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bagelhead
Posts: 181
Joined: Thu Mar 17, 2011 12:20 am

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Post by bagelhead » Sat Nov 03, 2018 2:44 pm

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Last edited by bagelhead on Wed Jan 01, 2020 9:29 pm, edited 1 time in total.

glennherwig
Posts: 20
Joined: Wed Oct 24, 2018 7:52 pm

Re: UTMA Concepts

Post by glennherwig » Sat Nov 03, 2018 3:03 pm

You might be right. But I believe there is a kiddie tax that prevents this form happening. I believe the kiddie tax forces children with UTMA accounts to file under their parents bracket. I may be mistaken.

sport
Posts: 8721
Joined: Tue Feb 27, 2007 3:26 pm
Location: Cleveland, OH

Re: UTMA Concepts

Post by sport » Sat Nov 03, 2018 3:07 pm

I just used those accounts to keep my children's money separate from mine. If they earned it, or it was given to them, they kept it.

Spirit Rider
Posts: 12208
Joined: Fri Mar 02, 2007 2:39 pm

Re: UTMA Concepts

Post by Spirit Rider » Sat Nov 03, 2018 4:40 pm

glennherwig wrote:
Sat Nov 03, 2018 3:03 pm
You might be right. But I believe there is a kiddie tax that prevents this form happening. I believe the kiddie tax forces children with UTMA accounts to file under their parents bracket. I may be mistaken.
You are mistaken/out-of-date on the Kiddie Tax

In 2017, the first $2100 in unearned income was either tax-free or taxed at the dependent's marginal tax rate. Unearned income > $2100 was taxed at the parents marginal tax rate.

In 2018, the first $2100 in unearned income is either tax-free or taxed at the dependent's marginal tax rates. The TCJA changed unearned income > $2100 to be taxed at trust marginal tax rates.

Spirit Rider
Posts: 12208
Joined: Fri Mar 02, 2007 2:39 pm

Re: UTMA Concepts

Post by Spirit Rider » Sat Nov 03, 2018 5:03 pm

bagelhead wrote:
Sat Nov 03, 2018 2:44 pm
New to UTMA's. Please let me know if my understanding is accurate.
You may have some understanding of the new Kiddie Tax rules, but that is not remotely the whole story.

However, it misses the fundamental points of UTMA accounts. They are custodial accounts for the benefit of a minor. Any transfer to a UTMA is an irrevocable gift to that minor. This means that it is their money. The custodian has a fiduciary responsibility to the minor. They must turn over control of the account when the minor reaches the UTMA age of termination for their state.

The taxation requirements of UTMA accounts are just that and fall to the responsibility of the parents/beneficiary. The parents may or may not be the custodian potentially complicating the situation.

BH might focus on tax avoidance when possible, but we try not to let that drive everything we do.

bubbadog
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Joined: Wed Mar 26, 2014 9:17 pm
Location: Cincinnati,Ohio

Re: UTMA Concepts

Post by bubbadog » Sat Nov 03, 2018 5:12 pm

I never used my childrens' UTMA accounts for tax avoidance.

It was used as a teaching and investment tool for monies they earned or were given for birthdays/holidays.

I do offer a generous matching incentive to encourage them to invest some of their earnings.

Spirit Rider
Posts: 12208
Joined: Fri Mar 02, 2007 2:39 pm

Re: UTMA Concepts

Post by Spirit Rider » Sat Nov 03, 2018 7:06 pm

bubbadog wrote:
Sat Nov 03, 2018 5:12 pm
I never used my childrens' UTMA accounts for tax avoidance.
You say that as if tax avoidance (minimization) in and of itself is a bad thing.

If you are going to gift money to a UTMA anyway, it makes sense to gift highly appreciated stock in kind rather than selling it yourself, paying the capital gains taxes, and gifting the cash. Then the custodian can sell that stock up to the dependent's 0% capital gains limit tax-free. If it is more than can be done in one year, it can be done over multiple years.

This is just another form of Tax Gain Harvesting (TGH), that should be done yearly on capital gains even if the gifts were cash. In modest UTMAs, there should be no good reason for the beneficiary to be subject to capital gains taxes on highly appreciated securities.
It was used as a teaching and investment tool for monies they earned or were given for birthdays/holidays.
There is no reason why it can't also be used to teach tax minimization and preparation.
I do offer a generous matching incentive to encourage them to invest some of their earnings.
If they have earned income,it would be much better if the money is contributed to a UTMA Roth IRA in their name. If the custodian has been doing TGH all along, money could be withdrawn from the UTMA to maximize their UTMA Roth IRA contribution space tax-free. So lets say they contribute $1000 and you match $1000, the remaining lesser amount of their earned income or the IRA contribution limit could be transferred from the UTMA to the UTMA Roth IRA tax-free.

bubbadog
Posts: 868
Joined: Wed Mar 26, 2014 9:17 pm
Location: Cincinnati,Ohio

Re: UTMA Concepts

Post by bubbadog » Sun Nov 04, 2018 12:15 am

Spirit Rider wrote:
Sat Nov 03, 2018 7:06 pm
bubbadog wrote:
Sat Nov 03, 2018 5:12 pm
I never used my childrens' UTMA accounts for tax avoidance.
You say that as if tax avoidance (minimization) in and of itself is a bad thing.

If you are going to gift money to a UTMA anyway, it makes sense to gift highly appreciated stock in kind rather than selling it yourself, paying the capital gains taxes, and gifting the cash. Then the custodian can sell that stock up to the dependent's 0% capital gains limit tax-free. If it is more than can be done in one year, it can be done over multiple years.

This is just another form of Tax Gain Harvesting (TGH), that should be done yearly on capital gains even if the gifts were cash. In modest UTMAs, there should be no good reason for the beneficiary to be subject to capital gains taxes on highly appreciated securities.
It was used as a teaching and investment tool for monies they earned or were given for birthdays/holidays.
There is no reason why it can't also be used to teach tax minimization and preparation.
I do offer a generous matching incentive to encourage them to invest some of their earnings.
If they have earned income,it would be much better if the money is contributed to a UTMA Roth IRA in their name. If the custodian has been doing TGH all along, money could be withdrawn from the UTMA to maximize their UTMA Roth IRA contribution space tax-free. So lets say they contribute $1000 and you match $1000, the remaining lesser amount of their earned income or the IRA contribution limit could be transferred from the UTMA to the UTMA Roth IRA tax-free.
It was not my intent to suggest tax avoidance (minimization) is a bad thing. It was just not the reason for the UTMA accounts in the first place.

Once my oldest child got a part time job and had earned income beyond a few hundred dollars for odd jobs, we did switch to a Roth IRA for his investments.

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