UGMA ACCOUNT

[DEO]

Parent as custodian set up UGMA account for kid years ago. Kid is approaching 18 with an expected gain of approx. 9,000.

Parent is contemplating withdrawing the funds before child becomes 18, or let fund sit and child pays whatever tax on gain.

My question is how the gain would be taxed, interest, capital gain or dividend, and what would be more beneficial, kid after 18, with no income pays the tax or let the parent close the account and pays the tax.

Your input is much appreciated.

Thanks in advance.

Deo

[OldJack]

Taxable Income on a UGMA account is taxable each year to the kid. Classification of taxable income would be the same as for any account for any individual. If it is an interest bearing account it would be taxed each year as interest income, etc.

[Randall]

Taxed each year as OldJack said. But it would have added to basis so when shares are sold (assuming mutual funds), gain would be lower.

[BulldogTom]

Watch out for the Kiddie tax. That is unearned income of the child. May end up at the parents rate.

Tom

Hollister, CA

[DEO]

Thank you for your answers. However, over the years the parent/child has never declared any income, no return was filed.

How should this income be treated on closing the account, file return for the earlier years or ???/ I want to believe that the income for the earlier years were well below the kid's std deduction. This I will follow up.

Thanks again for your input.

Deo

[kcjenkins]

Thank you for your answers. However, over the years the parent/child has never declared any income, no return was filed.

How should this income be treated on closing the account, file return for the earlier years or ???/ I want to believe that the income for the earlier years were well below the kid's std deduction. This I will follow up.

Deo, if the income was under the limit for the child to file, no return was needed for those tears. If a return was needed, file them FOR THE CHILD. Without seeing the parent's return, can't advise how cashing it out will effect him, but, generally speaking, the account belongs to the child, and if cashed out, should generally be done by the child after they reach 18. And consider the tax benefit of NOT cashing it out all at once, as well.

[taxxcpa]

The parent can withdraw the money, but it is still the child's money. The withdrawal may involve the sale of a mutual fund or stock which would result in a capital gain by the child.

[Randall]

And with increased basis over the years plus recent down market, there may be a loss. So child can carry forward the loss.