April 2, 2025 • 35 mins
In this episode, Jess and Brandon dive into strategies to build significant wealth for your children through early and consistent investing, leveraging the incredible power of compound interest.
In this episode we discuss:
• Educational accounts like 529 plans
• Custodial investment accounts (UTMAs)
• Custodial Roth IRAs
• How business owners can employ their children for tax advantages
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
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(00:44):
In today's episode, we aregoing to talk about how to make
your kids millionaires.
We're going to discuss thingslike the power of time and
compound interest, the optimalaccounts for building wealth for
your kids, custodial IRAs,custodial brokerage accounts,
high-yield savings accounts, howto employ your children in your
business and so much more.
(01:05):
If you want to make your childa millionaire and build
generational wealth, thisepisode is for you.
Speaker 2 (01:21):
Hey babe, what are we talking about today?
Speaker 1 (01:24):
Today we are talking about making millionaires.
Speaker 2 (01:28):
More specifically, making your children
millionaires.
Speaker 1 (01:31):
Yes, building generational wealth and really
the importance of gettingstarted early, because time is
so, so, so important and we'vetalked about this a lot on
social media, in our newsletteretc.
It really is not a hugefinancial burden on you to start
(01:53):
early and to make your child amillionaire by the time that
they're ready to retire.
Us are kind of trying to setour kids up for generational
wealth and their retirement.
So we're looking at that 60year mark for them.
But you know, the more you cancontribute, obviously, the
faster you'll make themmillionaires.
(02:14):
But this is really thatconversation around making them
millionaires with $50 a month,with $100 a month, with a little
contribution here and there forbirthdays, holidays etc.
And we want to make sure thatyou understand it is attainable
to make your kids millionaires.
Speaker 2 (02:31):
Yeah, when it comes to investing, the number one
thing that's on your side istime.
The longer time horizon youhave to invest, the longer you
have of compound interestworking in your favor.
So, when it comes to your kids,the sooner the better.
It's going to benefit them somuch more as they get older.
And the thing is, too, is that,as just said, it doesn't take a
(02:52):
ton of money when you startearly.
Speaker 1 (02:55):
Yeah, really the starting early part is the most
important.
Who said, was it AlbertEinstein that said compound
interest is the eighth wonder ofthe world?
Speaker 2 (03:03):
That's what they said .
I've never actually looked upto see if that's legitimate,
because you know I can'tnecessarily believe everything
you see on the internet, but yes, Well, in compound interest
right it's it can have anegative effect.
Speaker 1 (03:14):
If we're talking about things like credit cards,
right, when you're literallybeing charged daily interest on
top of the previous amount ofwhatever your balance is and
then that literally compounds,so compound interest can be
negative.
We're going to be talking aboutthe positives of compound
interest and time, and that'swhat's going to actually
accelerate your contributions tomake your kids millionaires.
Speaker 2 (03:37):
Yeah, and I would assume that most parents out
there want to put their kids ina better place than maybe they
were in at their age.
So this conversation is goingto revolve around the small
things that you can do, because,you know, as millennials, we
are balancing our own financialneeds and financial constraints,
or whatever it may be, you know, in our lives.
(03:58):
But you can also do some ofthese small things to.
You know, help your kids, putthem in a better place, while
not sacrificing some of thethings that you need to do in
your own.
You know finances.
Speaker 1 (04:07):
Exactly.
We're like we're not puttingaway a thousand dollars a month
for each of our kids or anythinglike that, but we are
automating our contributions and, honestly, you know the amount
of money that we're putting awayfor them right now.
We don't miss that money and weknow when we do see that come
out.
Man, we are setting our kids upfor success so they don't even
(04:28):
know how good they have it.
Speaker 2 (04:30):
Yeah, so also.
The thing is, too, is kind ofshifting the conversation when
it comes to just your entirefamily.
So, especially when your kidsare young, they get so many
gifts, whether it's theirbirthday, christmas, whatever it
may be, they get so manyexcessive gifts that they don't
need and a month or two laterthey've forgotten about the toy
or whatever it may be,especially when they're little.
(04:52):
You know, think about when yourkids are maybe one or two years
old.
Speaker 1 (04:55):
They prefer just to play with the box, and a lot of
the gifts are kind of you couldput a marble in a water bottle
and they'll play with that forlonger than the expensive stuff
we've been buying them.
Speaker 2 (05:04):
Yeah.
So it's kind of shifting theconversation with your family
instead of, you know, maybegetting them all these gifts hey
, why don't you contribute totheir 529 plan, why don't you
contribute to their Upma account?
Because the reality is is thatwith these gifts, it's going to
have a much bigger impact intheir life when they're older.
Bigger impact in their lifewhen they're older when you have
(05:25):
grandparents or uncles that arecontributing to these accounts
that when they get older, thecompound interest on them is
going to help them maybe buytheir first home, maybe allow
them to not have to makedecisions about job choices
solely based upon incomestandpoint.
So it's having thatconversation with your entire
family, because we definitelyhave this conversation with our
family where the grandparentssometimes want to buy too many
things.
We're like, hey, let's kind ofhold back on all these little
(05:47):
toys.
They have more than enough toys.
Our kids have way too many toysand give money to these
different accounts so that oneit's going to be something
that's beneficial to them in thefuture.
But then also, along the way,we're going to have
conversations with our kids froma financial literacy standpoint
, as far as understandingpersonal finance.
Once they have a better graspof basic math, start
(06:08):
understanding compound interest.
So I'm going to sit down not I,we are going to sit down and go
over these accounts with ourkids and like, hey, this is what
investing in the stock means,this is what investing in an ETF
means, and teach them along theway so that they know
significantly more than we didat that age.
Speaker 1 (06:29):
Have you been listening to our podcast and
wondering how am I really doingwith my money?
Am I doing the right thingswith my investments?
Am I on track to reach myfinancial goals?
What could I be doing better?
If you answered yes to any ofthese questions, then it's time
for you to reach out to Brandonto schedule your free yes, I
said free 30-minute introductionconversation to see how his
(06:52):
services could help make you themore confident moneymaker we
know you could be.
What are you waiting for?
It's literally free and at thevery least, you'll walk away
feeling more empowered andconfident about your financial
future.
Link is in our show notes.
(07:24):
Go, schedule your call today.
Spend money on these big, lavishthings, make most of the
contribution to these accounts.
Or, you know, in some cases,experiences swim lessons, sewing
lessons, maybe it's a magazinesubscription things that you
know they're practicing theirreading, they're they're, you
know, upping their literacy, etc.
Experiences like museummemberships, you know all of
(07:47):
that is, I think, moremeaningful than just more stuff.
But even if you wanted, youknow all of that is, I think,
more meaningful than just morestuff.
But even if you wanted, youknow, to have them unwrap
something you know the dollar,the Dollar Tree is a great place
for that.
And then, like Brandon said,these accounts, when you can
tell them you know, hey, look athow much money you're going to
have by retirement.
You know.
Here's the importance ofgetting started early.
(08:08):
You can then teach them thoselessons and hopefully they'll
take that forward, because thatis truly how generational wealth
is built.
You can't just transfer themoney, you have to transfer the
knowledge as well.
Speaker 2 (08:19):
Yeah, so we're going to start with talking about some
of the different accounts thatyou can use to help accomplish
these goals, and the pros andcons and the specific reasons
for these different accounts.
All right, so first we're goingto start off with the 529 plan.
The 529 plan is an educationalaccount.
You're putting money away in anaccount where it's already been
taxed and it's growing, taxdeferred, which means you're not
(08:40):
paying taxes on it while it'sgrowing, and then when you pull
the funds out to use them forqualified educational expenses,
you are not taxed on any of thegrowth.
Speaker 1 (08:55):
So essentially kind of what it is is a Roth IRA for
educational purposes, and wehave an entire episode on 529.
So if you want to dig deep intothat account, definitely go
listen to that episode.
We'll make sure to link it inthe show notes.
I want to point out too,because one of my concerns quote
unquote with the 529 was well,what if our kid doesn't end up
going to college?
Or what if they end up gettinga ton of scholarships?
And because of the updates thatthey've recently made to 529s,
that no longer has to be aconcern of ours.
Speaker 2 (09:17):
Yeah.
So if you have any money in a529 plan that is unused
currently, you can roll over upto $35,000 into a Roth IRA for
your child, which couldessentially be a retirement
account for them to helpcontinuously growing tax free.
Speaker 1 (09:33):
And I do know, and you have to be, you know, you
have to really read the fineprint here but you can also use
the 529 for housing expenses,among other things.
So it's not just tuition, butyou just, you know again, read
the fine print, make sure thatyou're keeping all your receipts
.
But there are a lot of optionsfor how to use that money.
So if they get a bunch ofscholarships great, maybe they
(09:55):
want to live in an off-campusapartment.
There are options for that aswell, and I think even meal
plans.
Again, if you do it kind of theright way.
Speaker 2 (10:05):
Yeah, you just have to look at the specific details
on what is a qualifiededucational expense that you can
use a 529 plan for.
Now I also want to shift theconversation to currently with
people with student loan debt.
It is one of the biggest thingsthat is hindering our current
generation from being able tobuild wealth, because they have
these large student loan debtsand they have large monthly
(10:25):
student loan payments and thusthat money that otherwise could
be going towards investing isgoing towards paying off student
loans.
So one of the best things thatyou can do for your child is set
them up from an educationalstandpoint, where they don't
have student loans.
So, although this might not bein your thought process a
traditional wealth buildingaccount because you're putting
(10:45):
money into the account and thenyou're using it for educational
expenses what it will allow yourchild to do once they graduate
from college is that they don'thave student loan debt, so that
$1,000, $2,000 a month studentloan payment they will not have,
and they could put that moneytowards their 401k plan, towards
an IRA, towards accounts thatis going to help them in the
future as far as growing theirwealth.
Speaker 1 (11:12):
As somebody who has $100,000 of student loans or had
, and we're still paying on mystudent loans, yeah, that makes
a significant difference.
So if you can get your childthrough college or tech school
or trade school, whatever theireducational path is, without
them coming out with a bag ofloans, I mean talk about setting
your kid up for success.
Speaker 2 (11:29):
Yeah, I mean honestly that's one of the best things
you can do is that your childgoes to college.
You can get them throughwithout having any type of debt
once they come out.
Speaker 1 (11:38):
Yeah, and I mean, I have federal student loans still
left and the interest on thatis 6.8%.
So right now I'm trying tofigure out what to do with that.
And again it's one thing I'mjust like man when are we going
to be done with this?
I'm ready.
I'm just ready for my lotterywin, so I can pay this off.
Speaker 2 (11:57):
We don't even play the lottery, so it's going to be
kind of hard.
Yeah, that's true, that's goingto be difficult.
Speaker 1 (12:00):
Okay, let's talk about the UTMAs.
Speaker 2 (12:14):
I know we talk about for the custodial brokerage.
So we use an UTMA account,which stands for Uniform
Transfer to Minor Account, andit's a custodial brokerage
account, meaning that it is inyour child's name.
However, since they are a minor, you are on the account as well
and you are in charge of theaccount until the child is
either 18 or 21, depending onwhat state you're in.
So it works very much the sameas any type of you know other
investment account as an adultwould use.
Like I said, the difference isthat it's taxed a little bit
differently.
If you were to have any type oftaxable transactions in it.
(12:37):
It's taxed at a lower taxbracket since it's for your
child.
Speaker 1 (12:42):
Are there any drawbacks to an ETMA?
Speaker 2 (12:47):
The only drawback that I would say is that once
your child either reaches 18 or21, depending, only drawback
that I would say is that onceyour child, either reaches 18 or
21, depending on, what stateyou're in.
The account's theirs.
The account is theirs, itautomatically transfers over.
So you don't have any controlon that aspect.
Speaker 1 (13:09):
Now what I would say is, is that, hopefully, in that
scenario, what we're doing is isthat we are going to educate
our kids along the way so thatthey have the knowledge that is
needed to make good decisions.
What happens?
You know how sometimes peopleare like okay, add your teenager
as an authorized user on yourcredit card.
Don't even tell them, make acouple of transactions, pay it
off to help build their credit,that kind of thing.
Once the UTMA transfers to your18, maybe 21 year old, like
could you?
(13:29):
I mean what if you don't tellthem that it exists?
What?
What happens?
Speaker 2 (13:32):
Well, okay, so the difference is there is that one,
if you're doing any type oftransactions that trigger any
type of taxation like what.
Speaker 1 (13:43):
What would that be so ?
Speaker 2 (13:43):
for example, let's just say you invested in one
fund because the way that acustodial account works is that
the money that goes into ityou've already paid taxes on
while it's in the account andyou haven't made any type of
transactions that cause a taxevent.
You're not paying any taxesbecause you have unreal you
would have unrealized gains inthat scenario okay but if you
(14:03):
were to purchase one fund and ithas some growth and you decided
to you know sell that fund topurchase another one, that could
be a taxable transaction andyou would have to file the taxes
in that given year in order topay the realized gains.
Speaker 1 (14:18):
In that scenario, what if we're just doing a
standard S&P 500 index?
If you?
Speaker 2 (14:26):
don't make any changes to it, then there's no
taxation.
But the biggest thing is thatif there is any type of taxes
that are owed on the account ina given year, once the child is
18 or 21, they need to filethose with their taxes.
Oh, I see so they're going tobe sent the form regardless.
So even if you don't have anytaxable transactions, you might
get a 1099 for the account, justsaying, like you know, there's
(14:50):
no taxation on it.
You don't know any taxes.
Speaker 1 (14:52):
Okay Now could you still contribute to that account
, or?
Speaker 2 (14:56):
does it like your child, or does?
Speaker 1 (14:58):
it like lockdown.
Speaker 2 (14:59):
Oh no, you could.
You can 100% choose tocontribute to the account.
Speaker 1 (15:02):
Okay, I mean, obviously, I'm just kind of
talking through some scenarios.
Obviously, the ideal situationis you've been educating your
child along the way about thesevarious accounts, you've been
prepping them to make themunderstand that this account is
going to come to them at X ageand that the idea is that, you
know, you put a little bit ofbabysitting money, you put a
little bit of coaching.
Speaker 2 (15:23):
Referee money into that account?
No, we're not.
So we'll get to that.
We're not going to put thatmoney into that account.
Speaker 1 (15:29):
Oh, okay.
Speaker 2 (15:29):
Okay.
Speaker 1 (15:30):
All right, I'm just saying we want to continue to
fund the account.
Speaker 2 (15:35):
Well.
So the way that we use ourUpMoney account with our kids
and here's a real-world scenariois that you could contribute
$100 a month to the UpMoneyaccount from the day that
they're born.
So your child's born, youcontribute $100 each month.
If you're able to go ahead andautomate it, make your life
significantly easier.
Now let's just say youcontribute $100 a month for 18
years until your child is 18years old.
(15:55):
That means that you'vecontributed $21,600 over the
course of 18 years of thataccount.
However, at the age of 18, ifyou were investing it the entire
time in an S&P 500 fund andwe're going to use a rate of
return of 8%, very conservativethe account at 18 would have
$44,940.29.
(16:16):
All right.
Now, if you do not contribute asingle dollar more, only the
amount that you put in that$21,600, you don't contribute
anything else.
At age 60, that account isgoing to have a little over $1.1
million in it.
Speaker 1 (16:30):
I mean, that's significant.
Speaker 2 (16:32):
That's all awful You've only contributed $21,600.
Yeah, and that's the power ofcompound interest and starting
early.
As I said before, the numberone benefit you have to
investing is a longer timehorizon.
Speaker 1 (16:45):
So you interrupted me because you were going to say
they're going to be amillionaire even if you don't
contribute anymore.
Speaker 2 (16:50):
Well, I also interrupted me because you were
going to say they're going to bea millionaire even if you don't
contribute anymore.
Well, I also interrupted youbecause you were talking about
if your child is working andbringing in an income, what
account that should go into.
I would not put that into myaccount.
I would put that into acustodial Roth IRA for your
child.
Speaker 1 (17:03):
Oh, okay, can we talk about?
That Is that the account whereon Instagram it's like make,
make your baby a millionaire andlike make them an employee.
Speaker 2 (17:12):
Yes.
Speaker 1 (17:12):
Okay, yes.
Speaker 2 (17:13):
So if your child has some form of earned income let's
just say they have babysittingmoney, they work at Chick-fil-A,
whatever it may be if they haveactual earned income they can
contribute to a custodial RothIRA.
It's the same ideas like a RothIRA for an adult.
Only difference is this is fora child, so you know if they
have income coming in they couldcontribute the same.
(17:34):
You know maximum contributionthat you can as an adult up to
$7,000 into the IRA.
Now the difference is is thatif you try, if your child does
not have earned income, youcannot contribute to a custodial
Roth IRA for them.
Speaker 1 (17:45):
Follow the rules, people.
Speaker 2 (17:46):
So if your child is not working at all, you cannot
contribute for them to thisaccount is okay.
Speaker 1 (17:51):
Clarifying question is this a w-2 income or like
somebody you know?
You're helping somebody cleantheir yard and it's kind of
under.
Speaker 2 (17:57):
It doesn't have to be a w-2, okay, you do, but like
for the purpose of that, you dowant to keep clean records in
case, for some odd reason, thatthere is an audit.
Speaker 1 (18:06):
You know so if somebody, if like your son not
to be gender specific here, butlet's just say roman starts
mowing lawns, the idea would befor him to leave a lecture.
Speaker 2 (18:18):
So the thing I would do differently is that, since we
have more information, we havemore knowledge.
Speaker 1 (18:23):
If they want to have a business set up, to set them
up in an llc okay you can dothat I mean that feels like a
lot for like something he mightdo over the summers.
Speaker 2 (18:32):
What I'm saying is that well also, I want to use it
as a lesson also.
Speaker 1 (18:37):
Okay, Lots of lessons for our kids y'all.
Speaker 2 (18:39):
The thing is we have so much more access to
information and we know morethan our parents had access to
that's true.
So why not pass this down toour children at an earlier age?
So they have a significantlyhigher knowledge base than we
did.
So I would walk them throughlike, hey, if you want to start
it?
Like just also like not sayingthat they have to start a
business, but like walk themthrough what it would be like so
they have a betterunderstanding.
(19:00):
Like, hey, maybe this is a paththat I do want to pursue, you
know, but the idea here is thatif your child has earned income,
they can actually contribute toa custodial Roth IRA, and I
would recommend doing that overthe custodial brokerage account.
Reason being is that you havemore tax advantages with a Roth
IRA.
Speaker 1 (19:16):
Okay, what are those?
Speaker 2 (19:17):
There are no tax advantages with a custodial
brokerage account, not myaccount.
Speaker 1 (19:21):
Okay.
Speaker 2 (19:22):
So with the custodial Roth IRA it works the same,
where the money that you'reputting into it you've already
paid taxes on, so thecontributions have already been
taxed.
While it's in the account, it'sgrowing tax deferred.
You're not paying any taxes onthe growth and when you go to
pull it out in retirement, youare able to pull the money out
with no taxation on the growth.
Speaker 1 (19:41):
If needed again.
Just random question could youpull money out ahead of
retirement in either of theseaccounts?
Speaker 2 (19:49):
Well, with the Up the account, there are no
limitations to when you canaccess the money.
It's just like a regular adultafter-tax brokerage account.
Speaker 1 (19:56):
Okay.
Speaker 2 (19:57):
You have no restrictions on when you can
access the money.
Speaker 1 (19:59):
Okay, so that's a benefit?
Speaker 2 (20:00):
Oh, 100% a benefit.
And with the custodial Roth IRAit works the same way as a Roth
IRA, where you can have accessto the contributions because
you've already paid taxes onthat.
Speaker 1 (20:10):
Okay, just not the growth.
Speaker 2 (20:11):
Yeah.
So I mean like without penalty,yeah.
So another thing you mean likeyou're in college, you can 100%
use some of the contributionsthat you put in to pay for
college expenses, if you want to.
Speaker 1 (20:20):
Okay.
Speaker 2 (20:21):
All right.
Speaker 1 (20:22):
Okay, now when you were.
Speaker 2 (20:24):
I do want to point out one thing when you were
talking about the whole thing.
As far as you know, if you havea business owner, how to, you
know, hire kids?
This is one of the things thatpeople do do.
So, if you are a business ownerand you do have children, and
they're of a certain age,because, like you know, like
blue ivy going on tour withbeyonce.
Speaker 1 (20:40):
Yeah, that was 100.
Speaker 2 (20:42):
I guarantee you that was 100 strategic from a tax
standpoint yeah because ifyou're able to hire your child
into your business and, like Isaid, it has to be legitimate in
the sense of like you can'thave a one-year-old like running
your social media accountdidn't drake, have his kid like,
draw his album cover art it hasto be like what I'm saying.
It has to be legitimate inregards to what that child could
(21:02):
actually do.
Okay, okay, you know so.
For example, like if yourchild's extremely young, like
like, for example, with us withthe Sugar Daddy podcast, we
could use our kids in our socialmedia marketing and that would
be considered baby modeling andwe could pay them as part of our
business.
Now, the reason you do that isbecause if you're going to
contribute to any of these otheraccounts, why not contribute it
(21:23):
with money that is not taxed?
Yeah is not taxed.
So, for example, you canactually pay your child up to
$15,000 for 2025 if they'reunder 18 and they don't have to
pay taxes on that and the incomethat you're paying them is a
tax deduction for the business.
So it's 100% tax-free thatyou're able to have this money
(21:44):
and then you could put intothese various accounts, so you
could pay your child $15,000.
You could put the $7,000 into acustodial Roth IRA, because
they are working income, and theremaining amounts you could put
into the account.
Speaker 1 (21:56):
Oh yeah, and it's all tax free, yeah, so, and again,
you want to have proper recordsand have them listed as an
employee, I mean you definitely.
You don't want to cut cornershere.
Speaker 2 (22:07):
I always say set it up properly.
So, for example, if you aregoing to pay them on a biweekly
basis, you know they have theirown checking account, put them
on the payroll, pay on abiweekly basis, the same amount
into their checking account andthen from their checking account
.
Then you can go ahead andcontribute it to, whether it's
the custodial Roth IRA or theUpland account.
Speaker 1 (22:25):
Okay, For the custodial account and the Roth
IRA.
Where can people open these?
Speaker 2 (22:31):
You can open them at your Charles Schwab Fidelity,
your local bank.
Speaker 1 (22:38):
Okay, any recommendations?
Speaker 2 (22:40):
I mean, you know me, I'm a Charles Schwab guy.
That's where our accounts areat.
Yeah, okay, it's pretty easy.
I think they have a good userinterface.
They're pretty user-friendlyuser interface.
They're pretty user-friendlyand if you ever need customer
service, I feel as thoughthey've done a better job as far
as the customer serviceexperience than maybe some of
the other financial institutions.
Speaker 1 (22:56):
To be honest, Okay, no, that makes sense.
Speaker 2 (22:58):
And this is coming from somebody who has worked in
the back at Fidelity.
Speaker 1 (23:01):
Yeah, what do you say to the people?
You know a lot of people areopening up, like the debit cards
for their kids and high-yieldsavings accounts.
I know you have strong opinionsabout kids having high-yield
savings accounts.
Do you want to get into that?
Speaker 2 (23:16):
I think it starts with the goal of the money in
the account.
So if your child is savingmoney let's just say
hypothetically, your child is ineighth grade, ninth grade and
they want to start saving moneyup for a car, so they're going
to buy a car in the next maybethree, four years that money
shouldn't be invested becauseit's not a long enough time
horizon that I would recommendinvesting it so that money it's
(23:36):
a short-term goal coulddefinitely and should go into a
high-yield savings account.
All right, Okay.
Now, for example, example, ifwe're talking about money that
they have no intention of using,you're putting this away for
them to grow, for future usewhen they're older.
Not a high yield savingsaccount at all.
100 put that into an investmentaccount.
So if you're like I said that,100 a month, 100 a month that
(23:57):
you're saving for your child, donot put that into a high yield
savings account.
Right now we're getting youknow around four percent on a
high yield savings account,whereas you can at least double
that on a yearly basis in aninvestment account.
Speaker 1 (24:13):
So what about their?
Their actual spending money,though?
Right when it's like all right,maybe you're getting money for
chores, money for your birthday?
It is money that you know youdo want them to either save and
or have access to for spending.
Speaker 2 (24:27):
Yeah, well then that's going to be your high
yield savings account, becauseit's still a short term goal.
I always say that kind of likethe rule of thumb they have is,
if you are going to use thatmoney in less than five years,
you don't want to invest it.
Speaker 1 (24:34):
Okay.
Speaker 2 (24:35):
And if you're going to, you know, have a longer time
period before you're going toaccess it, then go ahead and
invest it.
Speaker 1 (24:41):
What about?
I know things are difficult nowtoo, because you know, I mean,
there's times where we would seeour parents like either writing
a check or spending cash.
Our kids only ever see a swipe,a card, so they don't really
see that tangible money exchange.
Do you have any thoughts on howto, like, teach them or keep
(25:02):
track of?
You know?
Hey, I have this amount,whether it's in a high yield
savings, maybe it is a debitkind of account, debit card kind
of account.
Speaker 2 (25:10):
The budgeting apps Okay, honestly, the budgeting
apps.
You know, if they have theirchecking account, they have
their savings account, you know.
Create a profile on one of thechosen budgeting apps, link the
accounts and they can see allthe information there.
Now, if you want to go oldschool and you know, show them
all that stuff, that's up to you.
I'm more of the mindset that Iwant to teach them the way that
(25:34):
it's actually going to be usedin real life.
Speaker 1 (25:36):
And which is going to be digital.
Speaker 2 (25:37):
Yeah, nobody's.
You know opening up theircheckbook and you know balance,
quote, unquote, balancing theircheckbook the old way, that's
just yeah, it's unnecessary.
So you can still teach them allthose lessons just utilizing
the technology that they wouldcurrently use.
Speaker 1 (25:53):
Are there any pieces of?
Speaker 2 (25:55):
I do want to say, like, maybe taking your child
into the bank once or twice,just show them how to actually
interact and ask for money andstuff like that, because I
definitely think, in a such adigital world with social media
and stuff like that, where wedon't have to have these
face-to-face interactions, Ithink there was something
definitely lacking in theirability to have these
interactions when needed.
So I think, hey, you know, ifyour child wants to buy
(26:18):
something, maybe take them tothe bank and have them just
simply withdraw the money ascash a time or two, just so they
could see what happens.
Speaker 1 (26:25):
Okay, yeah, I like that.
I think that makes sense.
Any advice for parents lookingto set up these accounts and,
you know, optimize, make surethey're contributing every month
, you know strategies.
Speaker 2 (26:40):
Well, the first thing is, you know kind of deciding
which account would work bestfor you, and that's going to be
based off of what your goal is.
So, for example, if you arelooking to put away money for
college education, thenobviously the 529 plan is
probably the way you want to go.
So you want to look at what arethe benefits of your state's
529 plan, because, as ourepisode earlier that we said we
have on 529 plans, I'd go listento that because it gives you
(27:02):
all the details of what youreally need to think about with
a 529 plan.
But the idea here is thinkabout your end goal and that's
going to help you determinewhich account is best for you.
Once you determine whichaccount is best for you, so
let's just kind of switch itover to.
We're going to do the UTMAaccount because it gives us a
lot of flexibility as far as youwant to choose your provider.
You know, are you going to gowith Charles Schwab or you're
(27:22):
going to go with Fidelity,whatever it may be.
All these accounts you can openup online and I it's a
step-by-step process and Ihonestly think it's a very
simple process Once you have anunderstanding of what account.
It is that you want to openhopping online.
Creating an online profile andopening up is very simple.
Speaker 1 (27:38):
Okay, Um what else?
I would also say automate it.
Speaker 2 (27:42):
So any type of contributions that you have,
because what I've run intosometimes is that people have an
idea in their mind like, oh, Iwant to contribute $200 a month,
but you're currently not ableto contribute that based upon
the money they have, and theydon't contribute anything.
And it's a weird phenomenon,but I've seen it enough that I
know that it's very common where, if you can contribute $25, $30
, $40, $50, something, $10,something is better than nothing
(28:06):
, and what you can do is thatyou can gradually increase that
as you are able to do so.
But, don't have this hard setnumber in your mind that you you
know.
I want to contribute $500 tothe account, but I can't do it
now, but I'm gonna wait until Ican.
Speaker 1 (28:19):
No contribute the $10 .
Speaker 2 (28:21):
You're missing out, like compound interest, is your
best friend in this scenario.
So anything that you couldcontribute and I would say, be
conservative.
So like, for example, if youyou know $25 and that $25 feels
fine after a few months, maybeyou can increase it.
But automate it to make yourlife significantly easier.
And I would also here's alittle little call out for
(28:42):
people that's a little bit moregranular.
Most people are familiar andthey hear about ETFs, exchange
traded funds and the reasonbeing is that they're very
inexpensive when it comes to thefees associated with
participating in that fund.
However, you cannot buyfractional shares of an ETF, so
ETFs have a price, just like astock has a price.
(29:03):
So, for example, an ETF maymaybe have to put $200 into it
to buy one share of that ETF.
I would recommend using mutualfunds for this.
Reason being is that you caneasily automate how much you
want to contribute to theaccount and then automatically
have it invested in, say, an S&P500 mutual index fund.
So it's one less step for youto do, because normally you have
(29:25):
to link your accounts and thecontribution can be automated
and it comes in, but it comes inas cash, and then you have to
take another step in order toactually invest it.
Speaker 1 (29:34):
That's the part where people get stuck and they've
been contributing and then thatlump sum amount of money has
been just sitting there in cash,which means it is not growing,
so you're not getting thebenefit of the compound interest
.
Speaker 2 (29:44):
It's even worse than not having it in a high yield
savings account.
Speaker 1 (29:47):
Oh yeah, oh heartbreaking.
We've heard heartbreakingstories about that.
Speaker 2 (29:54):
Yeah.
So what I would recommend doingis utilizing a mutual fund.
For that reason, because youcan buy fractional shares of a
mutual fund.
So if a mutual fund says that,in order to buy, a full share is
$100, if you put in $50, youcould buy 0.5.
You can't do that with an ETF.
Speaker 1 (30:08):
People have to select that when they set up the
account.
Speaker 2 (30:11):
Correct.
So when you set up the account,you can automate the amount
that you want to contribute on amonthly basis and you can also,
like you know, kind ofdetermine what day you want that
amount to be, you know, takenout of your account.
So you can kind of look at whatyour bills are what makes sense
.
But then you can take the nextstep and say, hey, this is the
fund that I want to invest inand we use, I use a S and P 500
(30:33):
mutual fund, um and uh indexmutual fund and you have to.
You can automate it so thatonce the money is contributed to
the account then it'sautomatically buys that fund.
Speaker 1 (30:43):
So it's not sitting there in cash.
Correct You're not missing outon the growth.
Speaker 2 (30:47):
Okay, so it's a call out because, like I said with
the ETFs, if you only have $50going in and the fund is $200,
you can't buy it.
Speaker 1 (30:54):
Yeah, so we did talk about obviously also asking for
gifts right, for birthdays,christmas, etc.
If your kids are going to beexpecting gifts or people want
to contribute in some sort of ameaningful way, this is
absolutely a way to do it.
We also talked about thatfinancial education piece,
(31:15):
especially with the accountwhere it's going to get handed
over at 18 or 21.
You just don't want to handsomebody a lump sum of money at
that point.
It's very likely that thatwould be the largest amount of
money that they've seen.
And they're like oh, I can goball out.
And no, you have to teach themlike, no, we're going to leave
this right here and we're goingto let it grow.
And here's the reason why.
Speaker 2 (31:35):
But also here's.
The reality, too, is that evenif you were handing over a large
sum of money to a 35 year oldthat has no financial literacy,
they're probably going to do thesame thing and blow the money.
Speaker 1 (31:44):
We've had those people on our podcast.
Speaker 2 (31:46):
It's not even necessarily the age thing, it's
the understanding and theeducation.
Speaker 1 (31:50):
Yeah, absolutely so.
The education is huge.
And then I know this issomething we've talked about and
again we've had an episode onbut making sure that these
accounts are protected in theevent of an emergency.
You know something happeningagain, building that
generational wealth and notletting it kind of slip through
(32:10):
the cracks.
So potentially putting theseaccounts into a trust, or what
do you recommend there?
Speaker 2 (32:16):
I mean, I'm not going to recommend anything at this
point because it depends on yoursituation.
Okay, and you're not an attorney, correct and so the trust you
know that can be beneficial, butalso just simply making sure
that you have the beneficiaryset up correctly on the account.
It's one of the things that Igo over with my clients on a
yearly basis just to make surethat all the beneficiaries on
all the accounts are updated andthey are accurate on who they
(32:39):
want to be the beneficiary.
So that can go a long way inand of itself.
Speaker 1 (32:42):
Yeah Again, want to be the beneficiary.
So that can go a long way inand of itself.
Yeah Again, especially ifyou've had changes in your
relationship, your partnership,maybe you are now divorced, et
cetera.
I mean, things change, soupdating your beneficiaries on
an annual basis is definitelyencouraged.
Speaker 2 (32:57):
And at the end of the day, like we want to stress,
doing something, just doingsomething, is significantly
better than doing nothing.
Speaker 1 (33:06):
You always talk about building that muscle too, right
, like even automating yourcontributions is building that
muscle.
Because now you know, hey, I'vegot $10, $15, $20, $100 coming
out of my account every month togo into this account.
Oh, I got a big pay raise or Ichanged careers, et cetera.
Now I can contribute 2% more,5% more, 10% more.
(33:30):
But you are getting into thathabit and what I will say is
when you do that, you're notgoing to look at this account on
a daily, weekly, monthly basis,but when you do log in to see
the account and you see whoa,I've contributed two, three
$4,000 in X amount of time.
You're not going to miss thatmoney, but you're going to be
very proud of the fact that youhave accumulated that and it
(33:51):
didn't really impact your day today.
Speaker 2 (33:54):
And think about how different your life would be if
maybe your parents, like ourparents, didn't have access to
this information.
So I don't fault them in thataspect, but think about, like,
if your parents had thisinformation, they did this for
you.
So, like you know, like I'mabout to be 42 years old, so if
my mom had done this, I couldhave almost half a million
dollars right now because ofthat, just simply because of
those, you know, those smallcontributions, and I mean I
(34:17):
wouldn't, it wouldn't be like Ican't, I don't, I'm not working
anymore.
I would still be working, butI'm not working anymore.
I will still be working, but itwould make a big difference in
regards to some of the decisionswe can make.
Speaker 1 (34:24):
But $500,000 sitting in an account now that we're not
trying to touch for X amount ofyears, that's a good starting
point.
Speaker 2 (34:32):
Yeah, so absolutely, and so, like any of you guys
listening to this episode, ifyou have any questions or
anything of that nature, pleasedo not hesitate to reach out to
me.
These are things that I help myclients out with all the time,
so if you need some help openingthe account, whatever it may-
be.
Speaker 1 (34:50):
You know.
Slide into our DMs, schedule anappointment whatever you need,
yeah, but if you have kids,hopefully you want to make the
millionaires build thatgenerational wealth bucket for
them and hopefully this episodewas helpful.
Make sure you share it with afriend or family member and we
will talk to you soon.
Don't forget.
Benjamin Franklin said aninvestment in knowledge pays the
best interest.
You just got paid Until nexttime.
(35:15):
Thanks for listening to today'sepisode.
We are so glad to have you aspart of our Sugar Daddy
community.
If you learned something today,please remember to subscribe,
rate, review and share thisepisode with your friends,
family and extended network.
Don't forget to connect with uson social media.
(35:37):
At the Sugar Daddy podcast.
You can also email us yourquestions you want us to answer
for our past the Sugar segmentsat thesugardaddypodcast at
gmailcom, or leave us avoicemail through our Instagram.
Speaker 2 (35:51):
Our content is intended to be used, and must be
used, for informationalpurposes only.
It is very important to do yourown analysis before making any
investment based upon your ownpersonal circumstances.
You should take independentfinancial advice from a licensed
professional in connection with, or independently research and
verify any information you findin our podcast and wish to rely
upon, whether for the purpose ofmaking an investment decision
or otherwise.
This episode is sponsored by Prenupscom.
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(00:44):
In today's episode, we aregoing to talk about how to make
your kids millionaires.
We're going to discuss thingslike the power of time and
compound interest, the optimalaccounts for building wealth for
your kids, custodial IRAs,custodial brokerage accounts,
high-yield savings accounts, howto employ your children in your
business and so much more.
(01:05):
If you want to make your childa millionaire and build
generational wealth, thisepisode is for you.
Speaker 2 (01:21):
Hey babe, what are we talking about today?
Speaker 1 (01:24):
Today we are talking about making millionaires.
Speaker 2 (01:28):
More specifically, making your children
millionaires.
Speaker 1 (01:31):
Yes, building generational wealth and really
the importance of gettingstarted early, because time is
so, so, so important and we'vetalked about this a lot on
social media, in our newsletteretc.
It really is not a hugefinancial burden on you to start
(01:53):
early and to make your child amillionaire by the time that
they're ready to retire.
Us are kind of trying to setour kids up for generational
wealth and their retirement.
So we're looking at that 60year mark for them.
But you know, the more you cancontribute, obviously, the
faster you'll make themmillionaires.
(02:14):
But this is really thatconversation around making them
millionaires with $50 a month,with $100 a month, with a little
contribution here and there forbirthdays, holidays etc.
And we want to make sure thatyou understand it is attainable
to make your kids millionaires.
Speaker 2 (02:31):
Yeah, when it comes to investing, the number one
thing that's on your side istime.
The longer time horizon youhave to invest, the longer you
have of compound interestworking in your favor.
So, when it comes to your kids,the sooner the better.
It's going to benefit them somuch more as they get older.
And the thing is, too, is that,as just said, it doesn't take a
(02:52):
ton of money when you startearly.
Speaker 1 (02:55):
Yeah, really the starting early part is the most
important.
Who said, was it AlbertEinstein that said compound
interest is the eighth wonder ofthe world?
Speaker 2 (03:03):
That's what they said .
I've never actually looked upto see if that's legitimate,
because you know I can'tnecessarily believe everything
you see on the internet, but yes, Well, in compound interest
right it's it can have anegative effect.
Speaker 1 (03:14):
If we're talking about things like credit cards,
right, when you're literallybeing charged daily interest on
top of the previous amount ofwhatever your balance is and
then that literally compounds,so compound interest can be
negative.
We're going to be talking aboutthe positives of compound
interest and time, and that'swhat's going to actually
accelerate your contributions tomake your kids millionaires.
Speaker 2 (03:37):
Yeah, and I would assume that most parents out
there want to put their kids ina better place than maybe they
were in at their age.
So this conversation is goingto revolve around the small
things that you can do, because,you know, as millennials, we
are balancing our own financialneeds and financial constraints,
or whatever it may be, you know, in our lives.
(03:58):
But you can also do some ofthese small things to.
You know, help your kids, putthem in a better place, while
not sacrificing some of thethings that you need to do in
your own.
You know finances.
Speaker 1 (04:07):
Exactly.
We're like we're not puttingaway a thousand dollars a month
for each of our kids or anythinglike that, but we are
automating our contributions and, honestly, you know the amount
of money that we're putting awayfor them right now.
We don't miss that money and weknow when we do see that come
out.
Man, we are setting our kids upfor success so they don't even
(04:28):
know how good they have it.
Speaker 2 (04:30):
Yeah, so also.
The thing is, too, is kind ofshifting the conversation when
it comes to just your entirefamily.
So, especially when your kidsare young, they get so many
gifts, whether it's theirbirthday, christmas, whatever it
may be, they get so manyexcessive gifts that they don't
need and a month or two laterthey've forgotten about the toy
or whatever it may be,especially when they're little.
(04:52):
You know, think about when yourkids are maybe one or two years
old.
Speaker 1 (04:55):
They prefer just to play with the box, and a lot of
the gifts are kind of you couldput a marble in a water bottle
and they'll play with that forlonger than the expensive stuff
we've been buying them.
Speaker 2 (05:04):
Yeah.
So it's kind of shifting theconversation with your family
instead of, you know, maybegetting them all these gifts hey
, why don't you contribute totheir 529 plan, why don't you
contribute to their Upma account?
Because the reality is is thatwith these gifts, it's going to
have a much bigger impact intheir life when they're older.
Bigger impact in their lifewhen they're older when you have
(05:25):
grandparents or uncles that arecontributing to these accounts
that when they get older, thecompound interest on them is
going to help them maybe buytheir first home, maybe allow
them to not have to makedecisions about job choices
solely based upon incomestandpoint.
So it's having thatconversation with your entire
family, because we definitelyhave this conversation with our
family where the grandparentssometimes want to buy too many
things.
We're like, hey, let's kind ofhold back on all these little
(05:47):
toys.
They have more than enough toys.
Our kids have way too many toysand give money to these
different accounts so that oneit's going to be something
that's beneficial to them in thefuture.
But then also, along the way,we're going to have
conversations with our kids froma financial literacy standpoint
, as far as understandingpersonal finance.
Once they have a better graspof basic math, start
(06:08):
understanding compound interest.
So I'm going to sit down not I,we are going to sit down and go
over these accounts with ourkids and like, hey, this is what
investing in the stock means,this is what investing in an ETF
means, and teach them along theway so that they know
significantly more than we didat that age.
Speaker 1 (06:29):
Have you been listening to our podcast and
wondering how am I really doingwith my money?
Am I doing the right thingswith my investments?
Am I on track to reach myfinancial goals?
What could I be doing better?
If you answered yes to any ofthese questions, then it's time
for you to reach out to Brandonto schedule your free yes, I
said free 30-minute introductionconversation to see how his
(06:52):
services could help make you themore confident moneymaker we
know you could be.
What are you waiting for?
It's literally free and at thevery least, you'll walk away
feeling more empowered andconfident about your financial
future.
Link is in our show notes.
(07:24):
Go, schedule your call today.
Spend money on these big, lavishthings, make most of the
contribution to these accounts.
Or, you know, in some cases,experiences swim lessons, sewing
lessons, maybe it's a magazinesubscription things that you
know they're practicing theirreading, they're they're, you
know, upping their literacy, etc.
Experiences like museummemberships, you know all of
(07:47):
that is, I think, moremeaningful than just more stuff.
But even if you wanted, youknow all of that is, I think,
more meaningful than just morestuff.
But even if you wanted, youknow, to have them unwrap
something you know the dollar,the Dollar Tree is a great place
for that.
And then, like Brandon said,these accounts, when you can
tell them you know, hey, look athow much money you're going to
have by retirement.
You know.
Here's the importance ofgetting started early.
(08:08):
You can then teach them thoselessons and hopefully they'll
take that forward, because thatis truly how generational wealth
is built.
You can't just transfer themoney, you have to transfer the
knowledge as well.
Speaker 2 (08:19):
Yeah, so we're going to start with talking about some
of the different accounts thatyou can use to help accomplish
these goals, and the pros andcons and the specific reasons
for these different accounts.
All right, so first we're goingto start off with the 529 plan.
The 529 plan is an educationalaccount.
You're putting money away in anaccount where it's already been
taxed and it's growing, taxdeferred, which means you're not
(08:40):
paying taxes on it while it'sgrowing, and then when you pull
the funds out to use them forqualified educational expenses,
you are not taxed on any of thegrowth.
Speaker 1 (08:55):
So essentially kind of what it is is a Roth IRA for
educational purposes, and wehave an entire episode on 529.
So if you want to dig deep intothat account, definitely go
listen to that episode.
We'll make sure to link it inthe show notes.
I want to point out too,because one of my concerns quote
unquote with the 529 was well,what if our kid doesn't end up
going to college?
Or what if they end up gettinga ton of scholarships?
And because of the updates thatthey've recently made to 529s,
that no longer has to be aconcern of ours.
Speaker 2 (09:17):
Yeah.
So if you have any money in a529 plan that is unused
currently, you can roll over upto $35,000 into a Roth IRA for
your child, which couldessentially be a retirement
account for them to helpcontinuously growing tax free.
Speaker 1 (09:33):
And I do know, and you have to be, you know, you
have to really read the fineprint here but you can also use
the 529 for housing expenses,among other things.
So it's not just tuition, butyou just, you know again, read
the fine print, make sure thatyou're keeping all your receipts
.
But there are a lot of optionsfor how to use that money.
So if they get a bunch ofscholarships great, maybe they
(09:55):
want to live in an off-campusapartment.
There are options for that aswell, and I think even meal
plans.
Again, if you do it kind of theright way.
Speaker 2 (10:05):
Yeah, you just have to look at the specific details
on what is a qualifiededucational expense that you can
use a 529 plan for.
Now I also want to shift theconversation to currently with
people with student loan debt.
It is one of the biggest thingsthat is hindering our current
generation from being able tobuild wealth, because they have
these large student loan debtsand they have large monthly
(10:25):
student loan payments and thusthat money that otherwise could
be going towards investing isgoing towards paying off student
loans.
So one of the best things thatyou can do for your child is set
them up from an educationalstandpoint, where they don't
have student loans.
So, although this might not bein your thought process a
traditional wealth buildingaccount because you're putting
(10:45):
money into the account and thenyou're using it for educational
expenses what it will allow yourchild to do once they graduate
from college is that they don'thave student loan debt, so that
$1,000, $2,000 a month studentloan payment they will not have,
and they could put that moneytowards their 401k plan, towards
an IRA, towards accounts thatis going to help them in the
future as far as growing theirwealth.
Speaker 1 (11:12):
As somebody who has $100,000 of student loans or had
, and we're still paying on mystudent loans, yeah, that makes
a significant difference.
So if you can get your childthrough college or tech school
or trade school, whatever theireducational path is, without
them coming out with a bag ofloans, I mean talk about setting
your kid up for success.
Speaker 2 (11:29):
Yeah, I mean honestly that's one of the best things
you can do is that your childgoes to college.
You can get them throughwithout having any type of debt
once they come out.
Speaker 1 (11:38):
Yeah, and I mean, I have federal student loans still
left and the interest on thatis 6.8%.
So right now I'm trying tofigure out what to do with that.
And again it's one thing I'mjust like man when are we going
to be done with this?
I'm ready.
I'm just ready for my lotterywin, so I can pay this off.
Speaker 2 (11:57):
We don't even play the lottery, so it's going to be
kind of hard.
Yeah, that's true, that's goingto be difficult.
Speaker 1 (12:00):
Okay, let's talk about the UTMAs.
Speaker 2 (12:14):
I know we talk about for the custodial brokerage.
So we use an UTMA account,which stands for Uniform
Transfer to Minor Account, andit's a custodial brokerage
account, meaning that it is inyour child's name.
However, since they are a minor, you are on the account as well
and you are in charge of theaccount until the child is
either 18 or 21, depending onwhat state you're in.
So it works very much the sameas any type of you know other
investment account as an adultwould use.
Like I said, the difference isthat it's taxed a little bit
differently.
If you were to have any type oftaxable transactions in it.
(12:37):
It's taxed at a lower taxbracket since it's for your
child.
Speaker 1 (12:42):
Are there any drawbacks to an ETMA?
Speaker 2 (12:47):
The only drawback that I would say is that once
your child either reaches 18 or21, depending, only drawback
that I would say is that onceyour child, either reaches 18 or
21, depending on, what stateyou're in.
The account's theirs.
The account is theirs, itautomatically transfers over.
So you don't have any controlon that aspect.
Speaker 1 (13:09):
Now what I would say is, is that, hopefully, in that
scenario, what we're doing is isthat we are going to educate
our kids along the way so thatthey have the knowledge that is
needed to make good decisions.
What happens?
You know how sometimes peopleare like okay, add your teenager
as an authorized user on yourcredit card.
Don't even tell them, make acouple of transactions, pay it
off to help build their credit,that kind of thing.
Once the UTMA transfers to your18, maybe 21 year old, like
could you?
(13:29):
I mean what if you don't tellthem that it exists?
What?
What happens?
Speaker 2 (13:32):
Well, okay, so the difference is there is that one,
if you're doing any type oftransactions that trigger any
type of taxation like what.
Speaker 1 (13:43):
What would that be so ?
Speaker 2 (13:43):
for example, let's just say you invested in one
fund because the way that acustodial account works is that
the money that goes into ityou've already paid taxes on
while it's in the account andyou haven't made any type of
transactions that cause a taxevent.
You're not paying any taxesbecause you have unreal you
would have unrealized gains inthat scenario okay but if you
(14:03):
were to purchase one fund and ithas some growth and you decided
to you know sell that fund topurchase another one, that could
be a taxable transaction andyou would have to file the taxes
in that given year in order topay the realized gains.
Speaker 1 (14:18):
In that scenario, what if we're just doing a
standard S&P 500 index?
If you?
Speaker 2 (14:26):
don't make any changes to it, then there's no
taxation.
But the biggest thing is thatif there is any type of taxes
that are owed on the account ina given year, once the child is
18 or 21, they need to filethose with their taxes.
Oh, I see so they're going tobe sent the form regardless.
So even if you don't have anytaxable transactions, you might
get a 1099 for the account, justsaying, like you know, there's
(14:50):
no taxation on it.
You don't know any taxes.
Speaker 1 (14:52):
Okay Now could you still contribute to that account
, or?
Speaker 2 (14:56):
does it like your child, or does?
Speaker 1 (14:58):
it like lockdown.
Speaker 2 (14:59):
Oh no, you could.
You can 100% choose tocontribute to the account.
Speaker 1 (15:02):
Okay, I mean, obviously, I'm just kind of
talking through some scenarios.
Obviously, the ideal situationis you've been educating your
child along the way about thesevarious accounts, you've been
prepping them to make themunderstand that this account is
going to come to them at X ageand that the idea is that, you
know, you put a little bit ofbabysitting money, you put a
little bit of coaching.
Speaker 2 (15:23):
Referee money into that account?
No, we're not.
So we'll get to that.
We're not going to put thatmoney into that account.
Speaker 1 (15:29):
Oh, okay.
Speaker 2 (15:29):
Okay.
Speaker 1 (15:30):
All right, I'm just saying we want to continue to
fund the account.
Speaker 2 (15:35):
Well.
So the way that we use ourUpMoney account with our kids
and here's a real-world scenariois that you could contribute
$100 a month to the UpMoneyaccount from the day that
they're born.
So your child's born, youcontribute $100 each month.
If you're able to go ahead andautomate it, make your life
significantly easier.
Now let's just say youcontribute $100 a month for 18
years until your child is 18years old.
(15:55):
That means that you'vecontributed $21,600 over the
course of 18 years of thataccount.
However, at the age of 18, ifyou were investing it the entire
time in an S&P 500 fund andwe're going to use a rate of
return of 8%, very conservativethe account at 18 would have
$44,940.29.
(16:16):
All right.
Now, if you do not contribute asingle dollar more, only the
amount that you put in that$21,600, you don't contribute
anything else.
At age 60, that account isgoing to have a little over $1.1
million in it.
Speaker 1 (16:30):
I mean, that's significant.
Speaker 2 (16:32):
That's all awful You've only contributed $21,600.
Yeah, and that's the power ofcompound interest and starting
early.
As I said before, the numberone benefit you have to
investing is a longer timehorizon.
Speaker 1 (16:45):
So you interrupted me because you were going to say
they're going to be amillionaire even if you don't
contribute anymore.
Speaker 2 (16:50):
Well, I also interrupted me because you were
going to say they're going to bea millionaire even if you don't
contribute anymore.
Well, I also interrupted youbecause you were talking about
if your child is working andbringing in an income, what
account that should go into.
I would not put that into myaccount.
I would put that into acustodial Roth IRA for your
child.
Speaker 1 (17:03):
Oh, okay, can we talk about?
That Is that the account whereon Instagram it's like make,
make your baby a millionaire andlike make them an employee.
Speaker 2 (17:12):
Yes.
Speaker 1 (17:12):
Okay, yes.
Speaker 2 (17:13):
So if your child has some form of earned income let's
just say they have babysittingmoney, they work at Chick-fil-A,
whatever it may be if they haveactual earned income they can
contribute to a custodial RothIRA.
It's the same ideas like a RothIRA for an adult.
Only difference is this is fora child, so you know if they
have income coming in they couldcontribute the same.
(17:34):
You know maximum contributionthat you can as an adult up to
$7,000 into the IRA.
Now the difference is is thatif you try, if your child does
not have earned income, youcannot contribute to a custodial
Roth IRA for them.
Speaker 1 (17:45):
Follow the rules, people.
Speaker 2 (17:46):
So if your child is not working at all, you cannot
contribute for them to thisaccount is okay.
Speaker 1 (17:51):
Clarifying question is this a w-2 income or like
somebody you know?
You're helping somebody cleantheir yard and it's kind of
under.
Speaker 2 (17:57):
It doesn't have to be a w-2, okay, you do, but like
for the purpose of that, you dowant to keep clean records in
case, for some odd reason, thatthere is an audit.
Speaker 1 (18:06):
You know so if somebody, if like your son not
to be gender specific here, butlet's just say roman starts
mowing lawns, the idea would befor him to leave a lecture.
Speaker 2 (18:18):
So the thing I would do differently is that, since we
have more information, we havemore knowledge.
Speaker 1 (18:23):
If they want to have a business set up, to set them
up in an llc okay you can dothat I mean that feels like a
lot for like something he mightdo over the summers.
Speaker 2 (18:32):
What I'm saying is that well also, I want to use it
as a lesson also.
Speaker 1 (18:37):
Okay, Lots of lessons for our kids y'all.
Speaker 2 (18:39):
The thing is we have so much more access to
information and we know morethan our parents had access to
that's true.
So why not pass this down toour children at an earlier age?
So they have a significantlyhigher knowledge base than we
did.
So I would walk them throughlike, hey, if you want to start
it?
Like just also like not sayingthat they have to start a
business, but like walk themthrough what it would be like so
they have a betterunderstanding.
(19:00):
Like, hey, maybe this is a paththat I do want to pursue, you
know, but the idea here is thatif your child has earned income,
they can actually contribute toa custodial Roth IRA, and I
would recommend doing that overthe custodial brokerage account.
Reason being is that you havemore tax advantages with a Roth
IRA.
Speaker 1 (19:16):
Okay, what are those?
Speaker 2 (19:17):
There are no tax advantages with a custodial
brokerage account, not myaccount.
Speaker 1 (19:21):
Okay.
Speaker 2 (19:22):
So with the custodial Roth IRA it works the same,
where the money that you'reputting into it you've already
paid taxes on, so thecontributions have already been
taxed.
While it's in the account, it'sgrowing tax deferred.
You're not paying any taxes onthe growth and when you go to
pull it out in retirement, youare able to pull the money out
with no taxation on the growth.
Speaker 1 (19:41):
If needed again.
Just random question could youpull money out ahead of
retirement in either of theseaccounts?
Speaker 2 (19:49):
Well, with the Up the account, there are no
limitations to when you canaccess the money.
It's just like a regular adultafter-tax brokerage account.
Speaker 1 (19:56):
Okay.
Speaker 2 (19:57):
You have no restrictions on when you can
access the money.
Speaker 1 (19:59):
Okay, so that's a benefit?
Speaker 2 (20:00):
Oh, 100% a benefit.
And with the custodial Roth IRAit works the same way as a Roth
IRA, where you can have accessto the contributions because
you've already paid taxes onthat.
Speaker 1 (20:10):
Okay, just not the growth.
Speaker 2 (20:11):
Yeah.
So I mean like without penalty,yeah.
So another thing you mean likeyou're in college, you can 100%
use some of the contributionsthat you put in to pay for
college expenses, if you want to.
Speaker 1 (20:20):
Okay.
Speaker 2 (20:21):
All right.
Speaker 1 (20:22):
Okay, now when you were.
Speaker 2 (20:24):
I do want to point out one thing when you were
talking about the whole thing.
As far as you know, if you havea business owner, how to, you
know, hire kids?
This is one of the things thatpeople do do.
So, if you are a business ownerand you do have children, and
they're of a certain age,because, like you know, like
blue ivy going on tour withbeyonce.
Speaker 1 (20:40):
Yeah, that was 100.
Speaker 2 (20:42):
I guarantee you that was 100 strategic from a tax
standpoint yeah because ifyou're able to hire your child
into your business and, like Isaid, it has to be legitimate in
the sense of like you can'thave a one-year-old like running
your social media accountdidn't drake, have his kid like,
draw his album cover art it hasto be like what I'm saying.
It has to be legitimate inregards to what that child could
(21:02):
actually do.
Okay, okay, you know so.
For example, like if yourchild's extremely young, like
like, for example, with us withthe Sugar Daddy podcast, we
could use our kids in our socialmedia marketing and that would
be considered baby modeling andwe could pay them as part of our
business.
Now, the reason you do that isbecause if you're going to
contribute to any of these otheraccounts, why not contribute it
(21:23):
with money that is not taxed?
Yeah is not taxed.
So, for example, you canactually pay your child up to
$15,000 for 2025 if they'reunder 18 and they don't have to
pay taxes on that and the incomethat you're paying them is a
tax deduction for the business.
So it's 100% tax-free thatyou're able to have this money
(21:44):
and then you could put intothese various accounts, so you
could pay your child $15,000.
You could put the $7,000 into acustodial Roth IRA, because
they are working income, and theremaining amounts you could put
into the account.
Speaker 1 (21:56):
Oh yeah, and it's all tax free, yeah, so, and again,
you want to have proper recordsand have them listed as an
employee, I mean you definitely.
You don't want to cut cornershere.
Speaker 2 (22:07):
I always say set it up properly.
So, for example, if you aregoing to pay them on a biweekly
basis, you know they have theirown checking account, put them
on the payroll, pay on abiweekly basis, the same amount
into their checking account andthen from their checking account
.
Then you can go ahead andcontribute it to, whether it's
the custodial Roth IRA or theUpland account.
Speaker 1 (22:25):
Okay, For the custodial account and the Roth
IRA.
Where can people open these?
Speaker 2 (22:31):
You can open them at your Charles Schwab Fidelity,
your local bank.
Speaker 1 (22:38):
Okay, any recommendations?
Speaker 2 (22:40):
I mean, you know me, I'm a Charles Schwab guy.
That's where our accounts areat.
Yeah, okay, it's pretty easy.
I think they have a good userinterface.
They're pretty user-friendlyuser interface.
They're pretty user-friendlyand if you ever need customer
service, I feel as thoughthey've done a better job as far
as the customer serviceexperience than maybe some of
the other financial institutions.
Speaker 1 (22:56):
To be honest, Okay, no, that makes sense.
Speaker 2 (22:58):
And this is coming from somebody who has worked in
the back at Fidelity.
Speaker 1 (23:01):
Yeah, what do you say to the people?
You know a lot of people areopening up, like the debit cards
for their kids and high-yieldsavings accounts.
I know you have strong opinionsabout kids having high-yield
savings accounts.
Do you want to get into that?
Speaker 2 (23:16):
I think it starts with the goal of the money in
the account.
So if your child is savingmoney let's just say
hypothetically, your child is ineighth grade, ninth grade and
they want to start saving moneyup for a car, so they're going
to buy a car in the next maybethree, four years that money
shouldn't be invested becauseit's not a long enough time
horizon that I would recommendinvesting it so that money it's
(23:36):
a short-term goal coulddefinitely and should go into a
high-yield savings account.
All right, Okay.
Now, for example, example, ifwe're talking about money that
they have no intention of using,you're putting this away for
them to grow, for future usewhen they're older.
Not a high yield savingsaccount at all.
100 put that into an investmentaccount.
So if you're like I said that,100 a month, 100 a month that
(23:57):
you're saving for your child, donot put that into a high yield
savings account.
Right now we're getting youknow around four percent on a
high yield savings account,whereas you can at least double
that on a yearly basis in aninvestment account.
Speaker 1 (24:13):
So what about their?
Their actual spending money,though?
Right when it's like all right,maybe you're getting money for
chores, money for your birthday?
It is money that you know youdo want them to either save and
or have access to for spending.
Speaker 2 (24:27):
Yeah, well then that's going to be your high
yield savings account, becauseit's still a short term goal.
I always say that kind of likethe rule of thumb they have is,
if you are going to use thatmoney in less than five years,
you don't want to invest it.
Speaker 1 (24:34):
Okay.
Speaker 2 (24:35):
And if you're going to, you know, have a longer time
period before you're going toaccess it, then go ahead and
invest it.
Speaker 1 (24:41):
What about?
I know things are difficult nowtoo, because you know, I mean,
there's times where we would seeour parents like either writing
a check or spending cash.
Our kids only ever see a swipe,a card, so they don't really
see that tangible money exchange.
Do you have any thoughts on howto, like, teach them or keep
(25:02):
track of?
You know?
Hey, I have this amount,whether it's in a high yield
savings, maybe it is a debitkind of account, debit card kind
of account.
Speaker 2 (25:10):
The budgeting apps Okay, honestly, the budgeting
apps.
You know, if they have theirchecking account, they have
their savings account, you know.
Create a profile on one of thechosen budgeting apps, link the
accounts and they can see allthe information there.
Now, if you want to go oldschool and you know, show them
all that stuff, that's up to you.
I'm more of the mindset that Iwant to teach them the way that
(25:34):
it's actually going to be usedin real life.
Speaker 1 (25:36):
And which is going to be digital.
Speaker 2 (25:37):
Yeah, nobody's.
You know opening up theircheckbook and you know balance,
quote, unquote, balancing theircheckbook the old way, that's
just yeah, it's unnecessary.
So you can still teach them allthose lessons just utilizing
the technology that they wouldcurrently use.
Speaker 1 (25:53):
Are there any pieces of?
Speaker 2 (25:55):
I do want to say, like, maybe taking your child
into the bank once or twice,just show them how to actually
interact and ask for money andstuff like that, because I
definitely think, in a such adigital world with social media
and stuff like that, where wedon't have to have these
face-to-face interactions, Ithink there was something
definitely lacking in theirability to have these
interactions when needed.
So I think, hey, you know, ifyour child wants to buy
(26:18):
something, maybe take them tothe bank and have them just
simply withdraw the money ascash a time or two, just so they
could see what happens.
Speaker 1 (26:25):
Okay, yeah, I like that.
I think that makes sense.
Any advice for parents lookingto set up these accounts and,
you know, optimize, make surethey're contributing every month
, you know strategies.
Speaker 2 (26:40):
Well, the first thing is, you know kind of deciding
which account would work bestfor you, and that's going to be
based off of what your goal is.
So, for example, if you arelooking to put away money for
college education, thenobviously the 529 plan is
probably the way you want to go.
So you want to look at what arethe benefits of your state's
529 plan, because, as ourepisode earlier that we said we
have on 529 plans, I'd go listento that because it gives you
(27:02):
all the details of what youreally need to think about with
a 529 plan.
But the idea here is thinkabout your end goal and that's
going to help you determinewhich account is best for you.
Once you determine whichaccount is best for you, so
let's just kind of switch itover to.
We're going to do the UTMAaccount because it gives us a
lot of flexibility as far as youwant to choose your provider.
You know, are you going to gowith Charles Schwab or you're
(27:22):
going to go with Fidelity,whatever it may be.
All these accounts you can openup online and I it's a
step-by-step process and Ihonestly think it's a very
simple process Once you have anunderstanding of what account.
It is that you want to openhopping online.
Creating an online profile andopening up is very simple.
Speaker 1 (27:38):
Okay, Um what else?
I would also say automate it.
Speaker 2 (27:42):
So any type of contributions that you have,
because what I've run intosometimes is that people have an
idea in their mind like, oh, Iwant to contribute $200 a month,
but you're currently not ableto contribute that based upon
the money they have, and theydon't contribute anything.
And it's a weird phenomenon,but I've seen it enough that I
know that it's very common where, if you can contribute $25, $30
, $40, $50, something, $10,something is better than nothing
(28:06):
, and what you can do is thatyou can gradually increase that
as you are able to do so.
But, don't have this hard setnumber in your mind that you you
know.
I want to contribute $500 tothe account, but I can't do it
now, but I'm gonna wait until Ican.
Speaker 1 (28:19):
No contribute the $10 .
Speaker 2 (28:21):
You're missing out, like compound interest, is your
best friend in this scenario.
So anything that you couldcontribute and I would say, be
conservative.
So like, for example, if youyou know $25 and that $25 feels
fine after a few months, maybeyou can increase it.
But automate it to make yourlife significantly easier.
And I would also here's alittle little call out for
(28:42):
people that's a little bit moregranular.
Most people are familiar andthey hear about ETFs, exchange
traded funds and the reasonbeing is that they're very
inexpensive when it comes to thefees associated with
participating in that fund.
However, you cannot buyfractional shares of an ETF, so
ETFs have a price, just like astock has a price.
(29:03):
So, for example, an ETF maymaybe have to put $200 into it
to buy one share of that ETF.
I would recommend using mutualfunds for this.
Reason being is that you caneasily automate how much you
want to contribute to theaccount and then automatically
have it invested in, say, an S&P500 mutual index fund.
So it's one less step for youto do, because normally you have
(29:25):
to link your accounts and thecontribution can be automated
and it comes in, but it comes inas cash, and then you have to
take another step in order toactually invest it.
Speaker 1 (29:34):
That's the part where people get stuck and they've
been contributing and then thatlump sum amount of money has
been just sitting there in cash,which means it is not growing,
so you're not getting thebenefit of the compound interest
.
Speaker 2 (29:44):
It's even worse than not having it in a high yield
savings account.
Speaker 1 (29:47):
Oh yeah, oh heartbreaking.
We've heard heartbreakingstories about that.
Speaker 2 (29:54):
Yeah.
So what I would recommend doingis utilizing a mutual fund.
For that reason, because youcan buy fractional shares of a
mutual fund.
So if a mutual fund says that,in order to buy, a full share is
$100, if you put in $50, youcould buy 0.5.
You can't do that with an ETF.
Speaker 1 (30:08):
People have to select that when they set up the
account.
Speaker 2 (30:11):
Correct.
So when you set up the account,you can automate the amount
that you want to contribute on amonthly basis and you can also,
like you know, kind ofdetermine what day you want that
amount to be, you know, takenout of your account.
So you can kind of look at whatyour bills are what makes sense
.
But then you can take the nextstep and say, hey, this is the
fund that I want to invest inand we use, I use a S and P 500
(30:33):
mutual fund, um and uh indexmutual fund and you have to.
You can automate it so thatonce the money is contributed to
the account then it'sautomatically buys that fund.
Speaker 1 (30:43):
So it's not sitting there in cash.
Correct You're not missing outon the growth.
Speaker 2 (30:47):
Okay, so it's a call out because, like I said with
the ETFs, if you only have $50going in and the fund is $200,
you can't buy it.
Speaker 1 (30:54):
Yeah, so we did talk about obviously also asking for
gifts right, for birthdays,christmas, etc.
If your kids are going to beexpecting gifts or people want
to contribute in some sort of ameaningful way, this is
absolutely a way to do it.
We also talked about thatfinancial education piece,
(31:15):
especially with the accountwhere it's going to get handed
over at 18 or 21.
You just don't want to handsomebody a lump sum of money at
that point.
It's very likely that thatwould be the largest amount of
money that they've seen.
And they're like oh, I can goball out.
And no, you have to teach themlike, no, we're going to leave
this right here and we're goingto let it grow.
And here's the reason why.
Speaker 2 (31:35):
But also here's.
The reality, too, is that evenif you were handing over a large
sum of money to a 35 year oldthat has no financial literacy,
they're probably going to do thesame thing and blow the money.
Speaker 1 (31:44):
We've had those people on our podcast.
Speaker 2 (31:46):
It's not even necessarily the age thing, it's
the understanding and theeducation.
Speaker 1 (31:50):
Yeah, absolutely so.
The education is huge.
And then I know this issomething we've talked about and
again we've had an episode onbut making sure that these
accounts are protected in theevent of an emergency.
You know something happeningagain, building that
generational wealth and notletting it kind of slip through
(32:10):
the cracks.
So potentially putting theseaccounts into a trust, or what
do you recommend there?
Speaker 2 (32:16):
I mean, I'm not going to recommend anything at this
point because it depends on yoursituation.
Okay, and you're not an attorney, correct and so the trust you
know that can be beneficial, butalso just simply making sure
that you have the beneficiaryset up correctly on the account.
It's one of the things that Igo over with my clients on a
yearly basis just to make surethat all the beneficiaries on
all the accounts are updated andthey are accurate on who they
(32:39):
want to be the beneficiary.
So that can go a long way inand of itself.
Speaker 1 (32:42):
Yeah Again, want to be the beneficiary.
So that can go a long way inand of itself.
Yeah Again, especially ifyou've had changes in your
relationship, your partnership,maybe you are now divorced, et
cetera.
I mean, things change, soupdating your beneficiaries on
an annual basis is definitelyencouraged.
Speaker 2 (32:57):
And at the end of the day, like we want to stress,
doing something, just doingsomething, is significantly
better than doing nothing.
Speaker 1 (33:06):
You always talk about building that muscle too, right
, like even automating yourcontributions is building that
muscle.
Because now you know, hey, I'vegot $10, $15, $20, $100 coming
out of my account every month togo into this account.
Oh, I got a big pay raise or Ichanged careers, et cetera.
Now I can contribute 2% more,5% more, 10% more.
(33:30):
But you are getting into thathabit and what I will say is
when you do that, you're notgoing to look at this account on
a daily, weekly, monthly basis,but when you do log in to see
the account and you see whoa,I've contributed two, three
$4,000 in X amount of time.
You're not going to miss thatmoney, but you're going to be
very proud of the fact that youhave accumulated that and it
(33:51):
didn't really impact your day today.
Speaker 2 (33:54):
And think about how different your life would be if
maybe your parents, like ourparents, didn't have access to
this information.
So I don't fault them in thataspect, but think about, like,
if your parents had thisinformation, they did this for
you.
So, like you know, like I'mabout to be 42 years old, so if
my mom had done this, I couldhave almost half a million
dollars right now because ofthat, just simply because of
those, you know, those smallcontributions, and I mean I
(34:17):
wouldn't, it wouldn't be like Ican't, I don't, I'm not working
anymore.
I would still be working, butI'm not working anymore.
I will still be working, but itwould make a big difference in
regards to some of the decisionswe can make.
Speaker 1 (34:24):
But $500,000 sitting in an account now that we're not
trying to touch for X amount ofyears, that's a good starting
point.
Speaker 2 (34:32):
Yeah, so absolutely, and so, like any of you guys
listening to this episode, ifyou have any questions or
anything of that nature, pleasedo not hesitate to reach out to
me.
These are things that I help myclients out with all the time,
so if you need some help openingthe account, whatever it may-
be.
Speaker 1 (34:50):
You know.
Slide into our DMs, schedule anappointment whatever you need,
yeah, but if you have kids,hopefully you want to make the
millionaires build thatgenerational wealth bucket for
them and hopefully this episodewas helpful.
Make sure you share it with afriend or family member and we
will talk to you soon.
Don't forget.
Benjamin Franklin said aninvestment in knowledge pays the
best interest.
You just got paid Until nexttime.
(35:15):
Thanks for listening to today'sepisode.
We are so glad to have you aspart of our Sugar Daddy
community.
If you learned something today,please remember to subscribe,
rate, review and share thisepisode with your friends,
family and extended network.
Don't forget to connect with uson social media.
(35:37):
At the Sugar Daddy podcast.
You can also email us yourquestions you want us to answer
for our past the Sugar segmentsat thesugardaddypodcast at
gmailcom, or leave us avoicemail through our Instagram.
Speaker 2 (35:51):
Our content is intended to be used, and must be
used, for informationalpurposes only.
It is very important to do yourown analysis before making any
investment based upon your ownpersonal circumstances.
You should take independentfinancial advice from a licensed
professional in connection with, or independently research and
verify any information you findin our podcast and wish to rely
upon, whether for the purpose ofmaking an investment decision
or otherwise.
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