A 2-year-old has $100,000 in the bank, is this smart investing?
- A two-year-old child has $100,000 in a UTMA account that will be accessible when they turn 18 or 21.
- The father lacks investing experience and is looking for guidance on how to manage and invest the money wisely.
- Investing in low-cost index funds and using advisory services from financial institutions are recommended approaches.
In recent months, a child who has just turned two years old finds themselves in possession of a substantial bank account totaling $100,000. This situation presents a challenge for the child's father, who lacks experience in financial investing. The child’s funds are managed under the Uniform Transfers to Minors Act (UTMA), which means that the money will be accessible to the child when they reach the ages of 18 or 21. The father is seeking advice on how to handle this money wisely and ensure that it will be beneficial for the child's future. One key aspect for consideration is the kiddie tax, a potential tax rule that could apply when the child begins earning income, which the father can prepare for over the years. To manage these finances effectively, various options have been suggested, including investing in low-cost index funds such as VT or VTI and taking advantage of services offered by reputable investment firms like Fidelity, Schwab, or Vanguard. The father’s commitment to learning about investing is vital, as it will set the foundation for his child’s financial understanding as they grow up. Thus, automated investment programs that direct funds from the father’s checking account into the investment account could provide an easy way to begin such an investment journey.