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Utma/Ugma tax question
Old 02-04-2008, 10:57 AM   #1
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Utma/Ugma tax question

I have two Utma/Ugma accounts set up for my kids. Do I report the ordinary/qualified dividends and capital gains on my tax return?
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Old 02-04-2008, 12:55 PM   #2
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Seems like you would save some money by fiing for the kids separately (lower tax bracket) although you might have to end up putting some of their income on your return if they make too much. Whether you can include their income on your return can be
a complex question depending on their age, income level, their withholding, estimated taxes etc. See Pub. 17 p.61, 202-207 on the IRS website (don't know how easy it is
to look at such a large publication on the computer, paper might be easier)
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Old 02-04-2008, 01:00 PM   #3
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It's going to depend how old the kids are, and how much they made.

Under 14, the first $1500 for each kid is considered their income. Of that, the first $750 is in the 0% bracked (no tax), the next $750 is in their 15% bracket.

Above $1500, it's in your bracket.

14 and above, it's all their income, so whether they owe a tax depends on how much it is and how much else they made.

My source is Invest FAQ: Tax Code: Uniform Gifts to Minors Act (UGMA) and it's dated 2003 so check for changes in this policy, ages, rates, etc. But this is how I remember it the year we had large distributions.
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Old 02-04-2008, 01:15 PM   #4
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Thanks

Your information really helped me figure this out.
Thanks a bunch I really appreciate your time.
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Old 02-04-2008, 01:24 PM   #5
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Two additional comments:

1. I think the 2007 numbers are $850 and $1700 (ref. RunningBum's note above).
2. Generally, you have the option of reporting it on yours or submitting separate returns for them if the income is dividends/interest. If they have capital gains, I believe you will be required to report it on their own returns.

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Old 02-04-2008, 02:03 PM   #6
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While we're on the UTMA/UTGA topic...is there anything special to do when taking money out for college? My daughter will enter next year. She'll be 18, and I set up a UTMA in NC where the age is 21, so I'll still be in control of it. Can I transfer it to my account as needed to pay for her tuition and other expenses? Or do I have to transfer it to an account of hers? Or open some new account with checkwriting ability in the same way I opened this one, in her name with me as custodian? Or somehow pay expenses directly from it?
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Old 02-04-2008, 02:21 PM   #7
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Originally Posted by RunningBum View Post
While we're on the UTMA/UTGA topic...is there anything special to do when taking money out for college? My daughter will enter next year. She'll be 18, and I set up a UTMA in NC where the age is 21, so I'll still be in control of it. Can I transfer it to my account as needed to pay for her tuition and other expenses? Or do I have to transfer it to an account of hers? Or open some new account with checkwriting ability in the same way I opened this one, in her name with me as custodian? Or somehow pay expenses directly from it?
Let's see... No, Yes, No, No, and No, respectively.

This assumes you're the custodian, of course, which it sounds like you are.

For me, Vanguard simply sent me a check, written out to "2Cor521 custodian for 2Cor521 Jr." and my bank deposited the check into my checking account without any issues.

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Old 02-04-2008, 03:06 PM   #8
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Thanks 2Cor521

btw, I'm seeing that the "kiddie tax" rules have changed for this past tax year. Now instead of being able to put all gains for kids 14 and older on their taxes, it looks like you have to put investment income over $1700 on your own taxes. This blows that they changed the rules once you were in a plan that didn't seem too easy to get out of. I think we're only a bit over $1700 this year so it probably won't hit too hard.
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Old 02-05-2008, 10:46 AM   #9
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Originally Posted by RunningBum View Post
While we're on the UTMA/UTGA topic...is there anything special to do when taking money out for college? My daughter will enter next year. She'll be 18, and I set up a UTMA in NC where the age is 21, so I'll still be in control of it. Can I transfer it to my account as needed to pay for her tuition and other expenses? Or do I have to transfer it to an account of hers? Or open some new account with checkwriting ability in the same way I opened this one, in her name with me as custodian? Or somehow pay expenses directly from it?
I rolled my kids UGMA's into 529's. The advantage is that if used for college, the gains become tax free. The only difference is that once registered as an UGMA it can't be changed. Therefore, if the kids want to take the money and blow it at age 18/21, you can't stop them.
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Old 02-05-2008, 11:27 AM   #10
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I am doing something similar. I am harvesting from my kids' UTMAs based on expenses that I have incurred for their benefit, and then turning around and contributing as much as I can to 529's and ESA's and a taxable account at Vanguard which will serve as a slush fund for their college, my retirement, emergency fund, whatever.

It will take a few years but then I won't have the problem Art mentions.

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Old 02-05-2008, 11:50 AM   #11
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Interesting choice of Biblical passages.
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Old 02-05-2008, 12:45 PM   #12
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Interesting choice of Biblical passages.
It's my favorite!

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Old 02-05-2008, 01:24 PM   #13
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Originally Posted by Art G View Post
I rolled my kids UGMA's into 529's. The advantage is that if used for college, the gains become tax free. The only difference is that once registered as an UGMA it can't be changed. Therefore, if the kids want to take the money and blow it at age 18/21, you can't stop them.
What if you "accidentally" don't TELL them they had said money? I have seen that tactic used with great success a few times........
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Old 02-05-2008, 01:26 PM   #14
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Originally Posted by RunningBum View Post
While we're on the UTMA/UTGA topic...is there anything special to do when taking money out for college? My daughter will enter next year. She'll be 18, and I set up a UTMA in NC where the age is 21, so I'll still be in control of it. Can I transfer it to my account as needed to pay for her tuition and other expenses? Or do I have to transfer it to an account of hers? Or open some new account with checkwriting ability in the same way I opened this one, in her name with me as custodian? Or somehow pay expenses directly from it?
It's not legally hers until age 21, so you are the boss. The IRS trust you, not her....... As long as you have proof IF THE IRS ASKS about HOW the money was spent, and it was for the welfare of the child, it's all good.
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Old 02-05-2008, 02:20 PM   #15
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What if you "accidentally" don't TELL them they had said money? I have seen that tactic used with great success a few times........
Until the child comes back to sue the parent. I've seen that tactic used with great success a few times too.
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Old 02-05-2008, 02:53 PM   #16
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Until the child comes back to sue the parent. I've seen that tactic used with great success a few times too.
Interesting........I'm sure the kids suing were totally responsible and model children..........
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Old 02-05-2008, 10:22 PM   #17
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It's not legally hers until age 21, so you are the boss. The IRS trust you, not her....... As long as you have proof IF THE IRS ASKS about HOW the money was spent, and it was for the welfare of the child, it's all good.
It depends on the state. Some states are age 18.
My grandfather had an UGMA for me that I never found out about until I got married. He had been taking all the income for himself. I sure wish he had been reinvesting, I could be retired now. He did this for all the grandchildren. I guess his broker went along with the don't ask/don't tell theory.
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