass away, right? And of course, we're always talking about maybe a topic for another episode, the legal or the legal documents side, estate planning side. Certainly you want to have those things in place that can help direct assets like this. But oftentimes we can have what's called a transfer on death designation on the account. And a lot of them actually enable you, because you know some parents will say, well, you know, if something happens to me, how is my five-year-old child going to receive the money? Um, but there's actually a way to name a trustee on there where we become similar to an UTMA account until the child is is of age to have the money. Um, so it's it's a way to earmark the funds, but also, you know, if something, God forbid, happens, a way to leave that money how it was intended to be for the child.

SPEAKER_00 24:32

And that's a great point. And that is a that is another topic. I um, you know, we're definitely gonna have to talk about just estate planning, but also incorporating trust language for you know minor children. Um, you know, we get asked about that quite a bit as well. So you're on the hook. You're gonna you have to come on again. Um, you know, last point on that uh just earmarked type of account, you know, in mom and dad's name, you know, there there were there's a great line. Uh I couldn't tell you who said it, but you know, there's a great line that sometimes the best kids account is actually with no kids' account at all. Right. Right? You you don't have the kid anywhere near that account, it's just earmarked for that. Yeah. So something to consider. Um, those are traditionally the four ways that I I tend to, you know, uh suggest to clients how to invest for kids. Again, just a traditional savings account, $529 account, the Utmore, the custodial account, and then just an earmarked type of taxable account. Is there anything else that you might consider?

SPEAKER_01 25:27

The only other thing I can think of would be what's called a Trump account. Oh getting a lower. We're going with the Trump account. Brand new. Brand, brand new. And we're getting a lot of questions on this from clients. Um, it's a new type of account, like you said, brand new type of account where we're still actually kind of getting deep more and more details as they've released the legislation. Um, but the general structure is, you know, for children born between certain years, I think it's 2025 and 2028.

SPEAKER_00 25:54

January 1st of 20, I have it written down just in case. January 20, January 1st of 2025 and December 31st of 2028. Those are the kids that are eligible for the account with the government benefit. Yep.

SPEAKER_01 26:08

Yeah. And so it's is actually a way to receive what's called seed money from the government. I believe it's through either a tax credit or some form of tax return that goes directly into this Trump account. Um, and it functions a lot like a like an IRA, right? Um, the account can be funded by a parent, uh, it can be used and grown towards uh more, I would say more retirement is when I look at these accounts, it is kind of where I see them setting up to work well. But there's other uses for them. Uh, we're still getting information. Of course, these are brand new, like you said, but something we'll definitely have our eyes on in the coming years.

SPEAKER_00 26:42

Yeah, I've gotten asked um a couple of times uh about this so far. Um, quite frankly, it's so new and it's evolving as we speak. So we almost have to punt, but there's gonna be certain custodians and only only certain custodians that are approved to do this. Um, you know, obviously there's a very narrow window of children that are gonna be eligible. Right. At least for the seed money. They're actually apparently you can be eligible to open the account at at broader ages. However, for the seed money, it's those dates we mentioned earlier. Exactly. Um, again, as I understand it, anyone can contribute to it, you know. So you can actually potentially have an employer can contribute to it as well. Uh, and it it grows tax deferred. And potentially, as they're saying, it could come out tax-free for various things. And and some of those funds, uh uh the funds can be theoretically used um for education, first home purchase, perhaps starting a business. Yeah, right. And so there's gonna be some really interesting things that these funds can be used for. So we're really on the cusp of these Trump accounts, um, as you know, as you're finding out, you know, that it's evolving. So uh, but it is something that we're probably gonna have, uh it's gonna be a new tool in our toolbox at some point as well. Yeah. Um, so you know, I think there's a lot of different ways to save for kids. The point is, you know, every dollar saved and invested is is gonna be better than not. Absolutely. You know, every dollar you can save and put away, it's better than not. Um, real quick, just to have a little fun with you, Mitch, since you're here and you know, um, let's play a quick little game, right? So I'm gonna give you a really quick scenario and maybe you tell me what what account you would use in that scenario. So um, you know, if if the parent wants full control and that's their only goal, they want to make sure they have control, which one would you go with?

SPEAKER_01 28:22

I would probably say an earmarked brokerage account. Um, you could also throw the 529 in there, maybe as well, uh, since it is technically in the parent's name, really for the benefit of the child, though. But to that question, probably the brokerage account that's earmarked.

SPEAKER_00 28:36

Fair fair choice, good answer. Um, what if you want to have um the most tax efficient vehicle?

SPEAKER_01 28:45

The 529 is definitely gonna be your go-to there. I mean, the money can grow if it's used for education expenses, qualified education expenses down the road, it can grow 100% tax-free and come out tax-free.

SPEAKER_00 28:57

How about if you want full flexibility for the child? You want to you want it to be able to be used for anything?

SPEAKER_01 29:02

I would say the UTMA is good for that because at that point it's gonna go to the child uh at the age of majority and that's theirs and they can use it for anything. So that's right, that's how I'd respond to that one.

SPEAKER_00 29:12

Okay, that's a good one. I guess that you know the uh the dedicated brokerage account could do that too. But you get a little bit of a tax benefit with the UTMA, you know, and that it's you know the child's tax uh tax code. Last one. What if you just you're just putting a little bit of money away and you're probably gonna need it back very shortly? Which one would you do there?

SPEAKER_01 29:28

We would go the piggy bank route or the savings account, uh, just short-term savings at the bank. Keep it liquid, keep it safe, um, just put it aside and and uh you can have it for short-term needs.

SPEAKER_00 29:39

Love it. Good answers. Yeah, there's no right or wrong answers. Um, but no, good answers.

SPEAKER_01 29:43

So I'll wait for my uh my score after.

SPEAKER_00 29:46

There you go. You're off the chopping. Yeah. Well, well, thank you. I appreciate your time and your and your expertise, your willingness to have a discussion. So um we'll have to get it get you on again. Yeah, thanks, dude. You're welcome. So um, once again, you know, the Beyond Your Money podcast is designed to help educate, inform, entertain, and enlighten our clients, just to help give our clients the tools and resources they need to make good financial decisions. Uh so again, it's your money, it's your life, take control.