UTMA's what to do ?? what to do ??

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UTMA's what to do ?? what to do ??

Postby gilbo » Mon Dec 03, 2012 12:05 am

well after being an idiot, thinking i would be a good parent, i started UTMA's for both of my kids, years ago, 13yrs ago, and 6 yrs ago, valued at 88k, 25k, now it seems to be a mistake, tax and finanical aid wise down the road.

both acct i have now stopped contibuting too, instead contribute to a 529.

what should i do with these acct, especially my daughters since she in the 8th grade now, withdrawl or liquidate completely ????
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Re: UTMA's what to do ?? what to do ??

Postby gtaylor » Mon Dec 03, 2012 10:07 am

It might be good to spend the money before you hit FAFSA. AFAIK it is kosher to reimburse yourself for non-support expenses: extracurricular activities, preschool and other education expenses, etc.

But I can see 88k being a trick to burn through.

If I recall correctly there is a mechanism to fund a 529 from a UTMA? Or was that from a Coverdell/ESA? Maybe such a transition would be beneficial for FAFSA purposes.
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Re: UTMA's what to do ?? what to do ??

Postby Grt2bOutdoors » Mon Dec 03, 2012 10:11 am

gtaylor wrote:It might be good to spend the money before you hit FAFSA. AFAIK it is kosher to reimburse yourself for non-support expenses: extracurricular activities, preschool and other education expenses, etc.

But I can see 88k being a trick to burn through.

If I recall correctly there is a mechanism to fund a 529 from a UTMA? Or was that from a Coverdell/ESA? Maybe such a transition would be beneficial for FAFSA purposes.


That is correct, you can fund a 529plan from a UTMA account.
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Re: UTMA's what to do ?? what to do ??

Postby sscritic » Mon Dec 03, 2012 10:18 am

Yes, and it will be a UTMA 529 owned by the minor. The only way to get the money away from the minor is to steal it or have the minor spend it.
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Re: UTMA's what to do ?? what to do ??

Postby gilbo » Mon Dec 03, 2012 12:35 pm

gtaylor wrote:It might be good to spend the money before you hit FAFSA. AFAIK it is kosher to reimburse yourself for non-support expenses: extracurricular activities, preschool and other education expenses, etc.

But I can see 88k being a trick to burn through.

If I recall correctly there is a mechanism to fund a 529 from a UTMA? Or was that from a Coverdell/ESA? Maybe such a transition would be beneficial for FAFSA purposes.



thanks we have already started using for like lessons,etc..., yea thats what i am tryin to figure out is even with 88k left, liquidate the postion or witdrawl as we need, but then i run into the postion growing :oops: :oops: :oops:
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Re: UTMA's what to do ?? what to do ??

Postby gilbo » Mon Dec 03, 2012 12:37 pm

Grt2bOutdoors wrote:
gtaylor wrote:It might be good to spend the money before you hit FAFSA. AFAIK it is kosher to reimburse yourself for non-support expenses: extracurricular activities, preschool and other education expenses, etc.

But I can see 88k being a trick to burn through.

If I recall correctly there is a mechanism to fund a 529 from a UTMA? Or was that from a Coverdell/ESA? Maybe such a transition would be beneficial for FAFSA purposes.


That is correct, you can fund a 529plan from a UTMA account.


i'll to check into that, is a 529-utma offered by all company or only certain ones
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Re: UTMA's what to do ?? what to do ??

Postby ziszew » Mon Dec 03, 2012 12:57 pm

gilbo wrote:well after being an idiot, thinking i would be a good parent, i started UTMA's for both of my kids, years ago, 13yrs ago, and 6 yrs ago, valued at 88k, 25k, now it seems to be a mistake, tax and finanical aid wise down the road.

both acct i have now stopped contibuting too, instead contribute to a 529.

what should i do with these acct, especially my daughters since she in the 8th grade now, withdrawl or liquidate completely ????


I think "idiot" might be a bit harsh and your intentions were good...

"What to do" is going to depend on a bunch of specifics, but it sounds like you want to have the money in a 529 instead of the UTMA. John Hancock has a decent overview for your situation in one of their broker oriented handouts ("good" being qualified by "broker oriented"), pdf link at the bottom as the only one I can get to work is long.

Your child will "own" the Custodial/UTMA 529 and the beneficiary can't be changed, but it will still be a 529 for financial aid purposes and less likely to be used for things other than a college education once they are of age and in control (if that is a concern).

How you get from a UTMA to a 529 in the most tax efficient manner possible depends on your situation, but my suggestion would be to sit down and figure out if you're using the UTMA to its fullest (paying for camps, lessons, tutors, school trips, special equipment, cell phones, computers, etc.) and then come up with a plan that balances expenses with taxes and conversion to a 529 over the timeframe you're looking at.

As always, talk with a good accountant about it to make sure you avoid problems with the IRS, but you should be able to get where you want to over the next 4 years.

PDF link: https://docs.google.com/viewer?a=v&q=cache:C8_x1NZXc64J:www.johnhancockfreedom529.com/broker/site/pdf/5291350_ugmautma_blackboard.pdf+&hl=en&gl=us&pid=bl&srcid=ADGEESj-xLAwK6rjlkY_D7_EfoVFUQbcxEy_KozkEvWtGOKn2ts7XZa4XqVjVsu9HooebdHXHJqRWx01852LtHbd03mBkbtXheVS38HTqwX9d0bKxKpv8zClLbikkC0GWhg2LoCj3b6F&sig=AHIEtbQZvihV32ivretsVx2yZkTr1UB2uA
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Re: UTMA's what to do ?? what to do ??

Postby sscritic » Mon Dec 03, 2012 1:01 pm

Wait until she is 16 then have her buy herself a Maserati with her money. The base prices are all over $100k, so that should take care of any growth between now and then. I don't think she has to list her car on her FAFSA.
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Re: UTMA's what to do ?? what to do ??

Postby ziszew » Mon Dec 03, 2012 1:01 pm

gilbo wrote:i'll to check into that, is a 529-utma offered by all company or only certain ones


From Vanguard's UGMA/UTMA page:
Tip: You can redeem an UGMA/UTMA held at another company and contribute the assets to a Vanguard UGMA/UTMA or Vanguard 529 Plan account. Note that such a transfer may be a taxable event.


My understanding is that the 529 plan will become a Custodial/UTMA type on creation when you explain how it was funded (proceeds from a UTMA). I can't be sure having not done so myself, but give Vanguard a call and I'm sure they can walk you through the specifics.
Last edited by ziszew on Mon Dec 03, 2012 1:03 pm, edited 1 time in total.
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Re: UTMA's what to do ?? what to do ??

Postby gtaylor » Mon Dec 03, 2012 1:03 pm

Oh, here's a pointer; there really is special case treatment for nominally minor-owned UTMA-funded 529 assets. They can sometimes be counted as parent money (bingo!): http://www.savingforcollege.com/article ... mautma-529

I knew I remembered something along these lines...
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Re: UTMA's what to do ?? what to do ??

Postby sscritic » Mon Dec 03, 2012 1:09 pm

gtaylor wrote:Oh, here's a pointer; there really is special case treatment for nominally minor-owned UTMA-funded 529 assets. They can sometimes be counted as parent money (bingo!): http://www.savingforcollege.com/article ... mautma-529

The problem is that FAFSA changes the rules every year; just look at all the references to 2008-2009 year, 2010-2011 year, etc. I don't know what the rules will be for the 2017-2018 year.
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Re: UTMA's what to do ?? what to do ??

Postby ziszew » Mon Dec 03, 2012 1:18 pm

sscritic wrote:
gtaylor wrote:Oh, here's a pointer; there really is special case treatment for nominally minor-owned UTMA-funded 529 assets. They can sometimes be counted as parent money (bingo!): http://www.savingforcollege.com/article ... mautma-529

The problem is that FAFSA changes the rules every year; just look at all the references to 2008-2009 year, 2010-2011 year, etc. I don't know what the rules will be for the 2017-2018 year.


No one does.

However, it's highly unlikely that a 529 will ever be "worse" than a UTMA for FAFSA purposes.
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Re: UTMA's what to do ?? what to do ??

Postby gtaylor » Mon Dec 03, 2012 1:24 pm

sscritic wrote:
gtaylor wrote:Oh, here's a pointer; there really is special case treatment for nominally minor-owned UTMA-funded 529 assets. They can sometimes be counted as parent money (bingo!): http://www.savingforcollege.com/article ... mautma-529

The problem is that FAFSA changes the rules every year; just look at all the references to 2008-2009 year, 2010-2011 year, etc. I don't know what the rules will be for the 2017-2018 year.


Well, that's certainly true. It may just be something to watch for a year or two until you come up against the drop-dead period that the first FAFSA cycle will look back at. (10th grade? 11th grade? I'm not actually there yet so I don't know, and yet again they may change what they look at at any time).

It does seem clear that you should try to spend down what you can. Ask an in-state lawyer about it; conceptually the rules allow reimbursement for out of pocket non-support expenses, so find out if it would be kosher to reimburse yourself for preschool, dance class, extracurricular activities, all that sort of thing from the past 10+ years. Might be a stretch, or maybe this is almost commonplace as it is for HSA accounts.
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Re: UTMA's what to do ?? what to do ??

Postby gilbo » Mon Dec 03, 2012 2:13 pm

folks thanks for all the help

ziszew thanks for the link, yea that our goal is to get the funds out of the UTMA in the most tax efficent way. just with a quick glance over the article, looks like the kiddie tax, gonna happen whether we go regualr 529 or 529-utma.
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Re: UTMA's what to do ?? what to do ??

Postby sscritic » Mon Dec 03, 2012 2:21 pm

gilbo wrote: looks like the kiddie tax, gonna happen whether we go regualr 529 or 529-utma.

How much of the $88k is gains? Your child can have $1900 of investment gains this year, $2000 next year, and so on for the next so many years without the kiddie tax. In fact, if they are all long term cap gains, the tax rate is 0%. [This assumes no other income.]

At the very least, split your sales between December and January if you want to fully liquidate now.
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Re: UTMA's what to do ?? what to do ??

Postby Grt2bOutdoors » Mon Dec 03, 2012 2:26 pm

Pardon my ignorance, if the UTMA is used for higher education, are there income taxes on the monies assuming you take the first $950 and second $950 of additional income at 10% tax rate prior to kiddie tax and have been filing over time (first 13 years)?
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Re: UTMA's what to do ?? what to do ??

Postby sscritic » Mon Dec 03, 2012 2:33 pm

Grt2bOutdoors wrote:Pardon my ignorance, if the UTMA is used for higher education, are there income taxes on the monies assuming you take the first $950 and second $950 of additional income at 10% tax rate prior to kiddie tax and have been filing over time (first 13 years)?

Education has nothing to do with it, and if you are in the 10% bracket the tax on qualified dividends and long term gains is 0%, not 10%. If the OP has been tax gain harvesting every year for the last 13 years up to the $1900 dollars (or whatever it was at the time - let's see 2012 minus 13 is 1999, so the tax laws were different at the time, but the current rules have been in place for a while), there should be very little gain left.
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Re: UTMA's what to do ?? what to do ??

Postby gilbo » Mon Dec 03, 2012 2:47 pm

sscritic wrote:
gilbo wrote: looks like the kiddie tax, gonna happen whether we go regualr 529 or 529-utma.

How much of the $88k is gains? Your child can have $1900 of investment gains this year, $2000 next year, and so on for the next so many years without the kiddie tax. In fact, if they are all long term cap gains, the tax rate is 0%. [This assumes no other income.]

At the very least, split your sales between December and January if you want to fully liquidate now.


now ru askin how much of the 88k is gain since the inception of the utma, or how much of the 88k is gains just for 2012 ?

since the inception a boatload, for 2012 alone, i'll have to look when i get home
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Re: UTMA's what to do ?? what to do ??

Postby sscritic » Mon Dec 03, 2012 2:54 pm

gilbo wrote:now ru askin how much of the 88k is gain since the inception of the utma, or how much of the 88k is gains just for 2012 ?

since the inception a boatload, for 2012 alone, i'll have to look when i get home

You said you wanted to liquidate. When you sell everything you pay tax on your capital gain, proceeds minus basis. If you have been reinvesting dividends, those reinvestments are part of your basis. Maybe your boat sprung a leak and your boatload isn't as full as you think. Facts matter for taxes as well as other things. Note that previous years' interest on a CD is not a gain as the tax on it would have already been paid.

Whatever your gains are, I suggested splitting them over two tax years, or even three if you can wait for January 2014 for the last sale.

P.S. Have you ever sold a fund or stock and filled out Schedule D? Your question leads me to wonder. When you computed your capital gain, did you only look at the last year or did you look at the gain from the date of purchase?
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Re: UTMA's what to do ?? what to do ??

Postby sscritic » Mon Dec 03, 2012 3:25 pm

It's not even the gain since the beginning. If you bought a fund 10 years ago and sold it 3 years ago and bought something else, the gain that counts is the gain on the something else since you bought it 3 years ago. The tax on the gain on the fund bought 10 years ago should have been paid 3 years ago when it was sold on the tax return your child filed that year.
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Re: UTMA's what to do ?? what to do ??

Postby umfundi » Mon Dec 03, 2012 5:01 pm

gilbo wrote:well after being an idiot, thinking i would be a good parent, i started UTMA's for both of my kids, years ago, 13yrs ago, and 6 yrs ago, valued at 88k, 25k, now it seems to be a mistake, tax and finanical aid wise down the road.

both acct i have now stopped contibuting too, instead contribute to a 529.

what should i do with these acct, especially my daughters since she in the 8th grade now, withdrawl or liquidate completely ????

I don't think for a moment you are an idiot.

I would stop UTMA contributions for the oldest child, and fund a 529 instead. I would continue UTMA contributions for the youngest child up to the same age, and then also switch to a 529.

In the absence of differing needs, treat your children more or less equally.

I would not obsess about taxes or about FAFSA. Think, rather, about having your kids graduate from college debt free.

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