Menu

UTMA, good or not so good

Home Personal Finance and Budgeting UTMA, good or not so good

  •  royalblue 
    Participant
    Status: Spouse
    Posts: 6
    Joined: 11/30/2018

    529 plans are underway and funded well. I’m thinking of starting UTMA accounts. So much info on these and I only understand tid bits of it. For those of you that opened UTMA accounts can you tell me the specific reason why you did it?

    #171344 Reply
     bean1970 
    Participant
    Status: Physician
    Posts: 297
    Joined: 07/12/2017

    i’m an UTMA fan, at least not opposed. it is a pot of money you can save into which has no restrictions on use essentially.  It is a great place to park gift from others (all those birthday, holiday, bar mitzvah, graduation gifts).  If irrevocable gifts are co-mingled in a 529, those gifts must be given back to the intended recipient before you change the beneficiary on a 529. (not an issue if you never change beneficiaries, but many people do). no reason to keep the paper trail within a 529 for this.

    it is a child’s asset,so it is factored in college aid calculations, but for most physician this is moot point.

    it is a good pot of money to use for  high school costs, camps, braces, paying expenses during a gap year, cars, etc.  just can’ be used to pay your own bills/expenses. has to benefit the child.

    people worry about “handing it over” at age of majority. #1. you can spend the pot away…just buy the car, etc and a large chunk will go away before they are even 18 years old!…..  #2  this isn’t an issue in most families. some yes. most no.     it is not like it has to go into their checking or give them cash.  ours will eventually go into my kids brokerage account (his own..he’s age of majority already)…it isn’t like he spends from that account either…. i don’t worry about this at all.nada.

    for those worrying about overfunding a 529 is a good place to park money which is more flexible.  For instance my kid is on an athletic ride and doesn’t use his 529, but he travels back/forth to school (get to school, home for Thanksgiving, home for winter break, back)……this is about 3-4K right there annually with plane fares, ubers, shuttle to airport (which is 90 min from his school)..this is something a 529 can’t be used for…just saying .   that’s a 12K pot a 529 is useless for…..

    also more flexible with investment options.  I haven’t found a 529 plan where i could shove a bunch of AMZN stock, etc….

    there is some tax advantage via kiddie tax rules.  not the greatest, but some.

    it is much more useful for my kid to have these assets when he is 20/30/40 and will need money for a home, maybe to start a business, etc…..having him inherit seven figures when I die at age 90 and he is 70 is pretty useless IMO.  i’d rather gift him the money now and have it be put to good use while i am alive to help guide his financial decisions.

    #171372 Reply
    Liked by Craigy
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 2038
    Joined: 01/14/2017

    i’m an UTMA fan, at least not opposed. it is a pot of money you can save into which has no restrictions on use essentially.  It is a great place to park gift from others (all those birthday, holiday, bar mitzvah, graduation gifts).  If irrevocable gifts are co-mingled in a 529, those gifts must be given back to the intended recipient before you change the beneficiary on a 529. (not an issue if you never change beneficiaries, but many people do). no reason to keep the paper trail within a 529 for this.

    it is a child’s asset,so it is factored in college aid calculations, but for most physician this is moot point.

    it is a good pot of money to use for  high school costs, camps, braces, paying expenses during a gap year, cars, etc.  just can’ be used to pay your own bills/expenses. has to benefit the child.

    people worry about “handing it over” at age of majority. #1. you can spend the pot away…just buy the car, etc and a large chunk will go away before they are even 18 years old!…..  #2  this isn’t an issue in most families. some yes. most no.     it is not like it has to go into their checking or give them cash.  ours will eventually go into my kids brokerage account (his own..he’s age of majority already)…it isn’t like he spends from that account either…. i don’t worry about this at all.nada.

    for those worrying about overfunding a 529 is a good place to park money which is more flexible.  For instance my kid is on an athletic ride and doesn’t use his 529, but he travels back/forth to school (get to school, home for Thanksgiving, home for winter break, back)……this is about 3-4K right there annually with plane fares, ubers, shuttle to airport (which is 90 min from his school)..this is something a 529 can’t be used for…just saying .   that’s a 12K pot a 529 is useless for…..

    also more flexible with investment options.  I haven’t found a 529 plan where i could shove a bunch of AMZN stock, etc….

    there is some tax advantage via kiddie tax rules.  not the greatest, but some.

    it is much more useful for my kid to have these assets when he is 20/30/40 and will need money for a home, maybe to start a business, etc…..having him inherit seven figures when I die at age 90 and he is 70 is pretty useless IMO.  i’d rather gift him the money now and have it be put to good use while i am alive to help guide his financial decisions.

    Click to expand…

    Can’t most of your objectives be accomplished through cash flow gift-giving on a PRN basis?

    #171375 Reply
    Liked by q-school
     bean1970 
    Participant
    Status: Physician
    Posts: 297
    Joined: 07/12/2017

    i’m an UTMA fan, at least not opposed. it is a pot of money you can save into which has no restrictions on use essentially.  It is a great place to park gift from others (all those birthday, holiday, bar mitzvah, graduation gifts).  If irrevocable gifts are co-mingled in a 529, those gifts must be given back to the intended recipient before you change the beneficiary on a 529. (not an issue if you never change beneficiaries, but many people do). no reason to keep the paper trail within a 529 for this.

    it is a child’s asset,so it is factored in college aid calculations, but for most physician this is moot point.

    it is a good pot of money to use for  high school costs, camps, braces, paying expenses during a gap year, cars, etc.  just can’ be used to pay your own bills/expenses. has to benefit the child.

    people worry about “handing it over” at age of majority. #1. you can spend the pot away…just buy the car, etc and a large chunk will go away before they are even 18 years old!…..  #2  this isn’t an issue in most families. some yes. most no.     it is not like it has to go into their checking or give them cash.  ours will eventually go into my kids brokerage account (his own..he’s age of majority already)…it isn’t like he spends from that account either…. i don’t worry about this at all.nada.

    for those worrying about overfunding a 529 is a good place to park money which is more flexible.  For instance my kid is on an athletic ride and doesn’t use his 529, but he travels back/forth to school (get to school, home for Thanksgiving, home for winter break, back)……this is about 3-4K right there annually with plane fares, ubers, shuttle to airport (which is 90 min from his school)..this is something a 529 can’t be used for…just saying .   that’s a 12K pot a 529 is useless for…..

    also more flexible with investment options.  I haven’t found a 529 plan where i could shove a bunch of AMZN stock, etc….

    there is some tax advantage via kiddie tax rules.  not the greatest, but some.

    it is much more useful for my kid to have these assets when he is 20/30/40 and will need money for a home, maybe to start a business, etc…..having him inherit seven figures when I die at age 90 and he is 70 is pretty useless IMO.  i’d rather gift him the money now and have it be put to good use while i am alive to help guide his financial decisions.

    Click to expand…

    Can’t most of your objectives be accomplished through cash flow gift-giving on a PRN basis?

    Click to expand…

    sure.. but where does it go then?  if somone gifts 5K to a 16yo (who legally can’t own securities without custodianship) do you just give them the check and have them cash it. the UTMA account is a perfect parking place.  most child savings accounts are also UTMAs.  A nice UTMA brokerage account is not tied to a debit/credit card….just makes the money parked “in a better spot” IMO, with better growth and alleviates “passing money around”  or having them with a 5K check in their pocket because they don’t have a good place for it.

    some kids rake in lots of gift money from events.  i’m not sure giving it on PRN basis is the best legally.  it should go into their own account.

    I don’t put money into UTMA anymore once kid is age of majority.  now gifts go into his own brokerage which he owns outright.  UTMA is for minors.

    #171377 Reply
    Liked by pulmdoc, Craigy
    Craigy Craigy 
    Participant
    Status: Spouse
    Posts: 1664
    Joined: 09/16/2016

    My kid has an UTMA for money that one of his grandparents insists on being available to purchase a car when he gets his license.  Alas, I’m sure my kid will inherit the family’s oldest SUV whenever that time comes so I doubt that’s how it will be spent.  The rest of his money is in a Roth.

    I’m not really worried about him blowing through the money when he turns 18.  Good kids will be good kids and bad kids will be bad, regardless of the pot of money you give them, in my experience and opinion.

    Vanguard has a pretty good UTMA setup, but I think most any bank or brokerage can handle it.

    LEVEL 1 WCI FORUM MEMBER.

    #171382 Reply
    Liked by bean1970
    Craigy Craigy 
    Participant
    Status: Spouse
    Posts: 1664
    Joined: 09/16/2016

    i’m an UTMA fan, at least not opposed. it is a pot of money you can save into which has no restrictions on use essentially.  It is a great place to park gift from others (all those birthday, holiday, bar mitzvah, graduation gifts).  If irrevocable gifts are co-mingled in a 529, those gifts must be given back to the intended recipient before you change the beneficiary on a 529. (not an issue if you never change beneficiaries, but many people do). no reason to keep the paper trail within a 529 for this.

    it is a child’s asset,so it is factored in college aid calculations, but for most physician this is moot point.

    it is a good pot of money to use for  high school costs, camps, braces, paying expenses during a gap year, cars, etc.  just can’ be used to pay your own bills/expenses. has to benefit the child.

    people worry about “handing it over” at age of majority. #1. you can spend the pot away…just buy the car, etc and a large chunk will go away before they are even 18 years old!…..  #2  this isn’t an issue in most families. some yes. most no.     it is not like it has to go into their checking or give them cash.  ours will eventually go into my kids brokerage account (his own..he’s age of majority already)…it isn’t like he spends from that account either…. i don’t worry about this at all.nada.

    for those worrying about overfunding a 529 is a good place to park money which is more flexible.  For instance my kid is on an athletic ride and doesn’t use his 529, but he travels back/forth to school (get to school, home for Thanksgiving, home for winter break, back)……this is about 3-4K right there annually with plane fares, ubers, shuttle to airport (which is 90 min from his school)..this is something a 529 can’t be used for…just saying .   that’s a 12K pot a 529 is useless for…..

    also more flexible with investment options.  I haven’t found a 529 plan where i could shove a bunch of AMZN stock, etc….

    there is some tax advantage via kiddie tax rules.  not the greatest, but some.

    it is much more useful for my kid to have these assets when he is 20/30/40 and will need money for a home, maybe to start a business, etc…..having him inherit seven figures when I die at age 90 and he is 70 is pretty useless IMO.  i’d rather gift him the money now and have it be put to good use while i am alive to help guide his financial decisions.

    Click to expand…

    Can’t most of your objectives be accomplished through cash flow gift-giving on a PRN basis?

    Click to expand…

    1st – that doesn’t work well to hold gifts from 3rd parties

    2nd, probably the biggest point – there is a huge gulf of a difference between a kid having a pot of his own money to manage, making choices with said money, vs a kid essentially remaining on the dole from his parents in perpetuity.

    3rd – if you’re moving sizable amounts of money, as-needed gifting will usually be inferior from a gift tax perspective than annual gifting.

    LEVEL 1 WCI FORUM MEMBER.

    #171386 Reply
    Craigy Craigy 
    Participant
    Status: Spouse
    Posts: 1664
    Joined: 09/16/2016
    ….

    LEVEL 1 WCI FORUM MEMBER.

    #171387 Reply
     royalblue 
    Participant
    Status: Spouse
    Posts: 6
    Joined: 11/30/2018

    bean1970, thank you. Quite possibly the best explanation I have had of this

    #171390 Reply
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 2038
    Joined: 01/14/2017

    Good kids will be good kids and bad kids will be bad, regardless of the pot of money you give them, in my experience and opinion.

    Click to expand…

    LOL

    Edit:  Thought you said “pot money”.  Carry on.

    #171396 Reply
    Liked by Zaphod, Craigy
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 2038
    Joined: 01/14/2017
    there is a huge gulf of a difference between a kid having a pot of his own money to manage, making choices with said money, vs a kid essentially remaining on the dole from his parents in perpetuity.

    Click to expand…

    I’m not suggesting that they remaining on the dole of his parents.  I think bean1970 brings up a good point with respect to other people gifting them money.  If that happens before they’re 18, UTMA.  If they want money for college random stuff not covered by the 529 they can fund that themselves – from that gift money or from working.  You could look at it the other way too where getting a sum of cash from your gifting at age 18 gets them thinking that there’s always a safety net, as opposed to getting the random gift 10 years later for their wedding.

    #171405 Reply
    Liked by Craigy
     No1ofconsequence 
    Participant
    Status: Spouse
    Posts: 8
    Joined: 10/29/2018

    What happens to the utma when the child reaches majority? I think the account has to become something other than a utma when he/she turns 25. It can’t become retirement savings, so does it just convert to a taxable account?

    #171415 Reply
     bean1970 
    Participant
    Status: Physician
    Posts: 297
    Joined: 07/12/2017
    What happens to the utma when the child reaches majority? I think the account has to become something other than a utma when he/she turns 25. It can’t become retirement savings, so does it just convert to a taxable account

    Click to expand…

    you have to relinquish it.  There is no magic transfer. you won’t get any kind of notice.  you can relinquish it at ANY time after age of majority and are legally obligated to do so upon the request of the child (who is now over age 18).  you can keep it forever honestly if kid doesn’t care.  The only caveat is the kid has to pay the taxes.  To relinquish an account both the custodian has to sign paperwork.  Many parents try to “hide” these accounts. not recommended, particularly because of the taxes.   it is best to let them know this account exists and have them tell you when they need it.  That’s my opinion.  My kid wants me to hang onto it until he is out of college. I might move it sooner just for consolidation since his UTMA is at a different institution than his own brokerage account.  My kid had three UTMAs (one each set of grandparents and the one i am custodian for). The grandparent ones we already relinquished into his brokerage.

    when it is relinquished the account can be done with whatever the kid wants.  This is one reason when kid is age of majority to open up their own accounts (not custodial accounts). it is a great place to move this money into in-kind then without the kid really needing to think about anything.   it just gets moved from custodial brokerage (or savings) to individual brokerage (or savings).

    #171420 Reply
     G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1105
    Joined: 01/08/2016
    WCICon18

    Has anyone used a UTMA to deal with the “problem” of capital appreciation?  Specifically, can I open up a UTMA account at Vanguard, move shares from a highly appreciated vanguard fund of mine to the UTMA, and then convert them to say VTI?  (Without paying taxes?)

    I believe I read something about this years ago, but didn’t really pay attention since I was worried more about my own balance sheet.  Similar to my opinion about mortgage debt/bonds/full-time work/admin BS, funny how things change after several more years of shoveling (combined with a bull market).

    #171423 Reply
    Craigy Craigy 
    Participant
    Status: Spouse
    Posts: 1664
    Joined: 09/16/2016

    What happens to the utma when the child reaches majority? I think the account has to become something other than a utma when he/she turns 25. It can’t become retirement savings, so does it just convert to a taxable account?

    Click to expand…

    It is always a taxable account.

    Like bean said, either the custodian or the child has to take steps to roll it into another type of account.  E.g. I recently went through steps to liquidate a Fidelity UTMA for my wife that had $0.04 in it.  She’s in her 30s.   😆

    LEVEL 1 WCI FORUM MEMBER.

    #171473 Reply
    Liked by bean1970
     Dr.V. Investor 
    Participant
    Status: Physician
    Posts: 127
    Joined: 03/12/2017

    we have utma for all out kids.  spouse likes managing it himself.  he himself had some growing up.  more flexibility on what you can use it for (not just education)- wedding, house, business etc. we put all the gifts there and we fund it Christmas and birthday.

    #171480 Reply

Reply To: UTMA, good or not so good

In case of a glitch or error, please save your text elsewhere, clear browser cache, close browser, open browser and refresh the page.

you're currently offline

Notifications Mark all as read  |  Clear