Be careful with custodial accounts (UTMA/UGMA), when your kid turns 21, they can get the money and spend it ANY WAY they want,
That is, if they know the UTMA or UGMA account exists!
At 21, if they don't know it exists, who pays the taxes?
I think what you just said was that if you place funds in an UTMA for a child, the child, upon reaching age, may use the funds for purposes other than what the parent intended........... and the parent just needs to accept that. I agree. And that's why I wouldn't use an UTMA. The tax savings just aren't worth it.
What would you use to fund for college, and where would that money end up if it turns out the kid demonstrates neither the ability or desire to stay in college and finish?
UTMA's just don't save enough tax dollars to be worth it, IMHO.
If possible working for a member school in the Tuition Exchange program can solve the question of how to pay for tuition. The money is tax free.
There is also the WUE program--Western Undergraduate Exchange program for western states state colleges (WA, OR, CA, ID, MT, AZ, and maybe a few other states).
One would hope at 21 the kids would start getting educated about the IRS and about doing tax returns for themselves, but that doesn't always happen.
.........And I remember thinking, hmmm, if anyone is going to get a share of my money, shouldn't I be involved in the process? So I did them myself. I think that was one important step in FIRE. It helps to understand what is happening to your money.
I find that many people have no idea about making tax-efficient decisions, because they hand their taxes over to someone to do. In another thread a while back, someone said it is best to start early in life while your taxes are simple. It is easier to grasp all the complexities when they are added a bit each year. That was my experience.
-ERD50
Slightly off topic, but I think about this from time-to-time.
I find that many people have no idea about making tax-efficient decisions, because they hand their taxes over to someone to do. In another thread a while back, someone said it is best to start early in life while your taxes are simple. It is easier to grasp all the complexities when they are added a bit each year. That was my experience.
-ERD50
I agree, also! In fact, I can tell that I am losing my 'edge' by using Turbotax but would not give it up.