Let’s talk about babies and how we can set these little ones up to be millionaires.

The easiest way to invest for a child is to open an UTMA account. An UTMA or a uniform transfer to minors account in the simplest of terms, is a law that allows a minor to receive gifts without the aid of a guardian or trustee.

Let’s dive deeper. The age at which the child receives these gifts is considered the age of majority, which in the state of Arizona is 21 years old. In the meantime, this type of custodial account provides a chance for children to start investing and growing their assets at a young age. A perk is that parents or custodians have the ability to make unlimited contributions to their child’s UTMA account. Something to note here is that contributions to an UTMA account are subject to the annual gift tax exclusion, which is $18,000 per beneficiary as of 2024 or $36,000 for married couples per beneficiary.

As an infant, child and adolescent, remember that time is on their side. The process might be simpler than you think, but the caveat is that it’s also up to you as parents to educate your children on finances. At age 18, the number is only a small amount in comparison to what it can eventually turn into. They key here is letting it compound over time.

Now let’s talk numbers so you can see what this looks like:

• When a new baby is born, put $1,000 into an UTMA account
• Every month, put $100 into the UTMA account
• Continue doing so until they are 18 years old
• At age 18, this UTMA account will be at $48,000 (assuming a 9% return)
• Never contribute again
• Educate your child and teach them to let it sit there and compound over time
• At age 65, assuming the historical return of 9%, they can have $2.8 million dollars

“Compounding interest is the eighth wonder of the world.”
-Albert Einstein

For those of you that did the math, you only invested $22,600 over the span of 18 years. The key is not touching this account and listening to Albert Einstein. Maybe you as readers don’t have the luxury of time to capitalize on the massive compounding effect that a little amount of money can lead to, but your baby sure does.  Similar to my plans for my own children, I want to give families and children the financial knowledge necessary to set them up for financial success.