Fabric UGMA Review: Pros, Cons, and Alternatives

What Is Fabric?

Fabric is a financial platform founded by Gerber Life Agency, a division of the Gerber Life Insurance company. Fabric offers financial products for families, including life insurance, wills, and custodial investment accounts. For this review, we are focusing on its UGMA account.

What Does It Offer?

Fabric UGMA is a flexible custodial account that allows money to be invested on behalf of a child. It's designed for families who wish to start investing for their children's future, and is easily accessible online.  

Custodial UGMA Accounts

UGMA accounts are custodial accounts, which means that the funds in a the account belong to the child but are managed by an adult custodian, usually a parent or guardian, until the child reaches the age of majority (usually between 18 and 21). There are possible tax advantages if the child can pay lower taxes on investment gains or losses. 

Simplified Investing

Fabric's platform guides you through the setup process, helping you select a portfolio based on your goals and risk tolerance. It allows you to set up automated investing options with an incredibly intuitive user interface. In other words, you don't have to be an experienced investor to get things set up. 

Financial Flexibility

Fabric UGMA gets high marks for its flexibility. There are no restrictions on how the money can be used (outside of the legal requirement that they must benefit the child). For example, you can make withdrawals, without incurring penalties, for education, sports equipment, or even an eventual wedding. Fabric's pricing is also very transparent, with no hidden fees. 

Easy To Try

You can cancel your UGMA account at any time, and there is also a 30-day free trial, so you can explore the Fabric platform without making a commitment up front. 

What Can UGMA Accounts Be Used For

As mentioned, you can use UGMA accounts for almost anything that benefits your child, from paying for preschool, dance lessons, or band uniforms while they're still minors, to paying for college expenses, a first car, or first home after they become adults.

If funds are not used for the child's benefit, there could be tax implications 

UGMA Accounts Vs. 529 Plans

It makes sense to compare UGMA accounts to 529 college savings plans. There are some similarities, but also key differences, the main one being flexibility. 529 plans are designed specifically for education expenses, and non-qualified withdrawals can result in penalties and taxes. UGMA accounts are not limited to education and can be used to fund anything that benefits the child at any stage of life. However, UGMA assets belong to the child, which means that they could impact financial aid eligibility more than 529 plans. 

Are There Any Fees?

Fabric UGMA accounts do not charge any administration fees. There is a monthly fee of $3.00 for a single account, or $5.00 for multiple accounts. These monthly fees cover all transaction costs, like custodial fees, brokerage commissions, stock transfer fees, etc. In the first 6 months, you must make a minimum contribution of $20 per child to keep the account open. 

How Does Fabric UGMA Compare?

Parents have many other options for saving for their child's future besides the Fabric UGMA. Two popular options include FutureMoney, a tax-advantaged investing platform that lets kids start investing at a young age, and Acorns Early, a custodial account that lets parents take advantage of micro-investing.  

How Do I Open An Account?

You can open an account online through Fabric's website or app. You'll need to provide personal information for the custodian and child, including the child's SSN. You'll then be asked to choose an investment portfolio based on our financial goals and risk tolerance, and decide how to fund the account. 

Is It Safe And Secure?

Fabric UGMA accounts are protected by the SIPC for up to $500,000. This doesn't protect against investment losses from downturns in the market. Instead, it safeguards investors in the event the brokerage becomes insolvent. 

How Do I Contact Fabric?

You can contact Fabric customer support via live chat, telephone, and email. Representatives are available from 9-6 ET, Monday to Friday. Customers can call (917) 765 3572 or email [email protected]. 

Is It Worth It?

The Fabric UGMA can be a great option for parents or guardians who want a simple and flexible custodial investment account with low fees and easy setup. It's ideal if you want to start investing not only for education, but also for other life goals beyond college. If you want deeper portfolio customization, you might be better off with a traditional brokerage like Fidelity or Charles Schwab, which also offer custodial accounts. If your primary goal is college savings, a 529 plan might be the better choice. Another option would be to combine a Fabric UGMA with a 529 plan to give your child the best of both worlds.  

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