What is the difference between a UGMA and a UTMA?
UGMA and UTMA accounts allow parents to save money and invest, maintain full control until their child is an adult. UTMA stands for Uniform Transfers to Minors Act, and UGMA stands for Universal Gifts to Minors Act. Both accounts allow you to transfer financial assets to a minor without establishing a trust.
Can you liquidate a UTMA?
Unfortunately, a UTMA is an irrevocable account and legally belongs to your child. This means you cannot simply terminate it like you would a living trust or your own accounts.
How are UGMA and UTMA taxed?
Because money placed in an UGMA/UTMA account is owned by the child, earnings are generally taxed at the child’s—usually lower—tax rate, rather than the parent’s rate. Up to $1,050 in earnings tax-free. The next $1,050 is taxable at the child’s tax rate. Any earnings over $2,100 are taxed at the parent’s rate.
Do I have to file taxes for UTMA?
No, you have no reporting requirement as the custodian. The income from UTMA accounts is the named child’s income and is reported under his/her Social Security number. Your dependent child’s income from investments is taxable income and must be reported if it exceeds the filing threshold.
What is the disadvantage of using a UTMA or UGMA account?
Cons of an UGMA/UTMA Account A big drawback is that all assets transferred into an UGMA account law are irrevocable transfers. This means that your child owns the assets, and the child has the authority (not the parent) on how to use the funds once the child reaches the age of majority.
What’s the difference between UTMA and UGMA law?
Well, it’s an acronym for the Uniform Gifts to Minors Act (or Uniform Transfers to Minors Act, in some states). The difference between UGMA and UTMA is that an UTMA law allows virtually any kind of asset, including real estate, to be transferred to a minor. An UGMA law limits gifts/transfers to…
How are UGMA and UTMA accounts set up?
UGMA and UTMA accounts are custodial accountsthat adults can set up for minor recipients. They effectively serve as a trust that holds the assets during the recipient’s childhood. You can deposit almost any form of financial product in these accounts, such as cash, stocks or bonds.
Who is the custodian of the UTMA account?
The account custodian manages any investment assets in the UGMA or UTMA account. The custodian can also withdraw funds to cover expenses related to the welfare or education of the minor recipient. You can name yourself custodian of the account, although that does not change the irrevocable nature of the transfer.
Which is better a trust or UTMA account?
In conclusion, the use of a Trust for the benefit of a child or grandchild although more expensive than opening an UTMA account, has significant advantages and protections that are not available when one utilizes an UTMA account. In my opinion, the answer to the question “to UTMA or not to UTMA?” is to not UTMA.