Where to put small amount of UTMA money

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indexsci
Posts: 6
Joined: Sun Oct 26, 2014 3:13 pm

Where to put small amount of UTMA money

Post by indexsci »

My daughter received a gift of about $100 as a bond that is now matured and a check was mailed to us. The check is written out to me as custodian with her as beneficiary followed by "UTMA VA", so I assume this must go into either a UTMA account or 529?

I don't anticipate more money coming into this account so I'd just like the simplest option that would let me invest it in the market index. We are saving for college outside of a 529 but I wouldn't be opposed to creating one just for this if that makes sense.

Any thoughts?
alex_686
Posts: 13320
Joined: Mon Feb 09, 2015 1:39 pm

Re: Where to put small amount of UTMA money

Post by alex_686 »

On a practical level I don't really think it matters where it goes.

However, this is one of the reasons why I set up a 529 plan for my child.

From a rational viewpoint funding a 529 plan should be at the bottom of the list, around with prepaying your mortgage. Money is fungible, having separate accounts is a example of a "Mental Accounting" cognitive error. You can always do a better job by integrating your goals into a single portfolio since that reflects reality. The benefits are modest.

From a emotional viewpoint, it is important to the person giving the gift that the exact money given is spent specifically on your child. So we set up a 529 plan account.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
schwank
Posts: 102
Joined: Sat Jul 18, 2015 1:14 pm

Re: Where to put small amount of UTMA money

Post by schwank »

For that amount I would just set up a UTMA, buy one share of ITOT, and let it ride. You can make that tax free for ANY purpose through tax gain harvesting over time. 529 would still tie your hands to educational expenses. UTMA would ensure the intended beneficiary receives the proceeds, however you could use a custodial 529 for this. All relatively inconsequential on $100 investment, but having custodial shares can also provide a financial education opportunity with the child. Having exposure to small amounts of custodial stock with dividend reinvestment as a teenager was powerful for my personal financial education.

As to the comment of 529 just being a bucket strategy I disagree. At higher income levels where one doesn't qualify for aid and would pay top tier LTCG, a 529 can save 20%+ and potentially provide a multi-generational benefit. There's risk of overfunding but it's more than a modest benefit in my mind.
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