savings account in kids name

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stanguy
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Joined: Fri Mar 02, 2012 1:37 pm

savings account in kids name

Post by stanguy » Fri Jul 12, 2013 2:13 pm

So, I've been thinking about this for a while.
I have a portion of my emergency savings in an online savings account jointly held by my wife and me.
Why not put it in an account that the primary SSN is my son, and joint with my wife and me. This would allow the interest income to be taxed at his rate. And from what I understand, income of less <$1800 for someone under a certain age is tax free.

We could transfer this back to our account year or so before college if needed - long time to go for that right now.

Any comments? Horrible idea?

Grt2bOutdoors
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Re: savings account in kids name

Post by Grt2bOutdoors » Fri Jul 12, 2013 2:24 pm

stanguy wrote:So, I've been thinking about this for a while.
I have a portion of my emergency savings in an online savings account jointly held by my wife and me.
Why not put it in an account that the primary SSN is my son, and joint with my wife and me. This would allow the interest income to be taxed at his rate. And from what I understand, income of less <$1800 for someone under a certain age is tax free.

We could transfer this back to our account year or so before college if needed - long time to go for that right now.

Any comments? Horrible idea?
An account that is opened for a minor under the Uniform Transfer to Minors Act - notice the second word - "transfer", that means an irrevocable movement of assets from you to him. It's not a "we give to you now, we take it back when we feel like it". Once the money moves into that account, the assets belong to your son. If you then withdraw from his account, he could technically sue you for misappropriation - not saying that is going to be the outcome, but the intent upon opening the account is quite clear. http://www.fairmark.com, has more on what a UTMA is.
Last edited by Grt2bOutdoors on Fri Jul 12, 2013 4:32 pm, edited 1 time in total.
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lwfitzge
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Re: savings account in kids name

Post by lwfitzge » Fri Jul 12, 2013 2:28 pm

stanguy wrote:So, I've been thinking about this for a while.
I have a portion of my emergency savings in an online savings account jointly held by my wife and me.
Why not put it in an account that the primary SSN is my son, and joint with my wife and me. This would allow the interest income to be taxed at his rate. And from what I understand, income of less <$1800 for someone under a certain age is tax free.

We could transfer this back to our account year or so before college if needed - long time to go for that right now.

Any comments? Horrible idea?

I'm not a tax attorney but there are definitions of tax avoidance and tax evasion and placing "emergency income" you retain for "emergencies, i.e., living expenses, could be viewed as evasion. The government will remind you that there are tax shelters for kids education available to you.

Edit: Actually the IRS has changed code back in 1980's to close this tactic - google kiddie tax....IRS topic 553.... any unearned income above $1900 taxed at parent tax rate

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dm200
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Location: Washington DC area

Re: savings account in kids name

Post by dm200 » Fri Jul 12, 2013 2:58 pm

Grt2bOutdoors wrote:
stanguy wrote:So, I've been thinking about this for a while.
I have a portion of my emergency savings in an online savings account jointly held by my wife and me.
Why not put it in an account that the primary SSN is my son, and joint with my wife and me. This would allow the interest income to be taxed at his rate. And from what I understand, income of less <$1800 for someone under a certain age is tax free.

We could transfer this back to our account year or so before college if needed - long time to go for that right now.

Any comments? Horrible idea?
An account opened for a minor is done so under the Uniform Transfer to Minors Act. Notice the second word - "transfer", that means an irrevocable movement of assets from you to him. It's not a "we give to you now, we take it back when we feel like it". Once the money moves into that account, the assets belong to your son. If you then withdraw from his account, he could technically sue you for misappropriation - not saying that is going to be the outcome, but the intent upon opening the account is quite clear. http://www.fairmark.com, has more on what a UTMA is.
No, this is not necessarily true. it all depends on the desire(s) of the account owner(s) and the policies of the financial institution. Many credit unions, for example, allow accounts in the name of minors, often requiring a parent as joint owner.

kaneohe
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Re: savings account in kids name

Post by kaneohe » Fri Jul 12, 2013 7:13 pm

fwiw.....a related thread............http://fairmark.com/forum/read.php?4,8378

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beyou
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Re: savings account in kids name

Post by beyou » Fri Jul 12, 2013 7:32 pm

You specifically stated that you would open a joint account.
Then the asset is not transferred and neither is the income.

I did this not to reduce taxes, but rather for the periodic gift by check written directly
to my son's names. Easier to deposit if an account is open with them as one of the owners.
Easier to administer if joint. Income goes on my tax return.

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CaliJim
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Re: savings account in kids name

Post by CaliJim » Sat Jul 13, 2013 12:48 am

IIRC - I think this tax loophole has been closed if the child is claimed as a dependent.
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