Help Kids Save for All Possible Futures: Fabric CEO

What You Need to Know

Parents can use 529 plans to save for education expenses and, possibly, retirement expenses.
They can use a Uniform Gifts to Minors Act account to pay for anything that will benefit a minor.
Once parents are on a website setting up UGMA accounts, they could do other things.

Adam Erlebacher would like to see financial professionals take a more flexible approach to financial planning for children.

Today, advisors and planners tend to focus on offering 529 plan accounts and other college savings accounts, which can be used for educational expenses or, eventually, flow into Roth IRAs.

Life and annuity professionals may talk about the benefits of using cash-value life insurance as a somewhat more flexible long-term savings vehicle.

Erlebacher, the CEO of Fabric by Gerber Life, has another idea: Encourage parents to put at least some cash into investment accounts based on the even more flexible Uniform Gifts to Minors Act framework.

UGMA funds “can be used for any expense directly benefiting the minor,” Erlebacher said in a recent email interview. “Whether it’s their first car, travel, band equipment, astronaut camp, after-school programs, or future educational costs, 100% of the funds deposited can be used towards the betterment of the child. When they become adults, funds from a UGMA account could help them buy their first home or pay for their wedding.”

What it means: Conscientious clients are using special kinds of accounts to save for retirement, health care and children’s college costs. Now, there’s a new push to help families save for other kinds of foreseeable costs.

Uniform Gifts to Minors Act accounts: UGMA accounts are organized under state laws that differ from jurisdiction to jurisdiction.

Gerber Life emphasizes in a discussion of the tax rules governing UGMA accounts that it can’t give tax advice and that parents interested in UGMA tax provisions should talk to their tax advisors.

The federal income tax breaks for UGMA accounts are not as extensive as the tax incentives for 529 plans.

But, for a child who has all assets in one UGMA account, the first $1,150 of unearned income from the account will be free from federal income taxes, and the next $1,150 in unearned income will be taxed at the child’s rate.

For typical children, “there are no taxes paid each year, or taxes will be much less than in a standard investment account,” Gerber Life says.

Fabric: Fabric began selling affordable, protection-oriented life insurance to families through digital systems in 2015.