Every Child Can Become a Millionaire

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millionaire Bill Ackman, chairman of Pershing Square Capital Management, has a great idea. He wants every child to become a millionaire by the time they retire. This idea is simple. The government invests $6,750 in an index fund for every child when they’re born. After 65 years, the investment would turn into a million dollars through the magic of compound interest (assuming 8%). That’s a pretty good idea, right? However, we all know this program would never get off the ground. There are too many other things to deal with. Also, it smells like socialism. Americans would never stand for that. We’re all about rugged individualism, good idea be damned. However, we don’t have to wait for the government to do this. Why not fund this program yourself?

Unfortunately, I didn’t think of this when our son was born. He’s 9 years old now so it’s a bit too late. If I invest $6,750 for him, it’ll turn into about $500,000 when he turns 65. That isn’t bad, but it isn’t a cool million. But it isn’t too late for soon to be parents out there. My brother just had a baby so this idea can help our nephew become a millionaire by retirement age.

How to invest for a baby

The easiest way to invest for a baby is to open a UTMA account. This is a custodial account and you control it until the child becomes an adult. This account is widely available. All the investment firms offer it. I learned about the UTMA account when our son’s piggy bank became too unwieldy. He saved up birthday gifts and accumulated over $200. Unfortunately, he began giving some money to his friends at school. (Run 5 laps and I’ll give you 2 dollars…) That’s very generous of him, but I don’t think it’s appropriate behavior. Surprisingly, he rarely spends money on toys. I guess our frugal habit rubbed off on him. Anyway, I figured it’s better to put the money in a bank account so the cash wasn’t tempting him. Then I found out banks don’t really offer kid savings accounts anymore. That led me to the UTMA account which is better than a savings account in every way.

Pros of UTMA

  • It’s easy to open and fund. Check it out at your brokerage.
  • No cap on contribution. But transferring over $15,000 per year will incur the federal gift tax. ($30,000 for a married couple.)
  • You can invest the money. Most saving accounts pay less than 1% interest these days. It’s way better to invest in the stock market.
  • This will teach kids about investing. My son and I check his UTMA account every month. He can see it shrink and grow. I’ve been trying to teach him how an index fund works, but he doesn’t quite get it yet. We’ll keep working on it. At least he knows investing is better than hoarding cash in the piggy bank.
  • The investment is taxed at the child’s tax rate.
  • The money in this account can be used on anything. It’s not limited to education like the 529 account.

Cons of UTMA

  • The child gains control at 21 or 18 years old, depending on the state. At that point, our son can do anything he wants with his account. I’ll encourage him to not touch it and set it aside for retirement. However, it might not last until he’s 65. Having extra money is too tempting for most young adults.
  • The UTMA account counts as student assets for FAFSA, the federal student financial aid. Students are expected to contribute 20% of their assets to their education. The parent’s assets are assessed at 5.64%. The $6,750 should grow to about $27,000 by the time the kid goes to college. This will reduce their financial aid by $5,400. (20% of $27,000.) Ouch! If this becomes an issue, you can always transfer the UTMA account to a parent’s account.

Our son’s UTMA


When our son was born we focused on putting money into his 529 account. Now, we have nearly $100,000 earmarked for college. Unfortunately, I didn’t know about the UTMA account and didn’t help him invest for retirement when he was a baby. We opened it when he was 6 and used the account as his first investment account. Also, it’s a good place to deposit his side hustle earnings. He helps me charge LIME scooters and gets 50%. He’ll have to make his first million the old fashion way – work. He still has a long way to go.

What do you think? Is it a good idea to help your kids become a millionaire?

Article about Bill Ackman’s idea on Marketwatch.

Image credit Viacheslav Bublyk

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, the job became too stressful and Joe retired from his engineering career to become a stay-at-home dad/blogger at 38. Today, he blogs about financial independence, early retirement, investing, and living a frugal lifestyle.

Passive income is the key to early retirement. This year, Joe is increasing his investment in real estate with CrowdStreet. He can invest in projects across the U.S. and diversify his real estate portfolio. There are many interesting projects available so sign up and check them out.

Joe also highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help DIY investors analyze their portfolio and plan for retirement.

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