Is 529 or UTMA better?
A 529 savings plan is most beneficial when it’s used for educational expenses; you may even have to pay a penalty if you use the money in the account for something else. On the other hand, the designated beneficiary of an UTMA account can spend the money on anything — even something other than college tuition.
Can I open both UTMA and 529?
You can move money from a custodial account, such as a UGMA (Uniform Gifts to Minors Act) or a UTMA (Uniform Transfers to Minors Act), to a 529 plan. But you can’t do the reverse — transfer or convert from a 529 to a custodial account — without adverse tax consequences.
What are the disadvantages of a UTMA account?
Cons of an UGMA/UTMA Account A big drawback is that all assets transferred into an UGMA account law are irrevocable transfers. This means that your child owns the assets, and the child has the authority (not the parent) on how to use the funds once the child reaches the age of majority.
Is a 529 account an UTMA?
An UTMA/UGMA 529 plan is a custodial 529 college savings plan account funded with money from an existing Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) account. It differs from a traditional 529 plan in several important respects.
How much should I put on my UTMA?
Who should consider a UGMA/UTMA account? Anyone can contribute up to $15,000 per child each year free of gift-tax consequences ($30,000 for married couples). This amount is indexed for inflation and may increase over time. Because contributions are made with after-tax dollars, a deduction cannot be taken.
Is UTMA a good idea?
UGMA / UTMA accounts can be good for some things, bad for others. UTMA (Uniform Transfers to Minors Act) has replaced UGMA (Uniform Gifts to Minors Act) in most states. The main “upgrade” is greater flexibility – UGMAs only hold securities, UTMAs can hold securities and others assets, such as real estate.
How are UTMA accounts taxed 2020?
Because money placed in an UGMA/UTMA account is owned by the child, earnings are generally taxed at the child’s—usually lower—tax rate, rather than the parent’s rate. Up to $1,050 in earnings tax-free. The next $1,050 is taxable at the child’s tax rate. Any earnings over $2,100 are taxed at the parent’s rate.
Which state has the best 529 plan?
Utah — The first state located outside of the Midwest , Utah consistently ranks as one of the best states for 529 Plans. That’s partly because the state handles the investments itself, rather than outsourcing fund management.
What happens to 529 if not used?
If you don’t use the 529 funds for eligible expenses, you usually have to pay taxes and a 10% penalty on the earnings portion of the withdrawals. You may be able to withdraw money from the 529 without penalty if your son meets the IRS’s definition of disability, but you will have to pay taxes on the earnings portion of the withdrawals.
What are the 529 plan contribution limits?
There are no annual contribution limits for 529 plans, but the total balance per beneficiary is limited to the expected amount of future qualified education expenses. This amount ranges from $235,000 to $529,000, depending on the state.
When can a parent cash out an UTMA or an UGMA?
As the custodian of a UTMA/UGMA account, a parent can withdraw money whenever needed to benefit the child. Parents can take cash out of a UTMA or a UGMA account as long as the money is spent for the benefit of the child, who is the account’s beneficiary.