Author Topic: UTMA Custodial accounts  (Read 3734 times)

payitoff

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UTMA Custodial accounts
« on: May 22, 2014, 10:52:41 PM »
not sure if this goes to mini mustache category or here but, has anyone used this instead of a 529 plan?

i've seen this option through TD Ameritrade and it has no limit, no restrictions, taxable but possibly at a child rate, am i missing any disadvantages here?

what's a better option? 529, ESA or UGMA/UTMA custodial?

BFGirl

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Re: UTMA Custodial accounts
« Reply #1 on: May 23, 2014, 05:10:24 AM »
With custodial accounts you are giving the money to a minor.  By age 21 (maybe 18) the child can get the money and do whatever they want with it.  I believe you will still be subject to annual gift tax exclusion amount or you will have to file a gift tax return.

nvmama

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Re: UTMA Custodial accounts
« Reply #2 on: May 23, 2014, 09:13:56 AM »
I've thought about doing a UTMA account for my two children, just haven't pulled the trigger yet.  I'm okay with the money going to the kids at 18 or 21, as it is their money I'm putting into it (from birthday gifts and what not) as I am not saving for their college. 

My grandparents did something similar for my siblings and I when we were younger, but the money went into a CD.  they always said we could use the money for college when we go (at 18), or for a car or whatever we wanted at 21.  I used mine to help pay for college.

seattlecyclone

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Re: UTMA Custodial accounts
« Reply #3 on: May 23, 2014, 02:39:08 PM »
I don't have kids yet, but have considered setting up an account like this when I do. One attractive feature is that if you gift appreciated stock to your kids through this type of account, you can then sell it and take advantage of your kid's lower tax rate up to the kiddie tax exclusion amount ($2k/year). So if you have assets in taxable accounts, you could potentially use this mechanism to avoid $300 of capital gains tax each year, per kid.

The catch, however, is that any money you put into this account becomes property of the child. You (as the custodian) may withdraw some of the money before the child reaches the age of majority, but you must spend that money for the child's benefit. Additionally, most articles I've read about this type of account state that you can't use the money for things that you (as the parent) are required to provide, like food, shelter, and medical care. Using that money for these purposes would essentially be akin to making your minor child pay rent...not allowed. So any money you take out would have to be used for "extras" like summer camp, birthday presents, plane tickets to visit grandparents out of state, etc.

If you do decide to leave the money in the account for college expenses, be aware that this could affect your kid's eligibility for financial aid. This type of account belongs to the child, while 529 accounts generally belong to the parent. The kid's assets are factored into the expected family contribution at a higher rate than the parents' assets, so money in an UTMA account could mean your kid gets less need-based aid than if that same amount of money was in a 529 account.

payitoff

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Re: UTMA Custodial accounts
« Reply #4 on: May 23, 2014, 05:00:19 PM »
thanks for the explanation, definitely something to think hard about.  i was looking for something that is not only restricted to college coz this day in age, there's a lot of options to choose from, getting a scholarship, or going overseas for school etc.

hs

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Re: UTMA Custodial accounts
« Reply #5 on: May 29, 2014, 11:37:59 AM »
Just don't lose track of the paperwork.  My Dad and I are trying to close one of these accounts -I'm 33 and we're sending paperwork back and forth from Alaska, North Carolina and Colorado.

BFGirl

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Re: UTMA Custodial accounts
« Reply #6 on: May 29, 2014, 11:51:10 AM »
Just don't lose track of the paperwork.  My Dad and I are trying to close one of these accounts -I'm 33 and we're sending paperwork back and forth from Alaska, North Carolina and Colorado.

Really?  I was not the custodian of the account and went to the bank with my daughter who was 19 and she was able to transfer the money into an account in her own name without any other signatures.  We are in Texas.

Undecided

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Re: UTMA Custodial accounts
« Reply #7 on: May 29, 2014, 01:49:39 PM »
With custodial accounts you are giving the money to a minor.  By age 21 (maybe 18) the child can get the money and do whatever they want with it.  I believe you will still be subject to annual gift tax exclusion amount or you will have to file a gift tax return.

Depends on state law. In my state, certain UTMAs don't relinquish until 25.

hs

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Re: UTMA Custodial accounts
« Reply #8 on: June 01, 2014, 09:48:21 AM »
I left for college at 17. My Dad and I were rarely in the same town except for holidays since.  They have been in Alaska for the last 7 years. We eventually got it all taken care of by mail, but it was a pain, and I had actually lost track of the information for a few years/interstate moves.  I also had savings bonds which my mother just pulled out of the safety deposit box and redeemed. I would highly recommend the stock account over the bonds, but as a teaching tool.  My siblings and I bought individual stocks, my Dad bought a subscription to the WSJ, and on the weekend we would look up our stock's performance by the ticker and try to read the articles he pointed out to us. Dad also showed us the differences between different mutual funds in terms of costs, loads, fees and historical performance. He is now an ardent proponent of Vanguard. He taught us a very important lesson about putting in greater work to get better returns. The savings bond idea is one of "Buy it and forget about it. Trust the government that these won't just be pretty pieces of paper in 10 years." Not one I'd recommend. For that one, my parents told friends and family not to buy us baby/christening gifts that we didn't need (we got plenty of hand me downs) - just to buy savings bonds for our future. You can't really do that with stocks.