Transcript of Nicole Opened These 3 Accounts for Her 1-Year-Old. Here's Why. New

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I'm about to head out on a trip for 10 whole days.

I'm actually not going far from my home in LA. I wanted to minimize travel time and maximize leisure.

I'm gonna put the out of office, up on my inbox, and retreat from the world to rest. I don't think I've ever gone away that long in my entire life, certainly not in the last 20 years. Honestly, it's a little scary. What will happen at work if I'm not always in my inbox and working on deals?

As you can tell, I have a lot of anxiety about going and guilt.

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I'm Nicole Lapin, the only financial expert you don't need a dictionary to understand. It's time for some money rehab.

Mama, you have—

I posted something a few weeks ago that honestly I did not expect to blow up the way it did. It was about my daughter and the accounts I opened for her. And the line that seemed to hit the hardest and get most resonance wasn't actually about the accounts at all. It was this. This wasn't just financial planning. It healed something within me. Because when my daughter was born, I didn't just open savings accounts for her. I opened the ones I wish someone had opened for me. I set up a 529 for education, not because college is guaranteed, but because options matter. I grew up watching people make decisions based on what they could afford in that very moment, not what they actually wanted in the long run. And I didn't want that for her. When I posted this, I got a bunch of messages messages from parents, from people who had never had these conversations with their parents, from people who grew up in households where money was a source of dread, not a tool, and who are now trying to break that cycle for their own kids. So today I'm going to go deeper into the accounts that I opened for my daughter.

These will help you with your kids, but it might help you with something for yourself as well. And let's double-click on the account that I just mentioned, the 529 A 529 plan is a tax-advantaged investment account for educational expenses. You've probably heard of it. What you might not know though is that it is far more flexible than it used to be. Yes, it covers tuition, books, room and board, even a required laptop, but it can also be used for K-12 tuition up to $20K per year, trade schools, apprenticeships, and even some international institutions. And thanks to a relatively new change, if your kid doesn't use the money for school at all, you can roll up to $35,000 of unused 529 funds into a Roth IRA in their name as long as the account has been open for at least 15 years. That means that college savings can become retirement savings, and that is a massive, massive shift. Here's what I want to tell every parent who's just had a baby: open the 529 before the rest of life gets really loud and messy. The math on time is unforgiving. If you contribute $250 a month from birth, assuming a roughly 7% average annual return, you're looking at well over $100K by the time your kid is 18.

And over the course of those 18 years, you'll have only contributed about $54,000 to grow the account to $100,000. But if you wait until your kid is, let's say, 10 to start, that account will end up being closer to $30,000 by the time they turn 18. Same monthly contribution, very different outcomes. That's what compounding does for you when you're early. Now, here's the move that most parents don't know about. The IRS allows for something called super funding. You can frontload 5 years worth of contributions up to $95,000 per beneficiary without triggering federal gift tax, as long as you don't contribute again during those 5 years. And if you need a refresher on the federal gift tax rules, I just did an episode about that and I'll link it in the show notes. So if you come into some bonus cash, this is one of the smartest places to direct it. One lump sum that gets 18 years of tax-free growth to do its thing. And just to really follow the money trail here, in the last example I said contributing $54K spread out over the course of 18 years could grow to over $100K. If you invest that $54K all at once when your kid is born and let it grow for 18 years, that initial investment could grow to over $182,000.

Again, compound interest, glorious. The 8th wonder of the world. And one more thing on 529s: you're not locked into your own state's plan. Your state might offer a tax deduction for in-state contributions, which is definitely worth checking, but if your state does not, you can absolutely shop around nationally. Plans from Utah, Nevada, and Ohio consistently rank among the lowest-cost, best-performing plans in the country. You can use a 529 plan from any state, but if you use your home state's plan, you might get some extra tax perks. So definitely treat it like any other investment decision and shop around. Here's the second account I opened for my daughter: a custodial brokerage. This one is different in feel and in function. A custodial brokerage is a regular investment account held in your kid's name, managed by you until they hit the age of majority. In most states, that's 18. In others, it's 21. So you might see these called UGMAs or UTMAs, which sounds like something you would name an evil stepmother in a Disney movie, but these accounts are actually a fairy tale. Unlike a 529, there are no rules about what that money can used for college, a car, a down payment, a business, a gap year in Bali, or nothing, and just let it keep growing.

The flexibility here is the point. Here's the honest trade-off though. Because these assets legally belong to the kid, they count more heavily against financial aid eligibility than a 529 does. A student's assets reduce aid eligibility at a rate of 20% compared to the under 6% for parent-owned assets. So if financial aid is part of your plan, definitely factor that in. So this account works best when it's paired with communication. Open it early, let them watch it grow, and critically, talk to them about it. Frame money as an important tool for their future, not arcade tokens. That's actually why I opened this account for my daughter, to show her that money can grow quietly in the background while you are out there living your best life. That investing does not have to be a full-time job, it can be a habit, and a lucrative one. Now for account 3. The custodial Roth IRA. This is one that gets people's attention because most of my clients at my firm, Private Wealth Collective, have never heard of it for kids this young. And when I say my 1-year-old daughter has one, I understand exactly why a retirement account for a 1-year-old sounds insane.

But here's how it works. A custodial Roth IRA is a retirement account that a parent opens on behalf of the kid. You're the custodian, he or she is the beneficial owner. You manage it until they reach the age of majority, and then it transfers fully to them. The account follows the same rules as with a standard Roth IRA. Contributions are made with after-tax dollars, the growth is federally tax-free, and qualified withdrawals in retirement are tax-free. Unlike custodial brokerage accounts and 529 plans, with custodial Roth IRAs, parents cannot fund this account with their own income. Your kid has to have earned income from a W-2, a 1099, from babysitting, from lawn mowing, anything really that's reportable to the IRS. And there are contribution limits, just like with adult Roth IRAs. The limit in 2026 is $7,500. Now I need to give you the number that changes everything, because the power of this account is almost embarrassing when you run the math. A one-time contribution of $7,500 into a Roth IRA no additional contributions at all, would grow to approximately $600,000 over 65 years at a 7% average annual rate of return. For reference, the S&P 500 has historically averaged around 7% annually over long periods of time.

So a kid who starts a Roth IRA at 15 and contributes $3,000 a year could have over $1.2 million by retirement age. And if your kid like mine starts earlier, the runway is even longer. More time is more money. I really hate clichés, but this one is real. One more important note on the financial aid question. Unlike a custodial brokerage, the balance in a Roth IRA does not factor into federal financial aid formulas. That means it's not going to count against FAFSA calculations, though if withdrawals are taken, that income could affect the following year's eligibility. So it's a cleaner vehicle than a custodial brokerage from a financial aid perspective. Here's the last thing I want to say. I grew up in a household where money was reactive. You dealt with it when something became a problem. Bills were really stressful. Timing was really tight. There was no framework for thinking about the future because the present was always so loud. When I set up these accounts for my daughter, I wasn't just doing financial planning. I was actively rewriting the script. I was making a decision that she would grow up in a house where investing is boring and normal and it's totally expected, not a privilege, not an emergency.

Where compound interest works for her, not against her. Where she doesn't have to figure out any of this stuff in her 30s from scratch like her mom did. For today's tip you can take straight to the bank: if your kid is making money through a side hustle or allowance, birthday money, whatever, help them make a spending plan. As important as it is to start saving early, make those custodial Roth IRA contributions, it's just as important to encourage them to spend some money too. I bet you weren't expecting me to say that, but you do want to encourage your kids to reward themselves for their work. Money should be fun after all. The key is having a conversation with them where you help them decide how much to spend, how much to save, and how much to give away.