As with any UGMA account, when it comes time to fill out the FAFSA (Free Application for Federal Student Aid), the money in this account is reported as a child’s asset. This reduces aid eligibility by 20% of the asset value. This means less opportunity for free money known as grants, the chance to participate in work-study programs, or for federal student loans, which have much more favorable benefits than private student loans. On the other hand, 529 plans, whether owned by the parent or child, are treated as a parent asset and reduce aid eligibility only up to 5.64% of the asset value.
UGMA accounts don’t offer the same tax benefits of a 529 plan.
While Acorns’ fees are quite small for larger accounts, they can be hefty if you only have a small balance. Say for example, your account balance is only $100. With a $5 a month fee, this would come out to $60 a year and eat up 60% of your account balance. Once you get to $5,000, Acorns’ fees would only account for 1.2% of your account balance. But during the earlier stages, the fees can be substantial in comparison to how much you’ve saved.
You’ll also get hit with account fees if you ever decide to move your money from Acorns Early to another account. As of 2020, Acorns charges $50 per exchange-traded fund (ETF).
The other main issue is that the size of Acorns’ robo-advisor portfolio is rather small compared to other options and consists of just five to seven asset classes. Although this is certainly enough to be considered a diversified portfolio, there are similar types of UTMA/UGMA accounts that are less restrictive.
Who Acorns Early is Best For
It’s ideal for people who:
Want a “spare change” account to invest in the future of a child and don’t want the limitations of a 529 plan and don’t mind losing out on the tax and financial aid benefits of a 529 plan
Want to make Automated Recurring Investments
Want to learn more about investing along the way
Bottom Line Recap
Acorns Early is a UTMA/UGMA account that allows parents, guardians, or family members to invest money into a child’s account that becomes available once they reach adulthood. It’s quick and easy to set up and is a great way to dip your toes in the water of investing. Sign up here.
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