[0:00]Simply investing $250 a month for the next 10 years for my kids will net them over $43,000 by the time they graduate high school. Each. So, today I'm going to walk you through what a custodial account is, how they work, and I'll even show you how to open one using fidelity as I open.
[0:34]You build up life you love with the money you already have. Now, we know that investing for our kids' future is important, but how do we actually do it? Well, the custodial account allows you as the parent or guardian to open an account for your child, and then you can give them funds, you can grow that account, and eventually that money transfers to them by the time they are of legal age. Now, a gift to a child is covered under what's known as the uniform gifts to miners Act, the UGMA, or the more recent version, the uniform transfers to miners Act, the UTMA. So, I'll be using that UTMA acronym here going forward because that's the one that is the most recent that was passed in the 80s. What it allows you to do is gift your child up to $15,000 if you're a single parent or if you're married filing joint, you can give them up to $30,000 with no extra taxes. So, once that passed, these investment accounts became a great way for you as the custodian to open an account, teach them investing, gift them some funds and let them to start growing their wealth before they're an adult. So, I am a huge fan of this. I love the idea of being able to invest for my kids and then grow their wealth. So that it's not necessarily tied to retirement and it's not necessarily tied to college, but maybe it's just a kick life off on the right foot, get started, start a business, uh buy a house, whatever that is, fund for their future. So today, we're going to open an account using fidelity and I'll I'll show you over the shoulder view exactly how it all works. I'll share my screen here and then you can see me opening the account, funding the account, choosing the investments, and all that. But you might be asking, well, why fidelity? Well, there's two other companies I was looking at. One is Vanguard. I've got all my retirement stuff at Vanguard. I really enjoy uh their index funds, their philosophy, they're just a great company. Uh but there's some problems with their custodial account. One is they charge uh an annual fee.
[2:35]I think it's something like $20 a year just to maintain the account, and uh that's if you have less than like $10,000 deposited. Sorry kids, I'm not depositing $10,000 right now into each of your accounts, uh so that would be a bummer. And the other is they don't do fractional share investing, meaning, if I wanted to buy the VTI fund, which is one of my favorite um ETFs, I would have to buy a whole fund, you know, in a denomination of it's like 145, $150, whatever it is right now. Uh I would have to buy single shares of that. But at Fidelity, one, there's no minimums. Two, there's no fees, and three, I can buy fractional shares as low as a dollar. So, if my kid has an extra dollar and they're like, hey, I want to invest this dollar, we can make it happen through fidelity. The other thing I like about Fidelity is they have a zero fee index fund, so FZROX is very similar to VTI in that it owns the total US stock market, but they don't charge you a fee at all. So, you're not going to be paying any fees for opening this account through Fidelity, for holding any money in there, or for buying that FZROX fund. And the other option was M1 Finance. As you know, I made a video on using M1 Finance to open a Roth IRA. Uh you can use a free account and open that up and contribute and and pick from stocks or uh ETFs and everything's commission-free. I really, really enjoy M1 Finance and their app has a whole ton of other functionality that's fantastic. Uh the bummer is is to open a custodial account for your kid, you have to be a M1 Plus member, and at about $10 a month or 120 bucks a year, to me that just wasn't worth it. That that equates to a large amount uh if you think of it as like a fee for these accounts compared to something like fidelity, where again, no minimums, no commissions on trades or purchases, and uh no account fees, no no anything. So, that was the reason I didn't go with M1 and and even though I'm affiliated with M1, I cannot recommend them for a custodial account. I just don't think it is worth the cost, to be honest. Um and I'm not affiliated with Fidelity, but they have fantastic customer service and they fantastic service. Um so that's why I'm going to be going with Fidelity. Okay, so to get started, you can just Google Fidelity custodial account or you can go to the link I put in the description below. Uh I have no affiliation or partnership with Fidelity, I just really enjoy their service. So, you'll get to this account uh page here and you can go to open a custodial account. Now, if you're already a Fidelity customer, it's easy, you just sign right in. If you're not, just hit no here, and you're going to put in your information. So, once you put in your name and email address, just hit get started, and you're going to go through the application process. So, think about this like opening a bank account. You're going to have to provide your address, you're going to have to provide your social security number, and some personal information just to fully verify the account. Okay, and you're going to have to give them some basic employment information. Again, this is just like opening a bank account, this is just required by federal law to obtain some of this information. Okay, so once you've provided your information, you need to put in your child's name. Again, they will be the beneficiary of this account, so you want to make sure that you get this correct. You can't change the designation after you open this account, so just make sure you do this right and you put it in your child's name. So, now that you've filled out your uh child's information, you can now select what's called your core position, which is really stupid. They should just call it, where do you want your money held until you invest it, which is what they say down here. So, really doesn't matter because as soon as the money hits there, um I'm going to show you where to uh start investing. You don't want the money just to sit in one of these funds because it's just like a savings account, you might as well get it invested. So, I'm just going to go with the first one here, the government's money market fund. Great, cool. Uh and then you can select to receive your documents electronically here as well.
[6:18]All right, once you confirm all your information, you can read these 4,736 pages of terms and conditions. Or not, you can just uh agree to have them electronically delivered to you if you're concerned uh about any of this stuff, you can read the customer agreement and the the T and C and all that stuff there. Um and even the prospectus of this little fund that you're never going to use anyway. So, those are all going to be delivered to you electronically, and then if you're a box checker like me, don't accidentally check this box. Uh because it just means that you're now subject to backup withholding from the IRS and you're trying to like, you know, if you have any tax issues, uh they want to know about it because of your taxpayer identification number. Don't check that box unless you are in trouble with the IRS, then uh go ahead and read this stuff and check that box. But if you're not, avoid this. Uh so, basically, once you're all done with that stuff, you can open the account. Okay, here's the fun part. Now that you've opened the account, you can transfer funds into the account. Now, there are no account minimums or or charges for not putting any money into it, but if you're opening it up, let's get it funded. So for me, I'm just going to set up a one-time transfer. Uh we'll just do that $250 like I mentioned earlier in the video. Um and then eventually, we can set up a recurring transfer that will regularly make monthly deposits. But for now, I'm just going to fund it with a one-time transfer from a bank account. Okay, so once you have your bank connected, you're going to select the UTMA account that you want to transfer to, uh and then you can set up your frequency. Like I said, you could do a recurring transfer on monthly if you'd like to. I'm just going to do a single transfer of the $250 that was mentioned earlier, and we will get the funds in there. All right, so I'm going to submit this and it's going to take one to two business days for the funds to arrive. So, once those funds arrive, we will finish up this video, I'll show you how to select investments within your custodial account at Fidelity. Okay, so the money's hit the account and I kind of went through this process with two of my kids, but uh the third one I'll walk you through how to select your investments. Uh for this one, this initial $250, I'm just going to select uh the Fidelity total stock market index fund, and I'll show you what that looks like. So, as you can see here, here's the summary of the account and then they say, uh choose your investments and you know, you can create investment plan, you can connect with their professionals if you want to, but for here, I know what I'm looking for and I'm just going to hit the invest button. And once that loads, um you can check out their different tools. They have a stock screener because you can select the individual stocks if you want as well. We're just going to go to fund picks from Fidelity. Now, the fund picks they have here on aren't necessarily the fund that I'm looking for, so I just did the research and I know exactly which fund I'm looking for. I don't really want to scroll through all of these funds, so I'm just going to type in the symbol up here in the upper right corner. So, it's just called FZROX, and once I hit go, it should give me the FZROX fund. So, there it is, the Fidelity Zero Total Stock Market Index Fund. This one charges zero fees. Zero. So, this is a Fidelity, no account fees, no minimums. Uh, you can invest a dollar at a time and there are zero fees on this fund, so that's another reason I really like this product. So, if you click on that FZROX, it'll load it up, and then you can select the fund here. Now, this could feel a little overwhelming, but what we're going to go do here is the upper right corner, you're going to hit the buy button. So, we transferred that initial $250, and now we're going to buy FZROX. So, I have multiple accounts, so I'm going to select the one that has not been invested yet and hit go. So, it gives you sort of the price for the fund. Um you can click to see some more details about it, but it tells me I have $250 cash available to trade. And so, under this little action box here, we're going to buy and we're going to buy $250 worth. If I hit preview order here, it'll just tell me, all right, are you going to do this? Are you going to complete this trade? And I just hit place order. So, that's it. I placed the order, and because this is a mutual fund, it is going to execute after the next market close. If this was like an ETF, for example, it would execute right away. Um but for Fidelity, I'm just picking their mutual fund, so it basically takes the price at market close and makes the purchase. So, once that purchase is there, now I own FZROX. And that's pretty much it. You just select your fund and you hit buy and now we're invested. Okay, so what are some ideas that your kids can do with these funds, right? They turn 18, they turn 21, they legally have access to this account. Maybe it grows to 50, $100,000 over time, depending on how long you're investing and how much you're putting in. What can they do with these funds? Well, there's a few things. One, they can pay for college, right? So, then you can use this as a college savings. Now, if you're specifically trying to save for college and you already have a plan in place for that, I would recommend opening a 529 college savings account because you're going to get tax advantages with that. But if you don't know and you're not sure and this is just a general savings account for your child, uh they can go ahead and pay for some of their college with that. The other thing they can do is start planning for retirements, right? So, they can just leave this taxable brokerage account alone and let it grow toward retirement. The other thing they can do is buy a house. If they want to take that and use it as a down payment to invest in real estate or to just buy their own home, then they can go ahead and do that. I think that's a great idea to again, think about, okay, if I'm withdrawing these funds, let's turn it into another asset, another investment. Or they could just leave the money alone and just ignore it. Those funds can sit there and grow and compound over time. If they just let it sit there for 30 years, for example, if my kids have that $43,000 and then they just leave it alone. They don't even put any more money into it, and they just let it sit. By the time they are 48 years old, so by the time they are 30 years down the road, it's going to be worth over $400,000. So, that is an incredible gift to my child. It is the gift of compound interest, it's the gift of education, and it's the gift of generational wealth, and it can start with just $250 a month. Now, if that's too much, you can just play with a calculator and see how much it'll turn into. For example, maybe it's you have $100 a month, or maybe $50 per child, whatever that is, just starting early, makes it a massive difference down the road. So, I hope that was helpful. I hope it gave you a few things to think about for investing for your child. Um and if you want to open a Fidelity account, I'll drop a link below. I'm not affiliated with them in any way, but I just enjoy their service and their platform. And so, if you want to sign up, you can go ahead and sign up down there and open your child custodial invest account. And if you have any questions at all about uh the investments or the accounts or fidelity or long-term investing or compounding interest or uh any of those things, please drop them in the comments below. And and I'd love to hear from you, how would you like your child to use these funds? If you start investing for them when they're born or investing for them when they're five or 10 years old and you put money away, uh what do you think it will do for their future? So, thank you again for joining me. I really appreciate you being here. If you like more videos like this, just go ahead and hit that subscribe button and hit the like button there to tell YouTube to share this video with more people who want to get their kids started early. And if you hit that little notification bell, you'll get informed of upcoming videos that I'm going to continue to make here. Thank you so much for being here. I appreciate it, and I'll see you next time.
