How new tax law affects retirees.

[gcgang]

https://www.kiplinger.com/slideshow...d=56&kwp_0=696343&kwp_4=2465704&kwp_1=1042887

Excuse me, if posted before, as this was published in January, but I thought Kiplinger did a decent summary of the New Tax Law.

I'm going to have to reread the Kiddie tax stuff, w my 17 year old having some earned income plus UTMA stuff. They use Trust brackets?!? Could she (me) be in effective 50% bracket with Soc Sec, state tax and a possible 37% Trust bracket? I hope I've totally misunderstood.

 

[meierlde]

https://www.kiplinger.com/slideshow...d=56&kwp_0=696343&kwp_4=2465704&kwp_1=1042887

Excuse me, if posted before, as this was published in January, but I thought Kiplinger did a decent summary of the New Tax Law.

I'm going to have to reread the Kiddie tax stuff, w my 17 year old having some earned income plus UTMA stuff. They use Trust brackets?!? Could she (me) be in effective 50% bracket with Soc Sec, state tax and a possible 37% Trust bracket? I hope I've totally misunderstood.

That kicks in at about 12,500 of unearned income. Earned income gets taxed at regular rates. So yes UTMA if it starts throwing off more than 9500 in dividends and cap gains, gets taxed highly. So on earned income this might mean two seperate tax forms. But the earned income is the only income in this case subject to SS in general excpect for incomes about 200k (not sure how this works with the kiddie tax).

Essentially this change means in general that large gifts to minors are no longer tax efficient. If the money is for education than a 529 plan is preferred, or just give the money for spending at the right time. The objective is to keep the income at the parental level not move it to the children.

 

[SecondCor521]

The trust income tax brackets are only used on investment income over $2,100 per year. Which is possible with a pretty healthy UTMA.

The 37% trust bracket starts at $12,500 per year.

I do not know how ordinary income and investment income stack for purposes of the $2,100 and $12,500 numbers. I would hope that they do not stack and she would pay regular income and SS taxes on her earned income, then capital gains on the first $2,100 of investment income, then trust rates on the rest of investment income. But it could certainly be different.

If your daughter is going to college soon, the bigger hit could be to her FAFSA financial aid picture. Earned income by the student usually is "taxed" at 50% via an increase in EFC and a reduction in aid.