April 2, 2025
82: How to Make Your Kids Millionaires
In this episode, Jess and Brandon dive into strategies to build significant wealth for your children through early and consistent investing, leveraging the incredible power of compound interest.
In this episode we discuss:
• Educational accounts like 529 plans
• Custodial investment accounts (UTMAs)
• Custodial Roth IRAs
• How business owners can employ their children for tax advantages
Visit prenups.com/sugardaddy to learn more about fair prenups that help couples plan for a healthy financial relationship.
Watch this episode in video form on YouTube
To apply to be a guest on the show
You can email us at: thesugardaddypodcast@gmail.com
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Learn more about Brandon and schedule a free 30-minute introductory call with him
Please remember to subscribe, rate, and review.
Notes from the show:
Chapters
00:00 - Introduction to Making Your Kids Millionaires
07:30 - The Power of Compound Interest and Time
12:45 - Rethinking Kids' Gifts for Long-Term Wealth
18:10 - 529 Plans and Educational Funding Benefits
25:20 - UTMA Accounts and Custodial Brokerage Options
30:15 - Custodial Roth IRAs and Employing Your Kids
34:45 - Practical Account Setup and Automation Tips
Transcript
WEBVTT
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This episode is sponsored by Prenupscom.
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Already married, no worries, they do post-nuptial agreements too.
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That's what Brandon and I did after eight years of marriage.
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In today's episode, we are going to talk about how to make your kids millionaires.
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We're going to discuss things like the power of time and compound interest, the optimal accounts for building wealth for your kids, custodial IRAs, custodial brokerage accounts, high-yield savings accounts, how to employ your children in your business and so much more.
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If you want to make your child a millionaire and build generational wealth, this episode is for you.
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Hey babe, what are we talking about today?
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Today we are talking about making millionaires.
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More specifically, making your children millionaires.
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Yes, building generational wealth and really the importance of getting started early, because time is so, so, so important and we've talked about this a lot on social media, in our newsletter etc.
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It really is not a huge financial burden on you to start early and to make your child a millionaire by the time that they're ready to retire.
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Us are kind of trying to set our kids up for generational wealth and their retirement.
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So we're looking at that 60 year mark for them.
00:02:09.609 --> 00:02:14.046
But you know, the more you can contribute, obviously, the faster you'll make them millionaires.
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But this is really that conversation around making them millionaires with $50 a month, with $100 a month, with a little contribution here and there for birthdays, holidays etc.
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And we want to make sure that you understand it is attainable to make your kids millionaires.
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Yeah, when it comes to investing, the number one thing that's on your side is time.
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The longer time horizon you have to invest, the longer you have of compound interest working in your favor.
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So, when it comes to your kids, the sooner the better.
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It's going to benefit them so much more as they get older.
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And the thing is, too, is that, as just said, it doesn't take a ton of money when you start early.
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Yeah, really the starting early part is the most important.
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Who said, was it Albert Einstein that said compound interest is the eighth wonder of the world?
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That's what they said.
00:03:04.768 --> 00:03:14.742
I've never actually looked up to see if that's legitimate, because you know I can't necessarily believe everything you see on the internet, but yes, Well, in compound interest right it's it can have a negative effect.
00:03:14.783 --> 00:03:27.247
If we're talking about things like credit cards, right, when you're literally being charged daily interest on top of the previous amount of whatever your balance is and then that literally compounds, so compound interest can be negative.
00:03:27.247 --> 00:03:36.801
We're going to be talking about the positives of compound interest and time, and that's what's going to actually accelerate your contributions to make your kids millionaires.
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Yeah, and I would assume that most parents out there want to put their kids in a better place than maybe they were in at their age.
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So this conversation is going to revolve around the small things that you can do, because, you know, as millennials, we are balancing our own financial needs and financial constraints, or whatever it may be, you know, in our lives.
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But you can also do some of these small things to.
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You know, help your kids, put them in a better place, while not sacrificing some of the things that you need to do in your own.
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You know finances.
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Exactly.
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We're like we're not putting away a thousand dollars a month for each of our kids or anything like that, but we are automating our contributions and, honestly, you know the amount of money that we're putting away for them right now.
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We don't miss that money and we know when we do see that come out.
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Man, we are setting our kids up for success so they don't even know how good they have it.
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Yeah, so also.
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The thing is, too, is kind of shifting the conversation when it comes to just your entire family.
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So, especially when your kids are young, they get so many gifts, whether it's their birthday, christmas, whatever it may be, they get so many excessive gifts that they don't need and a month or two later they've forgotten about the toy or whatever it may be, especially when they're little.
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You know, think about when your kids are maybe one or two years old.
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They prefer just to play with the box, and a lot of the gifts are kind of you could put a marble in a water bottle and they'll play with that for longer than the expensive stuff we've been buying them.
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Yeah.
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So it's kind of shifting the conversation with your family instead of, you know, maybe getting them all these gifts hey, why don't you contribute to their 529 plan, why don't you contribute to their Upma account?
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Because the reality is is that with these gifts, it's going to have a much bigger impact in their life when they're older.
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Bigger impact in their life when they're older when you have grandparents or uncles that are contributing to these accounts that when they get older, the compound interest on them is going to help them maybe buy their first home, maybe allow them to not have to make decisions about job choices solely based upon income standpoint.
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So it's having that conversation with your entire family, because we definitely have this conversation with our family where the grandparents sometimes want to buy too many things.
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We're like, hey, let's kind of hold back on all these little toys.
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They have more than enough toys.
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Our kids have way too many toys and give money to these different accounts so that one it's going to be something that's beneficial to them in the future.
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But then also, along the way, we're going to have conversations with our kids from a financial literacy standpoint, as far as understanding personal finance.
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Once they have a better grasp of basic math, start understanding compound interest.
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So I'm going to sit down not I, we are going to sit down and go over these accounts with our kids and like, hey, this is what investing in the stock means, this is what investing in an ETF means, and teach them along the way so that they know significantly more than we did at that age.
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Have you been listening to our podcast and wondering how am I really doing with my money?
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Am I doing the right things with my investments?
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Am I on track to reach my financial goals?
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What could I be doing better?
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If you answered yes to any of these questions, then it's time for you to reach out to Brandon to schedule your free yes, I said free 30-minute introduction conversation to see how his services could help make you the more confident moneymaker we know you could be.
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What are you waiting for?
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It's literally free and at the very least, you'll walk away feeling more empowered and confident about your financial future.
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Link is in our show notes.
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Go, schedule your call today.
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Spend money on these big, lavish things, make most of the contribution to these accounts.
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Or, you know, in some cases, experiences swim lessons, sewing lessons, maybe it's a magazine subscription things that you know they're practicing their reading, they're they're, you know, upping their literacy, etc.
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Experiences like museum memberships, you know all of that is, I think, more meaningful than just more stuff.
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But even if you wanted, you know all of that is, I think, more meaningful than just more stuff.
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But even if you wanted, you know, to have them unwrap something you know the dollar, the Dollar Tree is a great place for that.
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And then, like Brandon said, these accounts, when you can tell them you know, hey, look at how much money you're going to have by retirement.
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You know.
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Here's the importance of getting started early.
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You can then teach them those lessons and hopefully they'll take that forward, because that is truly how generational wealth is built.
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You can't just transfer the money, you have to transfer the knowledge as well.
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Yeah, so we're going to start with talking about some of the different accounts that you can use to help accomplish these goals, and the pros and cons and the specific reasons for these different accounts.
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All right, so first we're going to start off with the 529 plan.
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The 529 plan is an educational account.
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You're putting money away in an account where it's already been taxed and it's growing, tax deferred, which means you're not paying taxes on it while it's growing, and then when you pull the funds out to use them for qualified educational expenses, you are not taxed on any of the growth.
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So essentially kind of what it is is a Roth IRA for educational purposes, and we have an entire episode on 529.
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So if you want to dig deep into that account, definitely go listen to that episode.
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We'll make sure to link it in the show notes.
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I want to point out too, because one of my concerns quote unquote with the 529 was well, what if our kid doesn't end up going to college?
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Or what if they end up getting a ton of scholarships?
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And because of the updates that they've recently made to 529s, that no longer has to be a concern of ours.
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Yeah.
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So if you have any money in a 529 plan that is unused currently, you can roll over up to $35,000 into a Roth IRA for your child, which could essentially be a retirement account for them to help continuously growing tax free.
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And I do know, and you have to be, you know, you have to really read the fine print here but you can also use the 529 for housing expenses, among other things.
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So it's not just tuition, but you just, you know again, read the fine print, make sure that you're keeping all your receipts.
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But there are a lot of options for how to use that money.
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So if they get a bunch of scholarships great, maybe they want to live in an off-campus apartment.
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There are options for that as well, and I think even meal plans.
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Again, if you do it kind of the right way.
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Yeah, you just have to look at the specific details on what is a qualified educational expense that you can use a 529 plan for.
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Now I also want to shift the conversation to currently with people with student loan debt.
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It is one of the biggest things that is hindering our current generation from being able to build wealth, because they have these large student loan debts and they have large monthly student loan payments and thus that money that otherwise could be going towards investing is going towards paying off student loans.
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So one of the best things that you can do for your child is set them up from an educational standpoint, where they don't have student loans.
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So, although this might not be in your thought process a traditional wealth building account because you're putting money into the account and then you're using it for educational expenses what it will allow your child to do once they graduate from college is that they don't have student loan debt, so that $1,000, $2,000 a month student loan payment they will not have, and they could put that money towards their 401k plan, towards an IRA, towards accounts that is going to help them in the future as far as growing their wealth.
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As somebody who has $100,000 of student loans or had, and we're still paying on my student loans, yeah, that makes a significant difference.
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So if you can get your child through college or tech school or trade school, whatever their educational path is, without them coming out with a bag of loans, I mean talk about setting your kid up for success.
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Yeah, I mean honestly that's one of the best things you can do is that your child goes to college.
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You can get them through without having any type of debt once they come out.
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Yeah, and I mean, I have federal student loans still left and the interest on that is 6.8%.
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So right now I'm trying to figure out what to do with that.
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And again it's one thing I'm just like man when are we going to be done with this?
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I'm ready.
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I'm just ready for my lottery win, so I can pay this off.
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We don't even play the lottery, so it's going to be kind of hard.
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Yeah, that's true, that's going to be difficult.
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Okay, let's talk about the UTMAs.
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I know we talk about for the custodial brokerage.
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So we use an UTMA account, which stands for Uniform Transfer to Minor Account, and it's a custodial brokerage account, meaning that it is in your child's name.
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However, since they are a minor, you are on the account as well and you are in charge of the account until the child is either 18 or 21, depending on what state you're in.
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So it works very much the same as any type of you know other investment account as an adult would use.
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Like I said, the difference is that it's taxed a little bit differently.
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If you were to have any type of taxable transactions in it.
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It's taxed at a lower tax bracket since it's for your child.
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Are there any drawbacks to an ETMA?
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The only drawback that I would say is that once your child either reaches 18 or 21, depending, only drawback that I would say is that once your child, either reaches 18 or 21, depending on, what state you're in.
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The account's theirs.
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The account is theirs, it automatically transfers over.
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So you don't have any control on that aspect.
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Now what I would say is, is that, hopefully, in that scenario, what we're doing is is that we are going to educate our kids along the way so that they have the knowledge that is needed to make good decisions.
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What happens?
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You know how sometimes people are like okay, add your teenager as an authorized user on your credit card.
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Don't even tell them, make a couple of transactions, pay it off to help build their credit, that kind of thing.
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Once the UTMA transfers to your 18, maybe 21 year old, like could you?
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I mean what if you don't tell them that it exists?
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What?
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What happens?
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Well, okay, so the difference is there is that one, if you're doing any type of transactions that trigger any type of taxation like what.
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What would that be so?
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for example, let's just say you invested in one fund because the way that a custodial account works is that the money that goes into it you've already paid taxes on while it's in the account and you haven't made any type of transactions that cause a tax event.
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You're not paying any taxes because you have unreal you would have unrealized gains in that scenario okay but if you were to purchase one fund and it has some growth and you decided to you know sell that fund to purchase another one, that could be a taxable transaction and you would have to file the taxes in that given year in order to pay the realized gains.
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In that scenario, what if we're just doing a standard S&P 500 index?
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If you?
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don't make any changes to it, then there's no taxation.
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But the biggest thing is that if there is any type of taxes that are owed on the account in a given year, once the child is 18 or 21, they need to file those with their taxes.
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Oh, I see so they're going to be sent the form regardless.
00:14:42.745 --> 00:14:50.938
So even if you don't have any taxable transactions, you might get a 1099 for the account, just saying, like you know, there's no taxation on it.
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You don't know any taxes.
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Okay Now could you still contribute to that account, or?
00:14:56.596 --> 00:14:58.746
does it like your child, or does?
00:14:58.787 --> 00:14:59.690
it like lockdown.
00:14:59.769 --> 00:15:00.311
Oh no, you could.
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You can 100% choose to contribute to the account.
00:15:02.845 --> 00:15:05.782
Okay, I mean, obviously, I'm just kind of talking through some scenarios.
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Obviously, the ideal situation is you've been educating your child along the way about these various accounts, you've been prepping them to make them understand that this account is going to come to them at X age and that the idea is that, you know, you put a little bit of babysitting money, you put a little bit of coaching.
00:15:23.693 --> 00:15:25.144
Referee money into that account?
00:15:25.144 --> 00:15:25.706
No, we're not.
00:15:25.706 --> 00:15:26.986
So we'll get to that.
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We're not going to put that money into that account.
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Oh, okay.
00:15:29.769 --> 00:15:29.989
Okay.
00:15:30.490 --> 00:15:34.373
All right, I'm just saying we want to continue to fund the account.
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Well.
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So the way that we use our UpMoney account with our kids and here's a real-world scenario is that you could contribute $100 a month to the UpMoney account from the day that they're born.
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So your child's born, you contribute $100 each month.
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If you're able to go ahead and automate it, make your life significantly easier.
00:15:50.711 --> 00:15:55.346
Now let's just say you contribute $100 a month for 18 years until your child is 18 years old.
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That means that you've contributed $21,600 over the course of 18 years of that account.
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However, at the age of 18, if you were investing it the entire time in an S&P 500 fund and we're going to use a rate of return of 8%, very conservative the account at 18 would have $44,940.29.
00:16:16.494 --> 00:16:16.995
All right.
00:16:16.995 --> 00:16:24.634
Now, if you do not contribute a single dollar more, only the amount that you put in that $21,600, you don't contribute anything else.
00:16:24.634 --> 00:16:29.529
At age 60, that account is going to have a little over $1.1 million in it.
00:16:30.774 --> 00:16:31.735
I mean, that's significant.
00:16:32.264 --> 00:16:35.514
That's all awful You've only contributed $21,600.
00:16:35.514 --> 00:16:38.794
Yeah, and that's the power of compound interest and starting early.
00:16:38.794 --> 00:16:44.597
As I said before, the number one benefit you have to investing is a longer time horizon.
00:16:45.206 --> 00:16:50.152
So you interrupted me because you were going to say they're going to be a millionaire even if you don't contribute anymore.
00:16:50.304 --> 00:16:53.615
Well, I also interrupted me because you were going to say they're going to be a millionaire even if you don't contribute anymore.
00:16:53.615 --> 00:16:57.205
Well, I also interrupted you because you were talking about if your child is working and bringing in an income, what account that should go into.
00:16:57.205 --> 00:16:59.513
I would not put that into my account.
00:16:59.513 --> 00:17:03.434
I would put that into a custodial Roth IRA for your child.
00:17:03.975 --> 00:17:05.367
Oh, okay, can we talk about?
00:17:05.367 --> 00:17:11.660
That Is that the account where on Instagram it's like make, make your baby a millionaire and like make them an employee.
00:17:12.201 --> 00:17:12.422
Yes.
00:17:12.663 --> 00:17:13.305
Okay, yes.
00:17:13.984 --> 00:17:26.221
So if your child has some form of earned income let's just say they have babysitting money, they work at Chick-fil-A, whatever it may be if they have actual earned income they can contribute to a custodial Roth IRA.
00:17:26.221 --> 00:17:29.294
It's the same ideas like a Roth IRA for an adult.
00:17:29.294 --> 00:17:34.394
Only difference is this is for a child, so you know if they have income coming in they could contribute the same.
00:17:34.394 --> 00:17:38.694
You know maximum contribution that you can as an adult up to $7,000 into the IRA.
00:17:38.694 --> 00:17:45.346
Now the difference is is that if you try, if your child does not have earned income, you cannot contribute to a custodial Roth IRA for them.
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Follow the rules, people.
00:17:46.570 --> 00:17:51.218
So if your child is not working at all, you cannot contribute for them to this account is okay.
00:17:51.278 --> 00:17:55.720
Clarifying question is this a w-2 income or like somebody you know?
00:17:55.720 --> 00:17:57.882
You're helping somebody clean their yard and it's kind of under.
00:17:57.902 --> 00:18:06.728
It doesn't have to be a w-2, okay, you do, but like for the purpose of that, you do want to keep clean records in case, for some odd reason, that there is an audit.
00:18:06.848 --> 00:18:17.627
You know so if somebody, if like your son not to be gender specific here, but let's just say roman starts mowing lawns, the idea would be for him to leave a lecture.
00:18:18.151 --> 00:18:22.185
So the thing I would do differently is that, since we have more information, we have more knowledge.
00:18:23.028 --> 00:18:32.195
If they want to have a business set up, to set them up in an llc okay you can do that I mean that feels like a lot for like something he might do over the summers.
00:18:32.545 --> 00:18:37.676
What I'm saying is that well also, I want to use it as a lesson also.
00:18:37.897 --> 00:18:39.958
Okay, Lots of lessons for our kids y'all.
00:18:39.964 --> 00:18:44.416
The thing is we have so much more access to information and we know more than our parents had access to that's true.
00:18:44.416 --> 00:18:46.778
So why not pass this down to our children at an earlier age?
00:18:46.778 --> 00:18:50.980
So they have a significantly higher knowledge base than we did.
00:18:50.980 --> 00:18:53.301
So I would walk them through like, hey, if you want to start it?
00:18:53.301 --> 00:19:00.229
Like just also like not saying that they have to start a business, but like walk them through what it would be like so they have a better understanding.
00:19:00.229 --> 00:19:12.637
Like, hey, maybe this is a path that I do want to pursue, you know, but the idea here is that if your child has earned income, they can actually contribute to a custodial Roth IRA, and I would recommend doing that over the custodial brokerage account.
00:19:12.637 --> 00:19:16.229
Reason being is that you have more tax advantages with a Roth IRA.
00:19:16.249 --> 00:19:17.491
Okay, what are those?
00:19:17.511 --> 00:19:21.371
There are no tax advantages with a custodial brokerage account, not my account.
00:19:21.772 --> 00:19:22.094
Okay.
00:19:22.474 --> 00:19:29.614
So with the custodial Roth IRA it works the same, where the money that you're putting into it you've already paid taxes on, so the contributions have already been taxed.
00:19:29.614 --> 00:19:32.038
While it's in the account, it's growing tax deferred.
00:19:32.038 --> 00:19:40.676
You're not paying any taxes on the growth and when you go to pull it out in retirement, you are able to pull the money out with no taxation on the growth.
00:19:41.645 --> 00:19:42.789
If needed again.
00:19:42.789 --> 00:19:48.517
Just random question could you pull money out ahead of retirement in either of these accounts?
00:19:49.527 --> 00:19:53.416
Well, with the Up the account, there are no limitations to when you can access the money.
00:19:53.416 --> 00:19:56.481
It's just like a regular adult after-tax brokerage account.
00:19:56.824 --> 00:19:56.964
Okay.
00:19:57.224 --> 00:19:59.290
You have no restrictions on when you can access the money.
00:19:59.872 --> 00:20:00.815
Okay, so that's a benefit?
00:20:00.894 --> 00:20:01.757
Oh, 100% a benefit.
00:20:01.757 --> 00:20:09.711
And with the custodial Roth IRA it works the same way as a Roth IRA, where you can have access to the contributions because you've already paid taxes on that.
00:20:10.073 --> 00:20:11.276
Okay, just not the growth.
00:20:11.497 --> 00:20:11.696
Yeah.
00:20:11.696 --> 00:20:13.101
So I mean like without penalty, yeah.
00:20:13.101 --> 00:20:20.509
So another thing you mean like you're in college, you can 100% use some of the contributions that you put in to pay for college expenses, if you want to.
00:20:20.911 --> 00:20:21.231
Okay.
00:20:21.633 --> 00:20:21.913
All right.
00:20:22.193 --> 00:20:23.938
Okay, now when you were.
00:20:24.065 --> 00:20:26.071
I do want to point out one thing when you were talking about the whole thing.
00:20:26.071 --> 00:20:29.536
As far as you know, if you have a business owner, how to, you know, hire kids?
00:20:29.536 --> 00:20:32.157
This is one of the things that people do do.
00:20:32.157 --> 00:20:40.747
So, if you are a business owner and you do have children, and they're of a certain age, because, like you know, like blue ivy going on tour with beyonce.
00:20:40.767 --> 00:20:41.630
Yeah, that was 100.
00:20:42.392 --> 00:21:00.625
I guarantee you that was 100 strategic from a tax standpoint yeah because if you're able to hire your child into your business and, like I said, it has to be legitimate in the sense of like you can't have a one-year-old like running your social media account didn't drake, have his kid like, draw his album cover art it has to be like what I'm saying.
00:21:00.645 --> 00:21:03.634
It has to be legitimate in regards to what that child could actually do.
00:21:03.634 --> 00:21:04.805
Okay, okay, you know so.
00:21:04.805 --> 00:21:17.825
For example, like if your child's extremely young, like like, for example, with us with the Sugar Daddy podcast, we could use our kids in our social media marketing and that would be considered baby modeling and we could pay them as part of our business.
00:21:17.825 --> 00:21:25.838
Now, the reason you do that is because if you're going to contribute to any of these other accounts, why not contribute it with money that is not taxed?
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