Tax Efficient Ugma And Utma Savings Account

These custodial accounts are ideal for parents and grandparents who want greater

investment options than a 529 plan, who arent worried if their assets going to child if unused, who wants to reduce taxes and to use the money for any qualified pre college education and expenses.

UGMA is an act implemented in some states of US and this act allows the minor to own securities without requiring any services of an attorney to prepare trust funds. This way the child can have a property aside for their benefit with some level of income tax benefits for their parents and can use them for any purpose once the child reaches the age maturity depending on the state. Uniform Transfers to Minors Act (UTMA) was recommended in 1986 and adopted by most states in US and this act is an extension of the Uniform Gifts to Minors Act in which gifts can be given to minor and doesnt need a guardian to be appointed for a qualifying gift of up to $13,000 with an exclusion of gift tax.

Both the UGMA and UTMA accounts offer good tax advantages and additional benefits. The UTMA act allows the donor of gift to transfer the title to a custodian to manage and invest the property until the minor reaches the age of maturity and the custodian can also make payments towards the minors benefit out of the corpus of the gift. UTMA or the UGMA accounts allows the assets to be taxed only in the minors income tax bracket and only with the increase in age, the Kiddie tax is imposed on the assets. A custodial account either UTMA or UGMA counts a lot against a childs financial aid application since it is mainly considered as an asset of the child.

There are few eligibility requirements and limitations that apply to both these custodial accounts UGMA and UTMA. This account can be opened for any child under the applicable age depending on the state. The custodian of the accounts has certain control and responsibilities, once the child reach the age of maturity, the custodian is responsible for transferring the funds to the minor. Anyone can make gifts to the childs UGMA/UTMA account regardless of the income level and no contribution limits exists that you make annually during the calendar year.

The differences between both the custodial accounts are minimal. Only basic assets can be donated or made available as gifts to minors in UGMA accounts, whereas in UTMA, a range of assets can be contributed. The types of assets that are eligible in an UGMA/UTMA include savings accounts, bonds, and certificates of deposits, mutual funds and life insurance covers. It is highly suggested to consult a Registered Investment Advisor for advice on opening an account and to know on what assets the investments can be made.

by: Mike walker

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