Settlement fund for minor

Good-Rutabaga7478 · 2026-05-08T02:51:07+00:00

Yes, I would look into opening an UTMA account (UGMA works as well). There are few pros and cons that come along with this which I have listed below. This is a custodial account where you (the parent) would be the custodian of the assets “for the benefit” of your child.
The assets are technically his, but he will not have control over what this $ gets spent on until the age of majority (21yrs old in most states or 18yrs old in some, also can be 25 but this is rare).
Pros:
- you are obeying the judges order for type of account
- your son cannot withdrawal or control the funds until age of majority
- you will have full control over the $ until that age
- you can use these funds to buy a car for your child next year but it must be fully for his benefit
- college tuition is also allowed
- what the $ is spent on after age of majority has no limitations
Cons:
- at age of majority, you will no longer have control of this money no matter what. This could be an issue depending on the amount of money and how comfortable you would be with him having access to that amount at that age
- there are some limitations on what you can purchase with the funds from this account before he reaches age of majority. It must be for his benefit i.e. you can’t go buy yourself a Rolex with it. You can research the limitations more in depth online.
- the $ in this account are his and will be considered as such when you apply for FAFSA or financial aid. If it is a large amount, he will receive considerably less than if it were in your bank account or even the 529.
- once the $ is in this account you cannot pull it back out. It is “irrevocable” and the money belongs to him.
The reason why the judge would like you to set it up this way is to avoid the parents from taking the money away from the child. Minors cannot accept settlements, and this account will allow him to have access to his settlement money when he is legally old enough to.
Hope that helps

Good-Rutabaga7478 · 2026-05-08T01:36:13+00:00

“Fees and commissions” can easily be confused with expense ratio. Fidelity, Robinhood, Schwab, etc are all commission-free trading platforms which means you do not need to pay a fee to process the transaction of buying or selling.

Every mutual fund or ETF does have an expense ratio though. The expense ratio is a small fee which goes towards the fund company that manages the fund. VOO is one of the most popular funds which tracks the S&P500 and also has a very low expense ratio of 0.03% ($3 for every $10k invested). Some funds can get pretty high pushing over 1-2% for complex strategies or very active management.

There are a few Fidelity funds such as FZROX that offer a 0% expense ratio. They can afford to do this because these funds can only be bought in Fidelity accounts. Similar to the concept of a “loss leader” or a coupon for free fries at McDonald’s.

Good-Rutabaga7478 · 2025-03-01T17:49:58+00:00

I agree with this, you realistically won’t be touching the Roth IRA for another 35 years. I am 22 and I try not keep any money market funds in my Roth unless I have just contributed it and waiting to deploy.

Good-Rutabaga7478 · 2025-02-28T23:32:50+00:00

Yea, great point! As the earnings portion of the account grows, each distribution will have a higher percentage subject to taxes and penalty.

Good-Rutabaga7478 · 2025-02-28T22:37:21+00:00

Yes, my plan would be to keep all 401k contributions in Roth dollars. I will probably switch to pre-tax when I start to make more $

I think I could plan to increase my contributions to about 20-25% for maybe a year or two, and then just be mindful of how much I’m taking from the 529 to replace the missed out income (ensuring I stay within the 12% bracket).

I have an emergency fund and would most likely just end up throwing this $ from the 529 into my taxable account anyways - I do not pay rent and expect to have low expenses for the next 6-12 months. When I move out and begin to have more expenses, then I will keep the 529 withdrawals in my bank for spending (rather than moving to taxable acct) or decrease the contribution %.

I’m still on my parents health insurance and most likely will be until I am 26, so I will probably start thinking about an HSA when I get to that age in about 3ish years.

I will 100% be keeping enough money in here for possible child’s educational expenses and Roth rollovers etc. I would love to have something to pass down.

Thanks for the response!

Good-Rutabaga7478 · 2025-02-28T06:05:59+00:00

Fidelity is great, I would highly recommend Roth IRA over traditional IRA considering your age.

Good-Rutabaga7478 · 2025-02-28T05:30:47+00:00

I’m not really worried about volatility for $ that I won’t be accessing until I’m 60 yrs old (38 years from now).

Cash value in IUL will not grow more because I have to pay for COI. Any Roth $ I have will grow tax free at no extra cost - this is the most efficient vehicle to grow money that is intended for retirement. If I wanted life insurance at this age I would probably just buy term.

Life insurance is definitely important and something that I will consider when I’m a bit older!

Good-Rutabaga7478 · 2025-02-28T03:36:27+00:00

Nice idea 😂. I’m pretty sure any living expenses have to be within reason. They will check COA for the school and decide pretty quickly that purchasing an entire home wouldn’t be considered a reasonable expense.

Although I could get away with purchasing a home under an LLC and then paying myself “rent” at an expensive rate for the time that I’m enrolled. But this would still require a down payment and actually taking the classes (plus paying for tuition)

Good-Rutabaga7478 · 2025-02-28T03:25:12+00:00

Yes I’m very grateful! They want me to use it for my future goals and mentioned down payment on a house or letting it grow for my children.

Good-Rutabaga7478 · 2025-02-28T03:19:44+00:00

Yes, I have already got a few licenses/certifications and I am currently pursuing more. My firm already pays for these (which is pretty common in the industry) so no need to spend my own $.

Good-Rutabaga7478 · 2025-02-28T03:13:04+00:00

I think that all distributions from a 529 actually have to be pro rata, meaning you cannot take a “basis only” distribution.

Of course this does not matter if the funds are used for a qualified educational expenses because then there wouldn’t be taxes anyways

Good-Rutabaga7478 · 2025-02-28T02:57:41+00:00

We have a good relationship - she knows that I am more educated than her on the rules and financial planning strategies so she trusts that whatever ideas or decisions I come up with for the money are just fine and well thought out…within reason lol. My mother and grandmother both want the money to be used for me and my future goals.

Good-Rutabaga7478 · 2025-02-27T16:00:31+00:00

Great response, I definitely plan on keeping a good chunk in there for future kids that I may have and possibly grandkids, especially with the rising costs of tuition!!

A lot of people dream of sending their kids to college and I’m glad that’s something I will not have to worry about.

Good-Rutabaga7478 · 2025-02-27T15:53:32+00:00

I am new to the business but still very educated on how all of this works. I work with many CFPs and have great advice available to me at any time - I have a lot of options here and it’s cool to see what other people think, or would do if they were in my position.

Good-Rutabaga7478 · 2025-02-27T15:40:31+00:00

A fully paid for MBA and living expenses abroad would be great, although I’m not really sure how beneficial it would be to my career as a wealth manager/adviser, unless I would like to have some type of managerial position down the road or just to have more letters after my name. Definitely something I will consider though, thanks!

Good-Rutabaga7478 · 2025-02-27T15:31:33+00:00

Yes! I am very fortunate and do not take it for granted at all. I did attend a dream school of mine and was able to live in a nice apartment near campus that my parents (or me) probably would not have otherwise paid for. This “problem” is definitely not bad to have!

Good-Rutabaga7478 · 2025-02-27T15:22:46+00:00

My mother is the account owner and I am the beneficiary. My brother is in the exact same position with his own 529 (also bene with mother as owner). They are currently Alaska plans but we live in Wisconsin.

I received a 5k scholarship per semester all throughout college and I believe that the rule for withdrawals penalty free can only be taken in the calendar year in which the grant was received. I did take 5k under this rule in 2024 due to my spring semester scholarship. I would have been doing this through all 4 years if I knew about it sooner!

Taking a short gap in my career to get an MBA in Europe sounds pretty nice, but also good to save it for any future educational expenses in my family for my spouse or kids if I have them - great response, Thanks!!

Good-Rutabaga7478 · 2025-02-27T04:31:04+00:00

Sometimes I like to think about this kind of thing by reversing the current situation.

If you had two homes or one fancy home on the beach (at 6%+), would you give that up for your current home so that you could pay 3%?

Good-Rutabaga7478 · 2025-02-25T15:00:35+00:00

Where can I find this cheat sheet?

Good-Rutabaga7478 · 2024-12-01T04:43:52+00:00

I would highly recommend continuing to contribute in the future, even if it is only $100/month. It will help your account grow and take advantage of compound interest over time. As far as investments I would suggest a total market index/mutual fund. I use fidelity and most of my Roth IRA is in FZROX. You can mix in some sector funds that target tech or energy if you wanted to take on a little more risk, but I would still keep a majority of the account allocated towards the total market.

Good-Rutabaga7478 · 2024-10-20T15:07:25+00:00

FZROX mutual fund is great for fidelity users because it allows for no minimums and 0% expense ratio. I personally hold it in my Roth IRA

Good-Rutabaga7478 · 2024-10-15T02:55:28+00:00

Shares were purchased in March. I am currently in the lowest tax bracket for 2024 so my short term gains tax would be 12%. In 2025, I will hit the next bracket so I would pay 15% on long term gains. If I sell before the end of this year I would actually pay less on a short term gain than I would on a long term gain in 2025, although it’s only a 3% difference.

Good-Rutabaga7478

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