It occurred to me recently that I have a lot of stock I’ve been waiting to sell down in retirement when my capital gains bracket is 0%. My understanding is that I could do this sequence:
- Transfer appreciated stock to daughter’s UGMA custodial account; gift does not change stock’s cost basis, amount is well under gift-tax exclusion
- Daughter sells stock, earning a capital gain (80% of the value of the stock), proceeds stay in custodial account
- I pay for expensive sports out of pocket, then I reimburse myself from the custodial account balance (after consultation with my daughter; that money is hers the moment I transfer it to her custodial account), OR:
- I pay the club sports directly from the custodial account. This makes the accounting/purpose of the expense clearer, but money is fungible, so it’s unclear to me if there’s a reason to prefer this
- I want to avoid paying kiddie tax; California and Federal annual income taxes treat the first $1,250 of income (including capital gains) as untaxed, the second $1,250 is taxed at my daughter’s capital gains rate (i.e., zero!)
- BUT Publication 929 says if my daughter’s unearned income is over $1,100, she must file a tax return
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My first question is, is all this factually correct? Is there any value in going through the hassle of 3 vs. 4? Other than a simple note about the transaction reason/dates, any records I need to keep for 3?
My second question (assuming I didn’t make a meaningful mistake above) is: My appreciated stock is held in an ETrade account. I currently have a custodial account at Schwab. I foresee doing this for several times over the coming years. Should I:
- *Go through the process of transferring the stock between brokerages? OR:
*Open a second custodial account at ETrade, to reduce paperwork?
Thanks for your help!
