Fund choices for UTMA/UGMA accounts

UGMA/UTMA accounts are simple to set up and can invest in virtually any asset, including mutual funds, stocks, and bonds.
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Up to $1,050 in earnings tax-free.
The next $1,050 is taxable at the child’s tax rate.
Any earnings over $2,100 are taxed at the parent’s rate.

Who has the best UTMA account?

Best Robo Advisor Acorns

We chose Acorns as the best Robo Advisor for custodial accounts because of the Acorns Early investing feature for kids. A UTMA or UGMA account can be opened for a minor in under three minutes. Early is built into the larger Acorns platform which offers a full financial wellness system.

Is UGMA the same as UTMA?

A UGMA account is limited to purely financial products such as cash, stocks, mutual funds, bonds, other securitized instruments and insurance policies. A UTMA account, on the other hand, can hold any form of property, including real property and real estate.

What is best investment account for a child?

Brokerage Account

“Simple brokerage accounts are great for children,” says Baum. “They have minimal fees and provide for a buy-and-hold strategy for long-term investing. In a brokerage account, stocks, bonds, mutual funds and ETFs can be purchased for a variety of investment options.

Is UTMA a good idea?

Flexibility gives UTMA accounts an advantage over some other savings strategies, such as 529 Plans and Coverdell Education Savings Accounts (ESAs), which can be used only for qualified education expenses. Another difference: An UTMA account can hold more than just cash and securities.

Who pays tax on UTMA account?

the child

Because money placed in an UGMA/UTMA account is owned by the child, earnings are generally taxed at the child’s—usually lower—tax rate, rather than the parent’s rate. For some families, this savings can be significant. Up to $1,050 in earnings tax-free. The next $1,050 is taxable at the child’s tax rate.

How much money can you put in a UTMA account?

There’s no limit to the amount you can put into an UGMA/UTMA. But gifts to an individual above $16,000 a year per individual ($32,000 for a married couple) typically require a form to be completed for the IRS.

What happens to UGMA when child turns 21?

Finally, the age of majority for an UGMA is normally lower than that of an UTMA. In most states, the custodianship of an UGMA account will end when the beneficiary reaches either 18 or 21. With an UTMA, it’s more common for the custodianship to last until age 21 — if not longer.

Can you buy a car with UTMA funds?

Can I use the account to buy a car for my child? Or to send the child to private school? Yes, you are allowed to use UTMA accounts for items included in a support obligation, regardless of what you read elsewhere.

Can UTMA be used to buy a house?

Any expenditures from an UGMA / UTMA are legally required to be for the benefit of the child and – importantly – not be considered part of parental obligations. Parents are obligated to feed, house and clothe their children. Therefore you cannot use UGMA / UTMA money for food, housing and clothing.

Can parent take money out of UTMA account?

Parents can take cash out of a UTMA or a UGMA account as long as the money is spent for the benefit of the child, who is the account’s beneficiary.

Can I transfer UTMA to 529 plan?

You can move money from a custodial account, such as a UGMA (Uniform Gifts to Minors Act) or a UTMA (Uniform Transfers to Minors Act), to a 529 plan. But you can’t do the reverse — transfer or convert from a 529 to a custodial account — without adverse tax consequences.

Do you pay taxes on UTMA withdrawals?

UTMA accounts have a few tax implications. While there are no taxes on withdrawals (since contributions are made with after-tax dollars), there may be taxes on any unearned income. Unearned income includes taxable interest, dividends, and capital gains on any assets in the account.

Are UGMA withdrawals taxable?

As far as taxes are concerned, there is no IRS penalty for withdrawing money, however, any profits made in an UGMA or UTMA are generally taxed at the child’s – usually lower – tax rate, rather than the parent’s rate.

Can you close out a UTMA account?

Unfortunately, a UTMA is an irrevocable account and legally belongs to your child. This means you cannot simply terminate it like you would a living trust or your own accounts.

How do I avoid gift tax?

5 Tips to Avoid Paying Tax on Gifts

Respect the gift tax limit. The best way to avoid paying the gift tax is to stay within the limit set by the IRS. …
Spread a gift out between years. …
Provide a gift directly for medical expenses. …
Provide a gift directly for education expenses. …
Leverage marriage in giving gifts.

Can UTMA be used for college?

You can use the money in an UGMA or UTMA account for any purpose, not just to pay for college. 529 plan distributions are subject to a 10% tax penalty if you don’t use the money to pay for qualified expenses.

Is UGMA better than 529?

A 529 plan is the best option if the child will go to college, while an UGMA or UTMA account provides more flexibility if the child will not be going to college. The choice between a 529 plan and another type of investing vehicle may change when college enrollment is just a few years away.

Is UTMA better than 529?

Any UTMA account assets are counted as the designated beneficiary’s, while the 529 plan assets are counted as the parent’s on the FAFSA form. It is harder for a child to qualify when the assets are theirs, so UTMA accounts are less advantageous than 529 plans when it comes to qualifying for financial aid.