Uniform Transfer to Minors Act (UTMA)
What is a UTMA?
Though the name sound intimidating, the Uniform Transfer to Minors Act (UTMA) can be a boon to parents working hard to save for college.
Are there contribution limits?
No, there are no contribution limits, nor are there income limits to those who contribute (as there are with other plans). * Because contributions are made with after-tax dollars, a deduction cannot be taken. Your child doesn't gain control of the money until he or she reaches the age of majority (18 or 21 in most states).
What about tax advantages?
For children who are younger than age 18:
- The first $900 of earnings are generally tax-free. Earnings between $900 and $1,800 are taxed at the child's rate. Earnings over $1,800 are taxed at the parent's rate.
For children who are age 18 and over, all earnings are taxed at the child's rate.
Are there any other things to consider?
There are a few things to consider when evaluating UTMAs:
- Once you've given the money away, you cannot get it back for your own use.
- Once a child reaches the age of majority, he or she is entitled to the account.
*The amount is indexed for inflation and may increase over time.
For more information about Coverdell plans, contact us.