How To Gift Your Kid 1 Million Dollars using an UTMA Account

The power of compound interest can help you gift your child $1 million on his/her 18th birthday. It sounds crazy, but if you start early (as soon as your child is born), it’s completely possible using a UTMA.

What is a UTMA?

Since minors can’t own assets (by law), a UTMA helps you get around it. This custodial account is owned and managed by you (the parent) and your child takes over the account when he/she reaches maturity – usually 18-years old.

You open the account as the adult and contribute for your child. You continue to manage the account until your child turns 18 and if you did it right, you should have close to $1 million to turn over.

How to Reach $1 Million

$1 million is a high goal, right? You’re probably thinking you’ll never reach that goal, but if you start from day one, it’s possible.

First, don’t put the money in a savings account. Sure, you could have a savings account for your child, especially to teach him/her about money and savings, but to save for your child’s future, you want an investment account.

Open a brokerage account as a UTMA and set a monthly contribution. If we use an average rate of return of 7% (this is low for current circumstances, but accounts for ‘downtimes’) you can contribute $75 a day or $2,250 a month to your child’s account and it will grow to $1 million on his/her 18th birthday.

If you wait until age 5, the number decreases 50%, meaning you’d have $500,000 saved for your child at age 18. That’s still nothing to sneeze at, but if you can afford to start right away, the compounded earnings will give your child $1 million to start his/her adult life.

Diversify your Account

Of course, there’s no guarantee your money will have the same return. It depends on the investment choices you make and how regularly you make contributions. The most important thing you can do is invest in a variety of assets including:

· Stocks

· Bonds

· ETFs

Also, diversify your investments in various industries. For example, don’t put all your money in technology stocks and bonds. Invest in a various industries throughout your assets so you have the best chance of a good return.

Bottom Line

It’s entirely possible to have $1 million saved for your child’s 18th birthday. It takes dedication, regular contributions, and careful monitoring of the account to ensure it’s on track. If you leave the funds untouched, the funds will grow and you’ll have a great nest egg to cover college and get your child off on the right foot in adulthood.

Keep in mind, once your child turns 18, he/she takes control of the funds – not you. Teaching your child throughout his life why you are setting up the account and what purposes you intended it for will help guide your child into the right decisions.