UTMA tax gain harvesting strategy

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pavemental
Posts: 1
Joined: Wed Feb 12, 2020 2:52 pm

UTMA tax gain harvesting strategy

Post by pavemental » Wed Feb 12, 2020 3:34 pm

Having missed the window for taking action re: 2019 taxes, I’m looking to determine the best plan for tax harvesting my child’s UTMA going forward.

The UTMA account was opened in 2018. Account has a balance of $18,000, invested in Vanguard funds, bought and held. None sold so far. Roughly $3,000 of the balance is from market growth and dividends, rest was contributions.

I have questions from the perspective of wanting to optimize the tax harvesting strategy:

Is it necessary or advisable to file a separate return for the minor, or is it perfectly fine to keep them as a dependent on my return? (assume MFJ in 28% bracket)

Even if 2020 returns push the account’s total growth above $4600 is it best to tax harvest in 2020, taking the tax hit, so we’re in a stronger tax advantaged position for 2021 and future years?

Is it advisable to sell and then buy back into the same funds, or preferable to switch things around, eg sell VTSAX, buy VFINX. Then following year sell VFINX, buy VTSAX. Rinse, repeat.

mega317
Posts: 3229
Joined: Tue Apr 19, 2016 10:55 am

Re: UTMA tax gain harvesting strategy

Post by mega317 » Thu Feb 13, 2020 10:16 pm

1. These are independent factors. The minor can be a dependent, and then file or not file based on their own situation.

From the IRS:
You must file a return if any of the following apply.
1. Your unearned income was over $1,100.
2. Your earned income was over $12,200.
3. Your gross income was more than the larger of —
a. $1,100, or
b. Your earned income (up to $11,850) plus $350
So the minor will HAVE to file. Another option is to include their income under yours but you don't want to do that.

I would probably not realize any gains that would be taxable and ride it out. Maybe some time during the life of this account we'll have a big stock decline and then you'll be able to realize all the remaining gains because they'll be smaller.

You don't need to switch funds if you're harvesting gains--that's only for losses.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

DIFAR31
Posts: 391
Joined: Mon Jan 01, 2018 5:51 pm

Re: UTMA tax gain harvesting strategy

Post by DIFAR31 » Thu Feb 13, 2020 10:33 pm

pavemental wrote:
Wed Feb 12, 2020 3:34 pm
Is it necessary or advisable to file a separate return for the minor, or is it perfectly fine to keep them as a dependent on my return? (assume MFJ in 28% bracket)
It sounds like you are asking this question as if it is an either/or situation. It is not. A separate return can be filed for the minor at the same time you keep the minor as a dependent on your return.

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