Sharing an account with a child and taxes

[Chuckanut]

My child and I are going to share a brokerage account with both our names on it. My hope is it will earn the child more interest than the current very low rates at the bank.
It will be 100% the child’s money.

I would like all the earned interest to go onto the child’s tax return. It’s hers. And she will need it in the future.

How is this handled for tax purposes? Do we have to split the earnings on our two separate returns. Or can my child list it all on hers and I can ignore it?

 

[Spock]

Fidelity: Have your kid open the account in their name only and then give you authorized access. You will be able to see the balance and invest it as though it were yours.

 

[cathy63]

Is the child a minor? If so, it may have to be an UGMA/UTMA account with your name as trustee until she reaches majority.

If the child is actually an adult, then her name and SSN should be listed as the primary owner. Then all the 1099s will have her SSN, and she can list all the income on her return.

 

[youbet]

As indicated above, if the child is 18+, have her open her own account and grant you either full POA or Authorized Access. If under 18, open a UGMA/UTMA.

 

[Kork13]

UTMA is definitely the simplest option here, and is what I've done for my kids. The money is registered solely in the child's name, and you're listed on there as the custodian with full control of the money until they reach your state's age of majority. The money is considered a gift, and subject to the standard gift taxes (keep your contributions below the annual gift tax limits).

Taxes are also solely in the child's name. However, do some research on the so-called kiddie taxes. If their account earns below a certain amount of taxable gains (don't recall the exact amount), you can claim those gains on your own taxes (with a certain form) to keep it simple. Once their unearned (investment) income goes above that level, however, they'll need to file their own tax return. I went through the process of filing for my kids for the first time this year... Learned alot.

 

[youbet]

do some research on the so-called kiddie taxes.

From the Fidelity site:

For a child with no earned income, the amount of unearned income up to $1,250 is not taxed in 2023. The next $1,250 is taxed at the child's rate. Any amount above $2,500 is taxed at the parents' rate.

If the child also has some earned income (summer job, etc.), it gets more complicated.

 

[BrianB]

+1 on Fidelity. Their primary account is a Cash Management Account (CMA). It does everything that a bank checking account does EXCEPT you cannot deposit cash. Deposits must be by transfer or check photo deposit. Funds in a CMA can be put into a money market or investments to earn more than a regular checking account.

Does the child have earned income? You don't say how old they are. If they have earned income & get a W-2 then they can also start a Roth IRA. Since they will likely be in a 0% bracket there will be no tax going in, and with a Roth no tax coming out. A great way to teach them about investing and start them on a path to financial literacy.

BrianB

 

[donheff]

I set up custodial accounts for my grandkids. My grandson is practically a day trader with penny stocks but keeps most of his savings in equity indexes.

 

[pjm-7]

FYI on using a UTMA/UGMA. The taxes are filed under the child's social security number and are the CHILD'S ASSETS. I have seen a few times that the parent decided to close the account and take back the money because the child was not turning out the way they wanted (lazy, not going to college, not choosing the right occupation etc.). The money belongs to the child. This becomes a nasty legal issue if the child decides to sue (siding with the child because it is their asset) or the IRS gets involved because you avoided taxes through the years and they will want back taxes plus penalties.

 

[Dash man]

To help limit the taxes for a child, you can sell and buy back stock to reset the capital gains as the stock grows, keeping the taxable amounts under the IRS threshold for kids.