UTMA’s and New Tax

Submitted by Kerry Schepers on Wed, 2018-10-31 21:02

I’m struggling to recommend UTMAs at all any more with the new Kiddie Tax. And have spoken with two CPA’s, asking for advice if I should unwind / cash out new UTMA (with little or no gain) and start either a JTWROS with mom and dad, or ROTH’s for kids if they work. Old UTMAs with large gain, slowly take funds out…slowly. Advice please or reference to your advice already printed. Thank you.



Submitted by William Tuttle on Thu, 2018-11-01 00:00

The new Kiddie Tax rules are not necessarily detrimental. In fact in a majority of cases they will probably result in less not more taxes.

  • Prior to 2018 the amount above the 8615 limit ($2018 = $2100) was taxed at the parent’s marginal tax rates.
  • Starting in 2018, this amount is taxed at the trust marginal tax rates.
  • Yes. the trust tax rates are highly compressed and the 37% bracket begins at $12,500.
  • However, the first ordinary income tax 10% bracket is $1 – $2550 and the first LTCG/QDIV 0% bracket is $1 – $2600.
  • This allows incremental LTCG/QDIV to be tax-free up to $4700.
  • Tax gain harvesting should be done every year to reduce future tax liabilities.

UTMAs are now probably more tax efficint for the majority of taxpayers. Only the largest UTMA’s income should be > $12,500 in any one year unless the custodian failed in their fiduciary duty to minimize taxes by tax gain harvesting up to the tax-free limit every year.

Submitted by Kerry Schepers on Thu, 2018-11-01 20:02

If a business owner is already paying his child to work for him, can he (the busines owner) start a ROTH and contribute business dollars (yes)..the question is does the child count this as income? and does the employer have to pay FICAFUDA on this too?  THanks.

Submitted by William Tuttle on Fri, 2018-11-02 01:15

  • Only an adult individual can open an IRA for themselves.
  • If your son is a minor or in some states < the custodial account termination age, you could open a UTMA Roth IRA for him.
  • A business can offer a “payroll deduction IRA”. The employee can elect to have some of their already existing compensation deducted from their paycheck. This would be deducted after all other mandatory deductions. It would be subject to income taxes and FICA.
  • This is no different than an employee designating a second bank account for direct deposit. 

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