UTMA allocation

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neopsych12
Posts: 45
Joined: Sun Apr 12, 2015 11:37 am

UTMA allocation

Post by neopsych12 »

I have opened 2 UTMA accounts for my young children as their 20s fund to help them get started on purchases such as down payment, new car or wedding, etc.

I am looking to minimize income to limit kiddie taxes at our federal tax rate (37%). Currently their accounts are invested in VTI and BRB-K.

Which broadly diversified index funds pay low dividend rates?

Funds I am considering:
VTCLX
SCHG
More BRK-B (too much concentration in a single stock?)
flarf
Posts: 357
Joined: Tue Sep 25, 2018 2:05 pm

Re: UTMA allocation

Post by flarf »

Each child needs >$2500 of unearned income to be subject to paying taxes at your rate. BRK doesn't pay dividends, VTI yields about 1.4% right now.

Even if the account was 100% VTI, it would need to be in excess of $184k to throw off >$2500 of dividends.

Do you have >$184k of VTI in these accounts?

VTCLX pays 1.15% -- that's not much better than VTI
SCHG -- pays 0.40%, but again, are really holding that much in these accounts that your children will have unencumbered access to at the age of majority?
RetiredAL
Posts: 3736
Joined: Tue Jun 06, 2017 12:09 am
Location: SF Bay Area

Re: UTMA allocation

Post by RetiredAL »

I gain harvest each Grand's UTMA account. I am custodian.

Goal is to minimize the taxable gain's that will be due when they withdraw. If that is done while they are still dependents (in school), it will be taxed at their parent's rate.

The holdings are SCHG (Schwab Growth) and SCHB (Schwab Broad), no fixed income. The plan is to start adding fixed when they each turn 15.
Topic Author
neopsych12
Posts: 45
Joined: Sun Apr 12, 2015 11:37 am

Re: UTMA allocation

Post by neopsych12 »

flarf wrote: Wed May 29, 2024 12:30 pm Each child needs >$2500 of unearned income to be subject to paying taxes at your rate. BRK doesn't pay dividends, VTI yields about 1.4% right now.

Even if the account was 100% VTI, it would need to be in excess of $184k to throw off >$2500 of dividends.

Do you have >$184k of VTI in these accounts?

VTCLX pays 1.15% -- that's not much better than VTI
SCHG -- pays 0.40%, but again, are really holding that much in these accounts that your children will have unencumbered access to at the age of majority?
I don't have >184k in these accounts at this time but likely will before they are 18.
Rocky Mtn Man
Posts: 507
Joined: Mon Apr 25, 2022 1:58 pm

Re: UTMA allocation

Post by Rocky Mtn Man »

neopsych12 wrote: Wed May 29, 2024 2:25 pm
I don't have >184k in these accounts at this time but likely will before they are 18.
Hopefully you are aware of the downsides of that much money in an account your child (not you) owns:

https://fairmark.com/kids-and-college/u ... -accounts/
billfromct
Posts: 2141
Joined: Tue Dec 03, 2013 8:05 am

Re: UTMA allocation

Post by billfromct »

The “kiddie tax” tax free investment income & taxable investment income at the child’s tax rate has gone up for tax year 2024.

For 2024, the first $1,300 of a child’s investment income is Federal tax free & the next $1,300 of the child’s investment income is taxed at the child’s tax rate.

I believe any investment income over $2,600 is taxed at the parent’s Federal tax rate.

I haven’t done a child’s Federal tax return in 10 or 15 years so you may want to check “the google” for the details.

bill
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Wiggums
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Joined: Thu Jan 31, 2019 7:02 am

Re: UTMA allocation

Post by Wiggums »

Unearned income is subject to the kiddie tax whereas the child’s earned income is NOT.

https://www.irs.gov/taxtopics/tc553
"I started with nothing and I still have most of it left."
RMD8
Posts: 11
Joined: Fri Feb 16, 2024 9:34 pm

Re: UTMA allocation

Post by RMD8 »

Is it wise to sell and rebuy each December in these UTMA accounts to stay below the current $2600 tax threshold? Vs buying and selling years later for larger gain that will trigger taxes?
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