What can custodial accounts be used for?

What can custodial accounts be used for?

Once a child assumes ownership of his or her custodial brokerage account, he or she can use the money for anything—from educational expenses to a down payment on a home.

How do UTMA accounts work?

The Uniform Transfers to Minors Act (UTMA) allows a minor to receive gifts without the aid of a guardian or trustee. The donor can name a custodian, who has the fiduciary duty to manage and invest the property on behalf of the minor until the minor becomes of legal age.

Are Gifts to Minors taxable?

What Is the Uniform Gifts to Minors Act (UGMA)? The Uniform Gifts to Minors Act (UGMA), developed in 1956 and revised in 1966, allows individuals to give or transfer assets to underage beneficiaries—traditionally, parents and their children, respectively. The amount is free of gift tax, up to a certain amount.

Do I pay taxes on a custodial account?

What are the tax considerations for custodial accounts? Any investment income—such as dividends, interest, or earnings—generated by account assets is considered the child’s income and taxed at the child’s tax rate once the child reaches age 18. Anything over $2,100 is taxed at the parent’s rate.

How much can you put in a custodial account?

For 2019, you as a parent can take advantage of the annual federal gift tax exclusion to move up to $15,000 into a custodial account for each of your children. If you are married, so can your spouse. You can do the same thing next year, and the year after that, and so on.

Can you take money out of a UTMA account?

Under the Uniform Transfers to Minors Act (UMTA), money deposited into a UTMA account cannot be withdrawn for any reason—except by the child at the appropriate age. In the United States, a child’s money does not belong to the child’s parents or guardians.

What happens to a UTMA account when the minor turns 18?

When children reach the age of majority, the account can be transferred into their name only with custodian consent. Otherwise, they can remove the custodian from the account at the age of termination.

How can I get money out of my account without my parents knowing?

There is no way you can withdraw money from the account without them eventually find out. There are no invisible withdrawls. They will see it on a paper statement or online if they get their statements that way. Even if you go through the drive-thru and make a cash withdrawl, it will be noted on your account.

Who gets taxed on a custodial account?

Any investment income—such as dividends, interest, or earnings—generated by account assets is considered the child’s income and taxed at the child’s tax rate once the child reaches age 18. If the child is younger than 18, the first $1,050 is untaxed and the next $1,050 is taxed at the child’s rate.

Who pays taxes on a custodial account?

Who pays taxes on an UTMA account?

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. For some families, this savings can be significant. Up to $1,050 in earnings tax-free. The next $1,050 is taxable at the child’s tax rate.

Can a grandparent set up a UTMA account?

The Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA) are sometimes called the “granddaddies” of college savings accounts. Both allow parents to establish custodial accounts for a minor child, and a grandparent can then make gifts to the account.