new version of kiddie tax

[meierlde]

I just noticed that the tax on unearned income of children has gone way up, it now uses the trust and estate tax rate schedule that tops out at 12,500, no longer at the top rate of the parents. So the tax law now makes giving money directly to a child that would result in unearned income above 2100, a huge increase in the tax burden. with unearned income above 12,500 being taxed at 37 percent. https://www.bogleheads.org/wiki/Kiddie_tax

This makes giving significant money to minors much more expensive all be it starting with 52 k total at a 4% return. It does look like low tax index funds are the way to go here also. Note this tax applies to students till age 24, which implies 529s might be a better way to go. So assuming a 4% rate of return that looks like about principal above 312k , 156k at 8%

 

[kaneohe]

https://www.bogleheads.org/forum/viewtopic.php?t=235549

Have you read this thread? It may not be as bad as it seems (have to run numbers for your individual case as always). I didn't realize what being taxed at parent's rate (current) meant.........I just assumed it was at parent's rate for that type of income...e.g. 0/15%) for LTCG/QDIV....but apparently even those kinds of income are not treated preferentially and it is instead parent's marginal
rate for ordinary income for kiddie. It would seem likely that a dependent w/ > 12.5K of unearned income is likely to have parents w high income w/ 35% rates so not much different than the 37% trust rate.

 

[kaneohe]

https://www.bogleheads.org/forum/viewtopic.php?f=10&t=235647&newpost=3714347

This seems to be a better thread. I think I was wrong in previous post......originally (before I posted the previous reply) I knew nothing and just assumed QDIV/LTCG would be taxed preferentially but at parent's rate. Then I got a little educated (dangerous) and because the writers of what I read were either in the same boat or sloppy writers, I got the impression the QDIV/LTCG were taxed at ordinary rates. The BH thread above seems to confirm that I was right in the beginning (ignorant but not dangerous) so it would be good to review that.