Trusted Expert Network.com

These accounts are self-directed so you can open a brokerage account, buy stocks and bonds or mutual funds. A UGMA is a custodial account setup in your child’s name. Any money you contribute to an UGMA is , by law, an irrevocable gift to your children. While UGMA accounts are not specifically designed to provide financing for college. Many investors however, use them for this purpose because the assets become available to the minor when he or she reaches the age of maturity, which in most statesis at the age of 18 or in some states, 21. UGMA accounts are student assets, which are weighed much harsher in the financial aid formula. Tax benefits are pale compared to Coverdell and 529 savings. The earnings, which if used for college tuition, are completely free of federal tax. New rules add more complexity to the kiddie tax code. The past rules allowed a child up to the age of 14 to earn up to $1,800 at their tax rate; above that amount the income would be taxed at the parent’s rate which is always higher.

The new rules pushed the age of full time students to age 24, making it difficult to gift appreciated assets in your child’s name to take advantage of the lower tax.

Related posts:

1. Learning more about the 529 Savings Plan Are you familiar with the 529 plans? They have become...
2. Are you familiar with ESAs to save for college? Like the UGMA accounts, Coverdell ESA’s are self directed, giving...
3. Are you aware of pre paid tuition savings? Many pre-paid tuition plans are sponsored by state governments and...
4. New Year, New Estate Planning Laws. Do You Know The Rules? This year, it will be extremely important for everyone to review...
5. 529s and Prepaid Education Plans- For Some States It Could Be Back to the Books In light of the recent headlines in Virginia and Alabama...

Related posts brought to you by Yet Another Related Posts Plugin.

Tags: 529 plans, college planning, college savings, coverdell, full time student, gerard simonelli, tax rate, ugma

About the Author: Gerard Simonelli is a CFP for ARS Financial Services, Inc.

This entry was posted on Sunday, January 18th, 2009 at 11:23 am and is filed under education financial planning. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.