Author Topic: UGMA Account  (Read 1999 times)

Cottonwood28

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UGMA Account
« on: June 15, 2013, 01:09:26 PM »
We just received a statement from husband's parents for a UGMA account that originated in Virginia. He is 28 years old, and my understanding was he should have been notified about this account much earlier but we are now trying to figure out what it is and how the money can be used. We are at the start of our journey being worth around $100,000 (investments and cash) and no debt. Any information about these type of accounts: taxes, restrictions, etc. would be very helpful. Thank you!

Mayan

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Re: UGMA Account
« Reply #1 on: June 15, 2013, 01:35:45 PM »
There are no restrictions on how you can spend the money.  That's actually one of the potential downsides of the accounts for parents intending to use them for college savings - once the kid reaches majority age, they are free to do what they wish with The money.  He'll pay capital gains tax as investments are liquidated

Cottonwood28

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Re: UGMA Account
« Reply #2 on: June 15, 2013, 01:42:51 PM »
So if we sold the account and paid capital gains taxes we could do whatever we wanted with it? Our hope is to apply it to Roth's next year if we can or open a taxable account. We want to sell because it is in a high expense fund and we prefer Vanguard

Nords

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Re: UGMA Account
« Reply #3 on: June 15, 2013, 05:29:37 PM »
So if we sold the account and paid capital gains taxes we could do whatever we wanted with it? Our hope is to apply it to Roth's next year if we can or open a taxable account. We want to sell because it is in a high expense fund and we prefer Vanguard
Yep.

Make sure you have the cost-basis records on the account before you sell the shares.  Ideally his parents have been paying the taxes all along (thanks, Mom & Dad!) but you may still owe capital gains on the sale of the shares.

Perhaps the easiest approach is to use the current fund company to obtain all the records.  Then use Vanguard to have them execute an transfer of assets "in kind" from the other fund company to Vanguard.  Vanguard will do all the work.  That way you don't have to put up with the other company's customer-retention efforts or listen to their threats about account-liquidation fees or other hard sells.  Once the shares are with Vanguard then you can sell them on your schedule (in a tax-efficient manner, if necessary) and invest them elsewhere.

There are times when the other fund company will insist on liquidating the shares first ("our proprietary fund"), but in either case you'll have the cost-basis information before you ditch them.

"If we can"?  All you require for a Roth IRA is earned income.  If you have too much of that for a Roth IRA contribution then you can deposit it in a conventional IRA and convert it to a Roth.

Cottonwood28

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Re: UGMA Account
« Reply #4 on: June 16, 2013, 02:17:17 PM »
That was incredibly helpful. Thank you!