month's newsletter has to do with the Custodial
accounts to setup for your children. The most
common custodial accounts are:
- Uniform Gift to Minors Act
- Uniform Transfers to Minors Act
account types have advantages and disadvantages
that you should understand and carefully consider
before you start saving for your children. Most of
these issues center around tax consequences, control
and ownership issues and what the funds can be used
main differences between the UGMA and the UTMA based
upon the types of investments each account may hold.
The UGMA accounts may only hold marketable securities,
such as stocks, bonds, mutual funds, CDs, etc. A UTMA
account may hold those same securities as UGMA's as
well as real estate, art, jewelery, etc.
owns a custodial account?
children own the account. While your children
are still kids (until they reach the age of majority
(18 or 21 depending on your state) you control the
account. By law children may not own securities so
you have to hold them in their name. When your
children turn 18 or 21, they can take that money and
do anything they wish with it.
all, they own the account and it's their money. You
would hope that at this age, your kids will be prudent
with the money and use it for education, purchase
of a home, etc. Your child could also spend their
account on beer binges, vacations, etc. This is the
major factor that CAN be a problem with custodial
accounts. Another major disadvantage is you can not
change beneficiaries. What if you set up a UGMA for
your son's education and he gets a college scholarship?
You can not change the beneficiary to your daughter.
your child is the owner of the account, any capital
gains or dividends are taxed at your child's tax bracket.
This will most likely be the lowest tax bracket and
certainly lower than your tax bracket. As a parent,
what you have done is given up ownership of these
funds for the benefits of lower taxation, allowing
the money to grow and compound much faster.
savings accounts, this money does not have to
be spend on just education. This money can be spend
on absolutely anything you or your child wish.
into these accounts as a supplement or replacement
for the 529
Education Savings Accounts that I covered in a
previous newsletter if the advantages of the UGMA/UTMA
outweigh the advantages of the 529 plans.
another way to save for your children!
I first found out about Upromise I was so excited!
Why? Because you can save for your children's education
just by doing what you are already doing! When you
sign up, a portion the money that you spend already
on gas, groceries, resturants, online shopping and
more get's deposited in your account for their school
expenses! It's a completely free way to help you save
Upromise, a portion of the money you and your friends
spend every day on groceries, resturaunts and and
much more will go into an account for your children's
- FREE Money for College!