For many, college graduation spurs a number of emotions. It's the end of a chapter and a start to something new. For most, it also signifies the start of paying off student debt.
With college tuition constantly rising, many graduates are still paying off their student loans long after they start their own family. This leads new parents to consider ways to help their child avoid the same plight.
Accounts such as a 529 plan or UGMA/UTMA were created specifically to address this need. So what is a 529 plan? How does it compare to a UGMA/UTMA? And is UNest the best solution for parents? In this complete UNest review, we will answer those questions and more.
This article is sponsored by UNest.
UNest is a great platform for parents who are seeking to invest in their child's future. With automatic contributions, parents can relax knowing their child will have available funds at their disposal. Additionally, with a simple and easy-to-use app, custodians can monitor the account as frequently as desired and from virtually anywhere.
The type of account you choose to use has certain pros and cons. The differences range from tax benefits to the flexibility of funds. Depending on your situation, one may be better suited for your needs.
A 529 plan is a tax-advantaged investment account for future education expenses for a beneficiary designated by the account creator.
Contributions to a 529 plan are made post-tax, but the growth and withdrawals are tax-free. The gains may be taxed a 10% penalty if not used for qualified educational expenses.
A UGMA (Universal Gifts to Minors Act) and a UTMA (Uniform Transfer to Minors Act) are both custodial accounts. A custodial account is simply an account that an adult creates and controls for a minor. Depending on the state of residency, the minor gains access to the funds in the account between the ages of 18-25.
The difference between a UGMA and a UTMA is the asset options available. Both types of accounts have the ability to invest in stocks, bonds, ETF's, etc. The difference is that a UTMA can also hold real estate or other physical assets such as a car or piece of art.
Like a 529 account, contributions made to a UGMA or UTMA up to $15,000 are exempt from the gift tax. The first $1,100 of unearned income is tax-free, and the next $1,100 of unearned income is taxed at the child's rate. Anything over $2,200 is taxed at the parent's rate. Unearned income is dividends or capital gains. Since the contributions are made post-tax, withdrawals of contributions are tax-free.
The key difference between a 529 and a UGMA/UTMA is the flexibility of funds. Once a minor reaches adulthood, the UGMA/UTMA funds can be used for anything even despite the wishes of the custodian of the account. The funds in a 529 however, can only be used for educational expenses without incurring a penalty.
Another difference is that a UGMA/UTMA will be reported as the child's asset, whereas the 529 will still be counted as the parent or account creator's asset. This is important as it pertains to FAFSA and receiving grants/scholarships.
Many parents opt for a UGMA/UTMA as it is saving for their child's future and not just their education. A child may use the funds in a UGMA/UTMA for life events such as a wedding, a first house, or other events. The child can still use the funds for education, but now has the flexibility to use as they see fit.
UNest is an app that allows individuals to open a UTMA account for a beneficiary. It was created to help parents invest in their child's future conveniently through an app on their phone.
CEO and founder of UNest, Ksenia Yudina, stated that the platform was created so that all parents could invest in their child's future. The 529 plan can be complicated to manage and often has many financial advisor fees that accompany it.
"As a parent with student debt, I understand first-hand the immense pressure parents feel to get their kids to college without strapping them with massive loan debt for the rest of their lives," says Yudina. "We're excited to open up the savings market to a much broader range of families to get sensible and achievable college fund plans in place. We are committed to relieving the burden of student loans from parents and hope to change the trend for future generations."
As a parent herself, Yudina sought out to create a platform that was simple to use and could give parents ease of mind.
They have a simple 4 step process to get started:
The funds in the account are invested into one of 5 options. These options are on a scale from very conservative to very aggressive.
The conservative option invests in fixed income and bond ETF's, while the aggressive option invests 100% in equity through Vanguard. The other 3 options are age-based. These portfolio plans will shift their asset mix as the beneficiary ages. The portfolio will become more risk-averse as the child approaches adulthood.
In an effort to make this account as easy as possible for parents or other interested parties, custodians are limited to those 5 options when it comes to investing.
A custodian does have the ability to change the allocation of funds at any period of time, though this will require investments to be sold and reinvested elsewhere which may incur relevant taxes.
UNest has two pricing options. The first is the Regular plan for one child or beneficiary, and it costs $3 per month. Their second option is their Family plan, which costs $6 per month. The Family plan works for up to 5 children.
For many parents, determining how much to contribute can be difficult. Keeping in mind that this UTMA account can be used for anything the child desires, the amount will depend on your financial standing and goals.
UNest did specifically create a college savings calculator. By inputting the age of the beneficiary and a monthly contribution, you will be able to quickly see how much you will be able to save in a UNest account vs a regular savings account.
For example, if the beneficiary of the account is 5 years old, and you contribute $250 per month, then you would be able to save approximately $39,750 in a personal savings account. But invested with UNest, you could yield $60,423, which is 52% more. And this doesn't take into account any contributions made from friends or family made possible by UNest.
Investment accounts with UNest are held by Apex Clearing Corporation, which is an SEC-registered broker. The investments in the account are SIPC insured up to $500,000. Any money in the account that is not yet invested is also FDIC insured up to $250,000.
Many newer investing apps do not have the greatest customer support, but UNest actually provides quick and easy help. They have a phone number for clients who want to speak to another person directly, as well as an email support line.
Their customer support makes them a great option for parents. Lingering questions can be answered with a simple phone call.
Another great feature of UNest is "UNest Rewards". By purchasing various products and services with a company that has partnered with UNest, you can earn cash that goes into the beneficiary's account.
You can also share the app with others and earn a $15 reward when they sign up.
At the time the minor reaches adulthood, they will become entitled to all of the assets within the account. UNest will convert the account from a UTMA to an individual brokerage account. At this time, the child or beneficiary will be able to continue saving and investing as they desire.
UNest provides parents or other custodians a really great option for investing for their children or other beneficiaries. Their app is simple and easy to use and navigate. With the simple portfolio options, parents can be sure their money is safe and being put to a great use.
The gifting feature allows other family and friends to contribute to the beneficiary's account with a simple link. This can make for great birthday gifts or other gifts throughout the minor's childhood.
The reviews they have received have spoken very highly of the new company and platform: they currently have 4.8 stars on the Apple Store and 4.9 stars on Google Play.
Check out UNest today! Planning for your and your children’s future can often be stressful and difficult. UNest removes some of this difficulty and can offer peace of mind.