What You Need To Know About UGMA/UTMA Accounts
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- เผยแพร่เมื่อ 18 มิ.ย. 2024
- The UGMA/UTMA accounts are extremely simple to understand, yet they provide some of the most versatile ways to invest or gift assets over to minors!
Although there's no longer a huge difference between the two designations now,
the Uniform Gift to Minors Act was intended for paper investments only
these were things like stocks, bonds, ETFs, and so on.
But when the Uniform Transfer to Minors Act arrived this allowed to transfer of all the previously mentioned assets, but also allowed for more creative investments like Real Estate, Royalties, Patents, and so on.
UGMA/UTMA accounts are not college savings accounts and don't have any tax breaks or benefits, but they do offer a quick, easy, and versatile way to invest and save for your kids future success, be it college, business, or investing in R/E early.
In an UGMA/UTMA account the income is taxed at varying rates, as an example
from $0 - $1,050 there is no tax
from $1,050 - $2100 income is tax at the kiddie tax rate
and any income in excess of $2,100 is taxed at the parents income tax rate.
M1 & Other Investing Resources
m1.finance/TjGme7YgPH-b
act.webull.com/pm/AfSdHcj7oap...
www.thecalculatorsite.com/fin...
www.franklintempleton.com/fin...
What I Use for Budgeting:
www.personalcapital.com/
www.truebill.com/
refer.amex.us/WESLECF6jM?xl=cp15
If you want help setting up a portfolio service, a budget, or just want recommendations on what to do in a certain situation; feel free to comment or message me using one of the links bellow!
@InvestwithWesley (FB)
@InvestwithWesley (IG)
DISCLAIMER: Although I am a Registered Investment Advisor, no statements made during this video should be taken as advice or recommendations since I do not know your specific situation, goals, or the suitability of said investments within your portfolio.
Delayed gratification that’s what it is, good ending statement
Glad you agree
love this video!! two years ago I set up UGMA's for my niece and nephew, and plan to do the same for friends and family members' children, my hope and dream is to one day have 15-20 UGMA's to do my part in building wealth for the future generations
Great video Thank you for simplifying this!
Great video and very informative video thanks for sharing.
Very good breakdown thank you!
Glad you enjoyed
AWESOME explanation 👏
Thanks 👍🏻
Thanks so much for the info. I just started a UTMA for my kid because Tiktok told me to and really had no idea what I’m doing 🤣
Glad you are starting and can find some good advice! But be careful about other things you find on TikTok it's not always the best advice
Thank you sir... My young family have the utma accounts @ Citibank
Glad I can help! If you're thinking about moving from UTMA to another form of Custodial Account be sure to check out the videos I made on Coverdells, 529s, and Custodial IRAs!
Remember I'm here for your benefit if you ever have any questions feel free to ask!
I am really looking into sum stock investment.... Etfs maybe?
@@tonybelleo1895 Well because I'm a registered investment advisor, I can't give "buy this" recommendations on line without knowing more about your goals and such.
But in general I can recommend ETFs are a great way to diversify and passively invest into a broad range of markets.
Some of the ETFs I currently invest in is:
(SPY) which covers the USAs largest 500 businesses
(OUSA) which cover are top rated Dividend paying stocks
(ICLN) Which covers a variety of Green Energy Stocks
(VWO) Which covers emerging markets in China and other international countries
To start your journey you can research these ETFs and decide for yourself if they would be a good fit for you, ofcourse if you want more tailored recommendations we can set up a zoom call and I can learn more about your goals with investing
im doing this for myself not my parents a lot of teens are doing this for themselves, im also doing a roth for minor. Also im handling the account myself
That's the best way to go about it!
I commented on another video but how is the utma transferred automatically because if my dad did not close the account he might not turn over account
Nice content! What kind of funds are recommended in such accounts (UTMA) for kids ? Stocks, REITS, ETFs? Thanks!
Not investment advice, but why not mutual indexed funds that grow slow and low over time? My $100 per birthday & xmas go to him a few times a year X 18 years = a good amount to compound over time. He won’t be loaded but he’ll have real world leverage w your guidance if u still alive
So if I put money into my kids UTMA, can they just roll it into a mutual fund so that it can keep growing. I'm doing it so that they can start investing early for their retirement, not to use it when they turn 18. My kids are 15 and 6 years old. Thanks!
Thank you this was very informative. As far as is this a good option for high returns? Will this grow over time?
An UGMA UTMA account is just a vehicle similar to an IRA, the growth depends on what's invested in Inside
I am non US, retiree from UN and I have an official Retirement account in UNFCU . I want to know how to open UGMA account for my grand kid who is a US citizen. Any taxes or investment limits? Thanks
Hello. Thank you for the video. Question for you. My son is 1. We opened an account for him this past year. The account generated $20 in dividends and $16 in qualified dividends. Do I file this under my taxes. Or do I file a seperate return on behalf of my son? Or… do I not need to file because it’s under the $1100 and he doesn’t have any income other than that. I can’t find a solid answer anywhere. Thanks in advance
I'm not a tax pro so I encourage you to fact check me, but from my knowledge on how these things work, You won't need to file since it is under the 1100 amount, when you do need to file It would be together with yours
I live in Washington DC, but I was looking at opening a Wyoming UTMA through TDAmeritrade. As I investigated I received the warning of:
The age of termination for Wyoming is 21. According to Wyoming law, however, if your circumstances require it, you can choose a different age. The rules and tax consequences vary by state. *Electing to extend the age may cause you to lose your annual exclusion from federal gift tax.* Consult an attorney or tax advisor before making this selection.
This warning wasn't Wyoming specific - DC and other states (like Florida) had the same notice.
Does that mean the 15k exclusion doesn't apply if I pick 25? I'd be (way... way ... WAY) under the lifetime gift threshold, but I'll still have to report every time I contribute? Or is it more serious?
It would still apply until the age of 21, all contributions between 21-25 aren't excluded so you would have to report it.
This rule was designed to stop the ultra wealthy so I doubt there would much of a question if you did it and weren't ultra wealthy. Check out this article for more info
www.hershnerhunter.com/articles/use-caution-in-taking-advantage-of-the-law-allowing:cUstodial-accounts-to-last-until-age-25
@@InvestwithWesley Fantastic - I'd found that article, too - but I didn't quite understand how it applied until you put it that way. Thanks!
@@vaderstg Glad I can help!
Can i pay for college courses directly from a UTMA?
Would this action be considered as taxable income or would it not be taxed or penalized because it is used directly for college?
My goal it not to use FAFSA or any type of loans for an estimated 50k of college.
you can use an UTMA to pay for college tax free, but most brokers won't allow you to pay for it directly, most will ask you to withdraw the necessary amount to pay for your courses then save your receipt to show them or your tax professional at the end of the year so that you are not charged tax on that income.
Years ago, my mom gifted stocks to my 2 kids. So, basically it was an UGMA for her grandchildren. I was the custodian on it until they turned 21, then they could do whatever they wanted to with it. For 20+ years I just left the accounts and over that time watched them grow very nicely. I want to the same for my two grandkids. *But* I do not want my kids (as custodians) to be able to take anything out or put it at risk of loosing money on a risky investment. How can I prevent a custodian (either of my kids) to have access to change what I've worked hard to pass on to my grandkids?
Either appoint someone else as custodian, (the family attorney) if you have the means to do so. Or you can set up an LLC and place your investments into a Brokerage account under the name of the LLC and then when you pass away, will that LLC to the grandkids. This places you in full control until you pass away or they turn of age and can take it over
Wesley, my sister recently died and I've been wanting to set up something for her 3 kids. Given many "Transfers" will be coming from outside, is there a way to have a single UTMA for 3 minors or a checking account for 3 minors that I am a Custodian for in order to receive and distribute the funds evenly? We want all three kids to have an equal share + interest, but using my personal accounts as a "middle" receiving account puts me in a weird taxable income position. I'd love your thoughts!
First off, I'm sorry for your loss. Your situation is Interesting. You can do 2 different things, 1: set up a joint checking account between you and the three kids, this will give you a central place for the funds to be sent out evenly, however there's no rules with joint accounts so when one turns 18 they can take the total amount if they want too. I doubt this would be a concern but if it is you have option #2. Option 2 is to create a separate entity like an LLC or trust where you can allocate the funds, the only difference is there a bit more expensive to set up then a bank account but it comes with rules so no one can take more than their fair share. Hope that helps ☺️
Hello, so when getting an UTMA account , I will pay taxes on it? Will it be every year or when it’s transferred? Thank you
The UTMA account is similar to any other brokerage, where only when you sell the investments for a profit, or when you receive dividends from the investment will the child have to pay taxes on it, remember anything you put into an UTMA automatically belongs to the child it is set up for, so any tax needing to be payed would be at the kiddie tax rate, which is MUCH less than the normal tax rate
@@InvestwithWesley so the child will get taxed? Not the adult?
@@ghxstly8308 yes
Just opened custodial accounts for my kids and loaded them with high dividend etfs which I don't have in my personal taxable accounts because of taxes.
Do I understand correctly that anything such as capital gains, dividends earned in the custodial accounts are tax free for the first $1000? Is that per year or throughout the life of the account. For example if 11yrs went by and my child earned $100 in dividends per year but never sold a penny, in year 11 he has earned a total of $1100 in dividends through the life of the account. Were the first 10yrs tax free?
To answer your question the threshold for kiddie tax is $2100 not 1000, any amount of unearned income past 2100 in that year is subject to the tax. The tax is calculated year over year just like your income is, so for the years earned dividends were less than 2100 no tax would be owed.
@@InvestwithWesley Coo, thanks.
Is there a account that can be opened where the minor can access the account and use it as a normal one? In other words how can a minor invest? From what im hearing these accounts are for long term, is there a account that lets the minor sell and buy stocks whenever they want to?
A minor could invest freely with this account whether it's short-term or long-term as well as a custodial brokerage account could be opened up
My state's age of majority is 21, so QUESTION: At 21, when it becomes his money, is he REQUIRED to liquidate and sell all shares and remove it as cash? This causes a taxable event! Or can he leave it and continue to let it grow? Thank you!
He is not required to do anything, if he chooses to, he can leave it in and allow it to grow even further
@@InvestwithWesley THANK YOU!
Do any of these accounts gain interest? At what rate?
It all depends on what you put into it, think of this account like a safe. You can put cash into it and it never gains interest, or you can put stocks and bonds into the safe and they will grow with interest it all depends on what you decide to put in the UGMA/UTMA safe.
CASH, MONEY MARKETS, AND CDs will earn almost no interest where as Stocks, Bonds, ETFs, and Mutual Funds will.
Is there any penalty or rules about closing out an UTMA once a child is of age?
None! The child would have to pay income tax on any investments that are sold but that's true for any brokerages
@@InvestwithWesley thank you!
Hi this is off topic however I am going to give it a shot! I am a 14 year old who has a custodial account with Fidelity and was wondering if I can fund my account with my own bank account that I have or do I have to use my parents account and or broker account of their own. Mind you they do not have their own brokerage account. Thank you in advance!
The custodial account is yours, You can absolutely fund it with money in your own bank account!
Does this in anyway tie into creating Custodial Roth IRA for children that earn income from working in their parents business?
Great Question! No it does not as custodial IRAs are set up different and have different rules
@@InvestwithWesleycan these eventually be transferred to an IRA once they start working? I have a newborn and want to get an account opened to start compounding as soon as I can. I was thinking IRA but the proof of income is difficult.. he’s not even a year old yet
IRA seems to have more tax benefits if wanting to use the money to go to school or real estate. Does using these types of accounts have any benefits if wanting to eventually used to put down to say a down payment for a house?
Is it better to have a custodial account for a child or a regular account in my name to pay for things on behalf of the child?
The two are pretty much the same if used to pay for things instead of Invest, the only time UGMA wins is in investing because of the kiddie tax
@@wesleycaruso6914 by pay for things I meant college or a car etc
the answer is split, for college the answer is UGMA/UTMA Because in the event of needing financial aid assets in the child's name are better than assets in the parent's name. But for a car or house or anything else it's probably best to buy in your name and then "gift" the asset to the child.
Great I’m in my kid account cause I’m like five watching to gain more
Wesley, My wife left me.
I'm terribly sorry to hear that 😔