1. The account converts into a regular taxable account when the UTMA expires. This can anywhere from age 18 to 25 depending on the state. Look at your state rules.After the kid reaches 18 or 21 and takes over the UTMA account, of course the kid has all the control how to use the money (withdraw the money anytime for anything with no tax and age restriction). But my questions are:First, I'd invest more in the 529 accounts.
But if you are not going to put it in 529 accounts, then open a UTMA brokerage account for each child at Vanguard or Fidelity. Research if your state gives you a choice of age as to when the UTMA funds are released and if so, use the date that makes the most sense to you (but probably older is better).
Then invest the funds in each account with your chose asset allocation. I recommend 75% VTI, 25% VXUS.
But if this is not a one-time deposit, and you plan on making annual contributions, I recommend setting up grantor trusts for each child--these can be set up so that the income will be considered yours for tax purposes.
- Can the kid leave that account open indefinitely?
- If yes, will all the profit be taxed annually at the kid's tax bracket at that time?
Thanks.
2. Realized profits are taxed at the kid's tax rate whether the account is a UTMA or not. To the extent the kiddie tax rate applies, the tax rate will be the parents'.
Statistics: Posted by Finridge — Sat Jan 20, 2024 11:08 pm — Replies 30 — Views 3673