Angela Stowell, Financial Advisor, Denver
After retiring from service, Angela Stowell wanted to help others and stay connected to the military – which is how she found a home at First Command.
July 16, 2021 | 4 min. read
Comprehensive financial planning should include not only the accumulation of assets during your lifetime, but the management and distribution of the remaining assets after your death. Planning your estate is important to ensure your financial wishes are carried out and your family is cared for as you see fit.
If you have children or grandchildren, there are specific financial strategies you can use to provide for them, whether they are minors, young adults, or even mature adults that need financial assistance. First, consider their financial needs and what your goals are for the funds you allocate to them. For example:
Once you have determined the answers to these questions, there are several options for you to consider.
529 Plans are investment accounts designed specifically to pay for a child’s education expenses, including tuition, fees, books, room and board.
The primary disadvantage to 529 Plans is that if the money is used for purposes other than education, withdrawals are subject to income taxes and a 10 percent penalty on the earnings. Because of this steep penalty, it’s important to confirm the money can and will be used for educational purposes.
Uniform Transfer to Minor Accounts (UTMAs)
UTMAs are individual bank or investment accounts often used by parents or grandparents to give assets to their children or grandchildren. The minor cannot personally access the account until they reach the age of 18 or 21 – depending on the state. However, the money can be used for the child’s benefit as directed by the account’s custodian, who is usually the child’s parent or grandparent.
Advantages of UTMAs include:
However, it’s important to note the following disadvantages of UTMAs:
Custodial Roth IRAs
A Custodial Roth IRA is a retirement account set up for a minor with earned income. The account is managed by the custodian, and the funds are not available to the child until they reach the age of 18 or 21 – depending on the state. Earnings in a Roth IRA grow tax-free and can be withdrawn tax- and penalty-free after age 59½, or for qualified expenses such as paying for a higher education or to purchase a house.
Advantages of Custodial Roth IRAs include:
Contribution limits are the primary disadvantage to Custodial Roth IRAs. The following stipulations apply:
If you will be leaving behind substantial assets, you may want to consider creating a trust. A trust is a legally binding relationship in which you transfer funds to a professional trustee to manage in the best interest of your beneficiaries. A trust can be tailored to your specific situation, may reduce income and estate taxes, and avoids probate expenses and delays. One disadvantage is that trusts do not provide tax-free growth.
Because trusts are flexible and customizable, there are many different ways to structure them based on your goals. Two common types are Pooled Trusts and Separate Trusts:
You’ve spent a lifetime establishing financial security, and the decisions you make now will protect your legacy and your family. Learn more about wealth and trust management at First Command, and talk to your Financial Advisor to make sure you’re taking the appropriate steps to safeguard your assets and secure your loved ones’ futures.
Curious about estate planning? Additional article of interest include Estate Planning 101, Six Estate Planning Questions to Always Ask Your Attorney and Digital Assets in Your Estate Plan.
Prior to investing in a 529 College Savings Plan, you should compare the Plan with any 529 college savings plan offered by your home state or your beneficiary's home state and consider, before investing, any state tax or other benefits that are only available for investments in the home state's plan. Please read the Plan's Disclosure Document which includes investment objectives, risks, fees, charges and expenses, and other information. You should read the Plan Disclosure Document carefully before investing. For this and other information on any 529 College Savings Plan, contact First Command at 1-800-443-2104 or your Financial Advisor.
Please note that the availability of tax or other benefits may be conditioned on meeting certain requirements such as residency, purpose for or timing of distributions or other factors as applicable.
As with any investment, it is possible to lose money by investing in a 529 College Savings Plan.
Information provided is for general purposes only and is not intended to be a substitute for specific individualized tax or legal advice. Where specific advice is necessary or appropriate, please consult a qualified tax or legal advisor.
At First Command, we’ve spent over 60 years helping military families deal with the challenges of PCSing, and we are well equipped to help you get your finances squared away before you embark on your next PCS. To speak with a Financial Advisor near you, visit our Get Started page.Get Started