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A UTMA/UGMA is a custodial account set up in your child's
name. This provides a terrific way for you to save money for
your child without potentially incurring a huge sum in taxes.
Any money you contribute to an UTMA/UGMA is, by law, an irrevocable
gift to your child. Generally, most if not all of the income
earned on the account will be taxed at a lower rate than your
own.
In addition, each parent or grandparent can contribute up
to $10,000 to a child's account per year without having to
pay any federal gift tax.*
The child can assume complete control over the funds when
the child reaches the age of trust termination (18 or 21,
depending on the state and whether the account is a UGMA or
UTMA account). This means that the money can be used for education
expenses or anything else the child chooses. Neither the custodian
nor the donor can legally place any conditions on the use
of those funds once the UGMA or UTMA terminates.
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