Procedure for loss harvesting from UTMA to UTMA 529

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Topic Author
Ken Reckers
Posts: 56
Joined: Fri Apr 20, 2007 9:52 am

Procedure for loss harvesting from UTMA to UTMA 529

Post by Ken Reckers »

I want to take harvest some losses held in a UTMA (Wellington) by liquidating some (not all) and investing in a UTMA 529 (different funds, but changing the overall asset allocation as little as possible). The UTMA 529 is Illinois.

I want to specify shares.

My basic question is, what is the procedure regarding using a checking account as a "stepping stone" to get from one to the other?

For example, I have the following sorts of questions, but not all of them may need to be answered, depending.

How do a request the check to be payable? Daddy Reckers Cust FBO Kid Reckers? Kid Reckers? Or can I simply request the check payable to the owner of record, and let Vanguard decide?

Do I deposit that check in my own acct, then write a new check from my acct to the UTMA 529 (indicating on the application that the funds are coming from a UTMA source)?

Or can I do an ACH?

Do I have to open a checking acct in the name of Kid? Or a UTMA checking acct (if there is such a thing)? It would just be used as a stepping stone. Maybe a low fee, low minimum credit union account?

Maybe I could open a UTMA Prime MM account, specify shares to transfer to that, then write a check from it to the UTMA 529? The total I would be moving would only be about $3K for now. Not sure if it makes sense to open a Prime MM acct, only to close it out immediately.

The questions seem like they should have obvious answers, but I can't find them.

Also, do I then expect a 1099B early next year, w/ the SS# of Kid? Any other tax form generated from withdrawing from a UTMA?

Thanks.

"Ken"
LynnSwann
Posts: 125
Joined: Sun Jun 01, 2008 1:02 pm

Post by LynnSwann »

Ken, you should have no problem just requesting that a check be sent to you. You can then put it in your personal checking account and then send in a check to the kid's 529 plan.

Have you considered "spending" this money on the child's behalf and then putting the same amount of money into a 529 plan that you own? I ask because this is preferable in many instances.
Topic Author
Ken Reckers
Posts: 56
Joined: Fri Apr 20, 2007 9:52 am

Post by Ken Reckers »

LynnSwann wrote:Have you considered "spending" this money on the child's behalf and then putting the same amount of money into a 529 plan that you own? I ask because this is preferable in many instances.
I did consider it. Although I probably won't do it that way, I'll re-check my thinking before going forward. Thanks for the idea.

Thanks for the checking account answer. It's funny how I gladly send my money to Vanguard without giving much thought to how I'll get it out. Not necessarily a bad system, though. :)
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zzcooper123
Posts: 539
Joined: Sat Oct 13, 2007 5:55 pm

UTMA and 529 plan

Post by zzcooper123 »

Maybe I'm confused, but never heard of a UTMA 529 plan. The capital losses would be used against the child's income. You are the custodian. Most 529 plans require the check made out directly to them and be for cash. The child has educational expenses, right? Dues, tuition,books, trips, classes....these funds can be removed from the UTMA acct. by check, deposted in your checking account and then to 529. The 529 plan doesn't care where the money came from.
Wagnerjb
Posts: 7213
Joined: Mon Feb 19, 2007 7:44 pm
Location: Houston, Texas

Re: UTMA and 529 plan

Post by Wagnerjb »

zzcooper123 wrote:Maybe I'm confused, but never heard of a UTMA 529 plan. The capital losses would be used against the child's income. You are the custodian. Most 529 plans require the check made out directly to them and be for cash. The child has educational expenses, right? Dues, tuition,books, trips, classes....these funds can be removed from the UTMA acct. by check, deposted in your checking account and then to 529. The 529 plan doesn't care where the money came from.
Yes, a UTMA 529 account exists. The difference between this and a regular 529 is that the child "owns" the 529 and the funds cannot be spent for another child (as I recall).

With a UTMA, the funds belong to the child and must be spent for the child's benefit. If these UTMA funds are put into a 529 and later spent for another child this would violate the UTMA provision, so the 529 institutions must keep these kinds of accounts separate.

Best wishes.
Andy
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