Utma/Ugma tax question

eudaimoniac · 02-04-2008, 10:57 AM

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?

kaneohe · 02-04-2008, 12:55 PM

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)

RunningBum · 02-04-2008, 01:00 PM

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.

eudaimoniac · 02-04-2008, 01:15 PM

Your information really helped me figure this out.
Thanks a bunch I really appreciate your time.

SecondCor521 · 02-04-2008, 01:24 PM

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.

2Cor521

RunningBum · 02-04-2008, 02:03 PM

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?

SecondCor521 · 02-04-2008, 02:21 PM

Quote:

Originally Posted by RunningBum

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.

2Cor521

RunningBum · 02-04-2008, 03:06 PM

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.

Art G · 02-05-2008, 10:46 AM

Quote:

Originally Posted by RunningBum

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.

SecondCor521 · 02-05-2008, 11:27 AM

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.

2Cor521

myself · 02-05-2008, 11:50 AM

Quote:

Originally Posted by SecondCor521

2Cor521

Interesting choice of Biblical passages.

SecondCor521 · 02-05-2008, 12:45 PM

Quote:

Originally Posted by myself

Interesting choice of Biblical passages.

It's my favorite!

2Cor521

FinanceDude · 02-05-2008, 01:24 PM

Quote:

Originally Posted by Art G

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........

FinanceDude · 02-05-2008, 01:26 PM

Quote:

Originally Posted by RunningBum

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.

retire@40 · 02-05-2008, 02:20 PM

Quote:

Originally Posted by FinanceDude

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.

FinanceDude · 02-05-2008, 02:53 PM

Quote:

Originally Posted by retire@40

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..........

Art G · 02-05-2008, 10:22 PM

Quote:

Originally Posted by FinanceDude

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.

02-04-2008, 10:57 AM	#1
eudaimoniac Confused about dryer sheets Join Date: Dec 2007 Posts: 9	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?

02-04-2008, 01:15 PM	#4
eudaimoniac Confused about dryer sheets Join Date: Dec 2007 Posts: 9	Thanks Your information really helped me figure this out. Thanks a bunch I really appreciate your time.

02-04-2008, 01:24 PM	#5
SecondCor521 Thinks s/he gets paid by the post Join Date: Jun 2006 Location: Boise Posts: 1,344	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. 2Cor521 __________________ "At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.

02-05-2008, 11:27 AM	#10
SecondCor521 Thinks s/he gets paid by the post Join Date: Jun 2006 Location: Boise Posts: 1,344	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. 2Cor521 __________________ "At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.

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02-04-2008, 12:55 PM	#2
kaneohe Recycles dryer sheets Join Date: Jan 2006 Posts: 312	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)

02-04-2008, 01:00 PM	#3
RunningBum Full time employment: Posting here. Join Date: Jun 2007 Posts: 757	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.

02-04-2008, 02:03 PM	#6
RunningBum Full time employment: Posting here. Join Date: Jun 2007 Posts: 757	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?

02-04-2008, 03:06 PM	#8
RunningBum Full time employment: Posting here. Join Date: Jun 2007 Posts: 757	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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