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Generational Wealth for Your Children / Grandchildren



We all think about generational wealth and having our families achieve long-term lasting wealth. What could be better than introducing wealth-building to our children and grandchildren? The earlier investing for wealth-building starts, the more time available to take advantage of the superpower of compound interest.

When it comes to saving for your child's future, there are several different options available. One of the most popular options is to open a youth custodial account. However, there are also other options available, such as 529 accounts, Coverdale accounts, and youth Roth IRA accounts. Let’s take a look at these youth savings options in more detail.


Educational Savings Account Options

529 Accounts

A 529 account is a tax-advantaged savings plan that can be used to save for future education expenses. There are no income limits for contributing, but annual contributions are limited to the gifting amounts per contributor. Contributions to a 529 account grow tax-free, and withdrawals are tax-free if they are used to pay for qualified education expenses.


Pros of 529 Accounts:

  • Tax-free growth.

  • Tax-free withdrawals for qualified educational expenses.

  • Can be used to save for any type of qualified education expense.

Cons of 529 Accounts:

  • Contributions may be subject to state income tax.

  • Early withdrawals may be subject to penalties.

  • Can affect financial aid eligibility.

Coverdale Accounts

A Coverdale account is a tax-advantaged savings plan that is designed to help low- and moderate-income families save for their children's college education. Contributions to a Coverdale account are made with after-tax dollars, but earnings grow tax-free, and withdrawals are tax-free if they are used to pay for qualified education expenses.


Pros of Coverdale Accounts:

  • Tax-free growth.

  • Tax-free withdrawals for qualified education expenses.

  • Can be used to save for any type of qualified education expense.

Cons of Coverdale Accounts:

  • Contributions are limited to $2,000 per year for each beneficiary

  • Early withdrawals may be subject to penalties.

  • Has lower income restrictions on who can contribute.

Youth Wealth Accumulation Account Options

Youth Custodial Accounts

A youth custodial account is a type of account that is owned by a minor but is controlled by an adult custodian. The custodian can make investment decisions for the account, and the minor will eventually inherit the account when they reach the age of majority. There are two types of accounts: Uniform Transfers to Minors Act (UTMA) and Uniform Gift to Minors Act (UGMA). UGMA accounts are limited to financial assets like cash, stocks, bonds, ETF’s, etc. UTMA can include non-cash assets like real estate, works of art, etc.


Pros of Youth Custodial Accounts:

  • Easy to set up and maintain.

  • No income restrictions.

  • Can be used to save for any purpose.

Cons of Youth Custodial Accounts:

  • Earnings are taxed in the child's hands.

  • Adult gifts to a custodial account are irrevocable.

  • Can affect student financial aid eligibility (because this is part of the student’s assets).

Youth Roth IRA Accounts

A youth Roth IRA account is a type of Roth IRA that can be opened for a minor. Contributions to a youth Roth IRA are made with after-tax dollars, but earnings grow tax-free, and withdrawals are tax-free after the account holder reaches the age of 59½.


Pros of Youth Roth IRA Accounts:

  • Tax-free growth.

  • Tax-free withdrawals after age 59½.

  • No income restrictions.

Cons of Youth Roth IRA Accounts:

  • Contributions are limited to the youth’s earnings or the annual IRA contribution limit whichever is less

  • Early withdrawals may be subject to penalties (same as other IRA accounts).

Comparison Table

Which Account is Right for You?

The best account for you will depend on your individual circumstances and goals. If you are looking for an easy-to-set-up and maintain account with no income restrictions, then a youth custodial account may be a good option for you. If you are looking for an account with tax-free growth and withdrawals, then a 529 account or a youth Roth IRA account may be a better option. If you are a low- or moderate-income family, then a Coverdale account may be a good option for you.


It is important to consult with a financial advisor to determine which account is right for you. Paycheck to Wealth is here to help you navigate these financial decisions. If you would like to learn more, please contact us to set up a free review and get your questions answered.

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