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What is the better option for trying to set up my 5 year old daughter financially?
Posted on 6/17/26 at 12:12 pm
Posted on 6/17/26 at 12:12 pm
I was originally thinking about going with a 529 plan but now I'm contemplating going with a UGMA/UTMA plan.
My main worry with the 529 plan is the case that my daughter doesn't attend college. There are no other sibling or cousins to fund their education. I know of transferring 35K to Roth IRA for her, but what are the tax implications for that vs the UGMA/UTMA plan.
I also understand that in Louisiana, at age 22, the money is in her control for the UGMA/UTMA route. She is only 5, so it's not yet determined if she will be an impulse buy now person and waste it.
I will be set up fairly nicely for retirement in about 15 years, but I also was diagnosed with Stage 4 kidney cancer 5 years ago. I have seemed to beat the cancer, but no one knows if I get a reoccurrence and my timeline for saving for retirement is cut short. If that occurs, she will be set with the amount of money she will inherit (I'm now divorced), so this advice recommendation is for me making to the retirement age and having enough to live comfortably but also providing a good start to my daughter's future.
Any experienced financial guys out there that can help shed some information would be much appreciated.
My main worry with the 529 plan is the case that my daughter doesn't attend college. There are no other sibling or cousins to fund their education. I know of transferring 35K to Roth IRA for her, but what are the tax implications for that vs the UGMA/UTMA plan.
I also understand that in Louisiana, at age 22, the money is in her control for the UGMA/UTMA route. She is only 5, so it's not yet determined if she will be an impulse buy now person and waste it.
I will be set up fairly nicely for retirement in about 15 years, but I also was diagnosed with Stage 4 kidney cancer 5 years ago. I have seemed to beat the cancer, but no one knows if I get a reoccurrence and my timeline for saving for retirement is cut short. If that occurs, she will be set with the amount of money she will inherit (I'm now divorced), so this advice recommendation is for me making to the retirement age and having enough to live comfortably but also providing a good start to my daughter's future.
Any experienced financial guys out there that can help shed some information would be much appreciated.
5
Posted on 6/18/26 at 1:29 pm to TIGERSby10
Not a single comment. Thought this place was full of offering their opinion.
Posted on 6/18/26 at 1:44 pm to TIGERSby10
Couple things.
There are no tax implications when converting 529 to Roth, but your daughter will have to have earned income (greater than or equal to the conversion amount) during the years that the conversions are made (you can only convert up to the maximum for the year, so it will take multiple years to convert the whole 35k).
One alternative to the UTMA that gives you more flexibility in her gaining access to the money, is to open another taxable brokerage account which is earmarked for her. Contribute to that account, pay your taxes on it every year, etc and then decide how much to gift to her and when down the road. This can function like an UTMA, but without her legally taking possession of the entire account at age 22.
You could also consider starting her a Trump account, which will turn into a traditional IRA when she turns 18.
I guess you need to decide if you are saving for her to be set up with a nest egg for retirement (in which case prioritize Roth and trump account), or if you are saving for her to have money to spend to her liking on whatever she chooses (in which case UTMA, taxable account would be preferrable).
quote:
I know of transferring 35K to Roth IRA for her, but what are the tax implications for that vs the UGMA/UTMA plan.
There are no tax implications when converting 529 to Roth, but your daughter will have to have earned income (greater than or equal to the conversion amount) during the years that the conversions are made (you can only convert up to the maximum for the year, so it will take multiple years to convert the whole 35k).
One alternative to the UTMA that gives you more flexibility in her gaining access to the money, is to open another taxable brokerage account which is earmarked for her. Contribute to that account, pay your taxes on it every year, etc and then decide how much to gift to her and when down the road. This can function like an UTMA, but without her legally taking possession of the entire account at age 22.
You could also consider starting her a Trump account, which will turn into a traditional IRA when she turns 18.
I guess you need to decide if you are saving for her to be set up with a nest egg for retirement (in which case prioritize Roth and trump account), or if you are saving for her to have money to spend to her liking on whatever she chooses (in which case UTMA, taxable account would be preferrable).
Posted on 6/18/26 at 1:59 pm to TIGERSby10
If you want good details broken down, just launch your AI of choice. That information will be better than what is here and more responsive.
If you want an opinion, go with a 529. Those are best for education use fiscally speaking. I am personally not trying to set my kids up to get some nest egg when the turn 18 or 21, they can go out an earn their own money. I do not want my kids to be stuck with student loan debt, thus I see the value of doing a 529 for them. I have told my kids, what they do not use is theirs, so work towards scholarships to keep more of that for them.
If you are looking at UGMA/UTMA as a flexible option in relation to your longevity, having kids as beneficiaries on your stock accounts is probably better. When you pass and it passes to them, they will get a step-up on the cost basis and will not owe your capital gains. Basically they could cash-out your entire portfolio and pay 0% taxes. In an UGMA/UTMA scenario they own it and cap gains tax impact starts day 1 and never goes away for them.
If you want an opinion, go with a 529. Those are best for education use fiscally speaking. I am personally not trying to set my kids up to get some nest egg when the turn 18 or 21, they can go out an earn their own money. I do not want my kids to be stuck with student loan debt, thus I see the value of doing a 529 for them. I have told my kids, what they do not use is theirs, so work towards scholarships to keep more of that for them.
If you are looking at UGMA/UTMA as a flexible option in relation to your longevity, having kids as beneficiaries on your stock accounts is probably better. When you pass and it passes to them, they will get a step-up on the cost basis and will not owe your capital gains. Basically they could cash-out your entire portfolio and pay 0% taxes. In an UGMA/UTMA scenario they own it and cap gains tax impact starts day 1 and never goes away for them.
Posted on 6/18/26 at 2:45 pm to TIGERSby10
Sorry to hear about the cancer!
Get her that Trump account
Get her that Trump account
Posted on 6/18/26 at 3:35 pm to TIGERSby10
Wish they change the rules and allow for a Roth to be used interchangeable as a 529 or retirement account
No real reason not to do it.
Many kids who don’t want to go college could then use for other life events…namely buying a first home
No real reason not to do it.
Many kids who don’t want to go college could then use for other life events…namely buying a first home
Posted on 6/18/26 at 4:10 pm to masoncj
My daughter is 5 so she doesn't get the $1,000 for Trump's plan.
Posted on 6/18/26 at 8:14 pm to TIGERSby10
You can still contribute $5000 per year to her account.
Posted on 6/19/26 at 9:53 am to TIGERSby10
Big picture: When my kids were about 1 year old and I was trying to figure out how to set them up for college, I felt my choices were between maximum flexibility vs. maximum tax management.
I opted for maximum flexibility (no restrictions from tax advantages) so I opened a Schwab account for them and started funding it every pay period, buying SWPPX, Schwab's S&P 500 Index mutual fund.
It has worked out well for them and for me.
I opted for maximum flexibility (no restrictions from tax advantages) so I opened a Schwab account for them and started funding it every pay period, buying SWPPX, Schwab's S&P 500 Index mutual fund.
It has worked out well for them and for me.
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