Author Topic: Using UTMA to optimize expenses  (Read 1736 times)


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Using UTMA to optimize expenses
« on: August 29, 2017, 11:37:22 AM »
Newish lurker here. We aren't wealthy by some standards but through a combo of luck and hard work we are comfortable. Nonetheless i am always looking for ways to optimize...

I have been reading through the forums but have yet to get a clear answer on UTMAs.

Here is our situation and background:
DW and I are 33 and 37, respectively. Welcomed our first son 6 weeks ago.
AGI has increased greatly in the last 2-3 years. It fluctuates but should be between $500K-700K per annum for the next 4-5 years.
We were high spenders but recently embraced saving (almost) every penny. I think our spend is "only" $80-100K/year now, in a HCOL area.
$1.6M invested assets mostly in low cost index and bond funds.
Equity in our home net of $160K mortgage is about $600K.

Since we are in the top tax bracket, we are subject to 20% cap gains taxes + 3.8% for the ACA tax. No state taxes.

We will establish a 529 for college. However, in the interim, why wouldn't we transfer appreciated stock into a UTMA account to pay for childcare expenses between now and when they turn 18? My understanding is that I can sell stock up to the point where the unearned income is $2,100 and there would be no tax. Were I to sell that stock in my account, I would pay 20%+, or $420, each year. Over the course of 10 years that's $4,200 without considering compounding.

I should add that i don't like paperwork, so if i need to meticulously document what the money goes towards, that may negate the monetary benefits. However, despite our AGI, i do consider $420/year to be a lot of $ and don't like leaving $ on the table.


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Re: Using UTMA to optimize expenses
« Reply #1 on: August 29, 2017, 12:56:10 PM »
Well, the only reason you wouldn't do this is if you didn't think the paperwork hassle was worth the tax savings.  But yes, it basically works as you describe.

Note that there are many people who take the position that expenditures from UTMA accounts cannot be for necessities.  There are some people who think it is fine.  Consult your tax advisor and/or the relevant law.

As far as keeping records, I would think you could sell the stock inside the UTMA, transfer the proceeds out to your account, and write a check to the childcare provider.  Make a note in your tax file with your checking account number and check number and date and purpose ("childcare for Annabelle Jan-Mar 2017") and file that away with your tax forms.  I personally would consider that sufficient, but again, consult your tax advisor.

$420 per year is a decent amount of money.  Of course, given your income, you should also ensure that you're doing all the other tax things you can be doing as those things will save more than $420 per year.


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