If you’ve got kids showing livestock in 4H or FFA, you’ve probably wondered what to do with the proceeds, huh? You’re not alone, and you’re also in luck. Let’s take that uncertainty and turn it into a teaching moment about the power of investing!

An Oink, A Moo, and A Dividend or Two

Remember when Johnny’s pig, Mr. Bacon Bits, won the blue ribbon and sold for a tidy sum at the county fair? Yeah, that was a proud parent moment! Johnny was beaming, and his bank account was a tad happier too. But what if, instead of blowing it all on the latest video game console or a dirt bike, we put that money to work?

That’s right, folks! Imagine the look on Johnny’s face when he realizes that Mr. Bacon Bits’ legacy isn’t just a fleeting memory, but a growing investment that can fund his college education or a down payment for his first house. Gives you the chills, doesn’t it?

Show Me the Money!

Investing can be as simple as picking the right savings account or as complex as deciphering the cryptic world of cryptocurrencies. But fear not, my fellow parent warriors, we won’t venture into the digital currency wilderness today.

Instead, let’s focus on something more accessible – a 529 College Savings Plan or a UTMA account (Uniform Transfer to Minors Act). These tools are designed to turn a small initial investment or regular systematic investments into a significant sum over time. Think of it like planting an acorn today and watching it grow into a mighty oak tree, reaping benefits for years to come. Can you feel the breeze rustling through your future money tree? I sure can!

UTMA vs 529

The 529: Education Centric with a Sting. There are a few things to consider when setting up one of these plans. First, do you want the money to be solely for higher education expenses? With a 529 plan, any money used for non-education expenses will incur a 10% penalty and will be subject to federal income tax. So, if Johnny or Susie may not be headed off to higher education in the future, this account isn’t a good fit.

You may have heard about some 529 plan tax benefits, but they are watered down in Washington State. One of the most talked about tax benefits of the 529 are state tax deductions or tax credits. Since Washington does not have a state income tax, and does not offer the tax credits, this benefit does not exist. However, your contributions will grow federally tax free and are not subject to federal income tax if they are used on education expenses.

The UTMA: Flexibility at a Price. The UTMA is the more versatile of the two accounts. The money can be used for anything that directly benefits your child. Education, a first car, seed money to start a business, down payment on a home, or even a once-in-a-lifetime trip to Europe. Sweet freedom right?

But, there’s a catch! Once your child hits 21, the account transfers to them, and they get full control of the funds. This isn’t necessarily a bad thing, just something to consider.

Invest for Keeps: Johnny’s Journey on the S&P 500 Express. Let’s get our feet wet with a real-world scenario, shall we?

Imagine this – back in 2012, young Johnny was just a fifth-grader showing his first animal and participating in the livestock auction. Each year, through sheer hard work and a sprinkle of luck, he received $1,000 from his livestock sales which he diligently invested in the S&P 500. A thousand bucks a year, that’s it.

Fast forward to his senior year of high school, Johnny sold his last animal and stopped adding to his investment pot. But hold your horses; the story doesn’t end here! Johnny’s investment kept chugging along on the S&P 500 Express, even though he stopped fueling it with fresh funds.

Now, we’ve landed in 2023, and Johnny has over $20,000 in his account without adding a single penny after high school! Sounds unreal, doesn’t it? But that’s the magic of long-term investing.

This just goes to show that you don’t have to break the bank to build an investment portfolio.

In Closing: As parents, we’re continually making choices that shape our children’s futures. Guiding them to invest their earnings from livestock sales isn’t just about the money. It’s about instilling values of financial responsibility, long-term planning, and yes, a little bit of patience. In doing so, we’re not only growing their bank accounts but also fostering a mindset that could serve them for the rest of their lives.