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Re: Convert UTMA to 529
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JoeTaxpayer
Aug 25, 2012, 1:17:26 PM8/25/12
to
On 8/23/12 6:40 PM, Another Poster wrote:
> Converting a small UTMA account for a post 18 minor to a 529 plan.
> Primary purpose is to remove assets from minor's list for FAFSA
> purposes (OK with FAFSA). Minor does not have control of the UTMA
> currently as it is transferred at age 21 and minor is 20 yrs old right
> now:
>
> 1. What are the limitations? Can I "roll it all over" or is there an
> annual limit on the amount that goes into the 529?
>
> 2. If the 529 does not end up being used completely for higher ed
> purposes, what, in general, is the penalty for withdrawing for another
> purpose?
>
> 3. Can it be used for Grad school as well Under Grad?
>
> 4. Any other tidbits of a 529 I might want to be aware of or look into
> before doing this?
For the fact that a 529 custodian (I mean the parent or guardian, not
the broker) can change beneficiaries on the account, this would seem to
open a can or worms, no? The money in my daughter's UTMA or other
beneficiary accounts is definitely hers, but he 529, not so much.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
> Converting a small UTMA account for a post 18 minor to a 529 plan.
> Primary purpose is to remove assets from minor's list for FAFSA
> purposes (OK with FAFSA). Minor does not have control of the UTMA
> currently as it is transferred at age 21 and minor is 20 yrs old right
> now:
>
> 1. What are the limitations? Can I "roll it all over" or is there an
> annual limit on the amount that goes into the 529?
>
> 2. If the 529 does not end up being used completely for higher ed
> purposes, what, in general, is the penalty for withdrawing for another
> purpose?
>
> 3. Can it be used for Grad school as well Under Grad?
>
> 4. Any other tidbits of a 529 I might want to be aware of or look into
> before doing this?
For the fact that a 529 custodian (I mean the parent or guardian, not
the broker) can change beneficiaries on the account, this would seem to
open a can or worms, no? The money in my daughter's UTMA or other
beneficiary accounts is definitely hers, but he 529, not so much.
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>
JoeTaxpayer
Aug 25, 2012, 5:28:38 PM8/25/12
to
On 8/25/12 1:17 PM, JoeTaxpayer wrote:
> On 8/23/12 6:40 PM, Another Poster wrote:
>> Converting a small UTMA account for a post 18 minor to a 529 plan.
>> Primary purpose is to remove assets from minor's list for FAFSA
>> purposes (OK with FAFSA). Minor does not have control of the UTMA
>> currently as it is transferred at age 21 and minor is 20 yrs old right
>> now:
>>
>> 1. What are the limitations? Can I "roll it all over" or is there an
>> annual limit on the amount that goes into the 529?
>>
>> 2. If the 529 does not end up being used completely for higher ed
>> purposes, what, in general, is the penalty for withdrawing for another
>> purpose?
>>
>> 3. Can it be used for Grad school as well Under Grad?
>>
>> 4. Any other tidbits of a 529 I might want to be aware of or look into
>> before doing this?
>
> For the fact that a 529 custodian (I mean the parent or guardian, not
> the broker) can change beneficiaries on the account, this would seem to
> open a can or worms, no? The money in my daughter's UTMA or other
> beneficiary accounts is definitely hers, but he 529, not so much.
I retract the above. From the Fidelity site;
> On 8/23/12 6:40 PM, Another Poster wrote:
>> Converting a small UTMA account for a post 18 minor to a 529 plan.
>> Primary purpose is to remove assets from minor's list for FAFSA
>> purposes (OK with FAFSA). Minor does not have control of the UTMA
>> currently as it is transferred at age 21 and minor is 20 yrs old right
>> now:
>>
>> 1. What are the limitations? Can I "roll it all over" or is there an
>> annual limit on the amount that goes into the 529?
>>
>> 2. If the 529 does not end up being used completely for higher ed
>> purposes, what, in general, is the penalty for withdrawing for another
>> purpose?
>>
>> 3. Can it be used for Grad school as well Under Grad?
>>
>> 4. Any other tidbits of a 529 I might want to be aware of or look into
>> before doing this?
>
> For the fact that a 529 custodian (I mean the parent or guardian, not
> the broker) can change beneficiaries on the account, this would seem to
> open a can or worms, no? The money in my daughter's UTMA or other
> beneficiary accounts is definitely hers, but he 529, not so much.
I have a Uniform Gifts to Minors Act or Uniform Transfers to Minors
(UGMA/UTMA) account. Can I transfer those assets into a 529 plan account?
Yes, however, you must first liquidate the assets in the UGMA/UTMA
account and pay any applicable taxes. Investments may be subject to fees
and expenses. After liquidation, you can invest the cash in an UGMA/UTMA
(Custodial) 529 plan account. An UGMA/UTMA 529 plan account will be
subject to the rules for both types of accounts, including applicable
UGMA/UTMA state statutes. You cannot change the beneficiary of an
UGMA/UTMA 529 plan account. You may want to consult a tax professional
regarding your specific tax situation.
So there's a provision that would forbid the change in beneficiary.
Message has been deleted
JoeTaxpayer
Nov 8, 2012, 11:13:05 AM11/8/12
to
On 11/8/12 10:49 AM, Another Poster wrote:
>
> Anyone know of a good site that details what you can and can't do with
> the 529 (once formed) that's written in layman's language to get me
> started on that process?
>
I'd look at the specifics for the 529 account you'd plan to use. Each
offers its own choices of investments. When compared to other investment
accounts, the 529 has very limited options, e.g. no choosing individual
stocks, limited selection of funds or ETFs.
The tax free growth may be worth it, but it's a tradeoff you need to
analyze.
>
> Anyone know of a good site that details what you can and can't do with
> the 529 (once formed) that's written in layman's language to get me
> started on that process?
>
I'd look at the specifics for the 529 account you'd plan to use. Each
offers its own choices of investments. When compared to other investment
accounts, the 529 has very limited options, e.g. no choosing individual
stocks, limited selection of funds or ETFs.
The tax free growth may be worth it, but it's a tradeoff you need to
analyze.
Stuart A. Bronstein
Nov 8, 2012, 11:14:27 AM11/8/12
to
Another Poster <so...@noemailviausenet.com> wrote:
> both cases, you can make the switch.
>
> Anyone disagree?
Well, I disagree.
I'm not an expert on 529 plans, but the code says that the account
must be "on behalf of a designated beneficiary...."
Does anyone else think that someone can set up a 529 plan for
himself? Because it looks to me as if that is not within the scope
of the statute.
The problem is that once money is put into a UGMA trust, it legally
belongs to the beneficiary. Shifting it to a 529 plan would in
effect be the beneficiary putting it into the plan for himself.
That doesn't appear to be permitted by the statute.
___
Stu
http://DownToEarthLawyer.com
> JoeTaxpayer <JoeTa...@comcast.net> wrote:
>
>>From the Fidelity site;
>>I have a Uniform Gifts to Minors Act or Uniform Transfers to
>>Minors (UGMA/UTMA) account. Can I transfer those assets into a
>>529 plan account? Yes, however, you must first liquidate the
>>assets in the UGMA/UTMA account and pay any applicable taxes.
>>Investments may be subject to fees and expenses. After
>>liquidation, you can invest the cash in an UGMA/UTMA (Custodial)
>>529 plan account. An UGMA/UTMA 529 plan account will be subject
>>to the rules for both types of accounts, including applicable
>>UGMA/UTMA state statutes. You cannot change the beneficiary of
>>an UGMA/UTMA 529 plan account. You may want to consult a tax
>>professional regarding your specific tax situation.
>>
>>So there's a provision that would forbid the change in
>>beneficiary.
>
> So, it looks like that if the daughter is the beneficiary in
>
>>From the Fidelity site;
>>I have a Uniform Gifts to Minors Act or Uniform Transfers to
>>Minors (UGMA/UTMA) account. Can I transfer those assets into a
>>529 plan account? Yes, however, you must first liquidate the
>>assets in the UGMA/UTMA account and pay any applicable taxes.
>>Investments may be subject to fees and expenses. After
>>liquidation, you can invest the cash in an UGMA/UTMA (Custodial)
>>529 plan account. An UGMA/UTMA 529 plan account will be subject
>>to the rules for both types of accounts, including applicable
>>UGMA/UTMA state statutes. You cannot change the beneficiary of
>>an UGMA/UTMA 529 plan account. You may want to consult a tax
>>professional regarding your specific tax situation.
>>
>>So there's a provision that would forbid the change in
>>beneficiary.
>
> both cases, you can make the switch.
>
> Anyone disagree?
Well, I disagree.
I'm not an expert on 529 plans, but the code says that the account
must be "on behalf of a designated beneficiary...."
Does anyone else think that someone can set up a 529 plan for
himself? Because it looks to me as if that is not within the scope
of the statute.
The problem is that once money is put into a UGMA trust, it legally
belongs to the beneficiary. Shifting it to a 529 plan would in
effect be the beneficiary putting it into the plan for himself.
That doesn't appear to be permitted by the statute.
___
Stu
http://DownToEarthLawyer.com
Message has been deleted
JoeTaxpayer
Nov 8, 2012, 11:38:44 AM11/8/12
to
On 11/8/12 11:14 AM, Stuart A. Bronstein wrote:
> Well, I disagree.
>
> I'm not an expert on 529 plans, but the code says that the account
> must be "on behalf of a designated beneficiary...."
>
> Does anyone else think that someone can set up a 529 plan for
> himself? Because it looks to me as if that is not within the scope
> of the statute.
>
> The problem is that once money is put into a UGMA trust, it legally
> belongs to the beneficiary. Shifting it to a 529 plan would in
> effect be the beneficiary putting it into the plan for himself.
> That doesn't appear to be permitted by the statute.
That's not what's happening here. There's a UTMA the father wishes to
> Well, I disagree.
>
> I'm not an expert on 529 plans, but the code says that the account
> must be "on behalf of a designated beneficiary...."
>
> Does anyone else think that someone can set up a 529 plan for
> himself? Because it looks to me as if that is not within the scope
> of the statute.
>
> The problem is that once money is put into a UGMA trust, it legally
> belongs to the beneficiary. Shifting it to a 529 plan would in
> effect be the beneficiary putting it into the plan for himself.
> That doesn't appear to be permitted by the statute.
put into a UTMA/529 account. I'm not 100% familiar with FAFSA rules, but
it seems the funds are looked at differently.
My original concern with 529 was the ability to change beneficiaries,
but the Fidelity Q&A cites the existence of a UTMA 529 that precludes
beneficiary changes. So your concern was mine as well, but in this case,
the money is still only for the daughter's benefit.
Stuart A. Bronstein
Nov 8, 2012, 12:09:18 PM11/8/12
to
Another Poster <so...@noemailviausenet.com> wrote:
> same (my child) student. Is there something subtle I am missing
> in the definition here of "beneficiary"... or was my previous
> post just unclear about the accounts?
What I am saying is that once you set up a UGMA trust, whatever is in
the trust is legally owned by the child. If you then move the money
in that trust to a 529 plan, it would legally being the child moving
her own money into the 529 plan.
By my reading of the statute it appears not to allow someone to
transfer money into a 529 plan for himself - which is what would
appear to be happenning in your case. Instead money goes into a 529
plan directly from one person (i.e. you) to another person (i.e. your
child).
> "Stuart A. Bronstein" <spam...@lexregia.com> wrote:
>>
>>The problem is that once money is put into a UGMA trust, it
>>legally belongs to the beneficiary. Shifting it to a 529 plan
>>would in effect be the beneficiary putting it into the plan for
>>himself. That doesn't appear to be permitted by the statute.
>
> The UTMA is for the (my child) student. The 529 would be for the
>>
>>The problem is that once money is put into a UGMA trust, it
>>legally belongs to the beneficiary. Shifting it to a 529 plan
>>would in effect be the beneficiary putting it into the plan for
>>himself. That doesn't appear to be permitted by the statute.
>
> same (my child) student. Is there something subtle I am missing
> in the definition here of "beneficiary"... or was my previous
> post just unclear about the accounts?
What I am saying is that once you set up a UGMA trust, whatever is in
the trust is legally owned by the child. If you then move the money
in that trust to a 529 plan, it would legally being the child moving
her own money into the 529 plan.
By my reading of the statute it appears not to allow someone to
transfer money into a 529 plan for himself - which is what would
appear to be happenning in your case. Instead money goes into a 529
plan directly from one person (i.e. you) to another person (i.e. your
child).
Stuart A. Bronstein
Nov 8, 2012, 12:12:40 PM11/8/12
to
JoeTaxpayer <JoeTa...@comcast.net> wrote:
> My original concern with 529 was the ability to change
> beneficiaries, but the Fidelity Q&A cites the existence of a
> UTMA 529 that precludes beneficiary changes. So your concern was
> mine as well, but in this case, the money is still only for the
> daughter's benefit.
It seems to me that a UTMA trust and a 529 plan would be mutually
exclusive and could not co-exist in the same account at the same
time.
But again, I'm not a 529 expert. I'm just basing this on my reading
of the statute.
___
Stu
http://DownToEarthLawyer.com
> Stuart A. Bronstein wrote:
>>
>> The problem is that once money is put into a UGMA trust, it
>> legally belongs to the beneficiary. Shifting it to a 529 plan
>> would in effect be the beneficiary putting it into the plan for
>> himself. That doesn't appear to be permitted by the statute.
>
> That's not what's happening here. There's a UTMA the father
> wishes to put into a UTMA/529 account. I'm not 100% familiar
> with FAFSA rules, but it seems the funds are looked at
> differently.
Then I don't understand what is happenning here.
>>
>> The problem is that once money is put into a UGMA trust, it
>> legally belongs to the beneficiary. Shifting it to a 529 plan
>> would in effect be the beneficiary putting it into the plan for
>> himself. That doesn't appear to be permitted by the statute.
>
> That's not what's happening here. There's a UTMA the father
> wishes to put into a UTMA/529 account. I'm not 100% familiar
> with FAFSA rules, but it seems the funds are looked at
> differently.
> My original concern with 529 was the ability to change
> beneficiaries, but the Fidelity Q&A cites the existence of a
> UTMA 529 that precludes beneficiary changes. So your concern was
> mine as well, but in this case, the money is still only for the
> daughter's benefit.
exclusive and could not co-exist in the same account at the same
time.
But again, I'm not a 529 expert. I'm just basing this on my reading
of the statute.
___
Stu
http://DownToEarthLawyer.com
Alan
Nov 8, 2012, 12:49:28 PM11/8/12
to
whether a UTMA/UGMA account can be transferred into a 529 plan. There is
no guidance on what the impications are of a transfer. One must look to
the federal and state statutes to make a determination. Some things are
clear. The child is the owner of the assets in the UGMA account. Someone
else (typically a parent) is the guardian. State law determines at what
age the beneficiary has access to the money. Therefore, if the UGMA is
liquidated and the funds are transferred to a 529, the 529 plan should
be titled as a custodial account as the funds still belong to the child.
The beneficary can not be changed as that would violate the statutes
relating to ownership. Stu's point is valid because no one knows whether
this transfer violates the statute relating to 529 plans. This is one of
the reasons why some states will not accept transfers into 529 plans. In
addition, there could be FAFSA issues. Normally, a 529 plan counts
against the parent. A 529 plan that is a custodial account, would or
should count against the student as the student is the owner. Lastly,
when the student reaches the age of maturity as stated in state law for
UGMAs, the guardianship should end. This is another reason why some
states will not accept a transfer.
JoeTaxpayer
Nov 8, 2012, 12:58:50 PM11/8/12
to
On 11/8/12 12:49 PM, Alan wrote:
> Let's all back up for a moment. There is no guidance nor any rulings on
> whether a UTMA/UGMA account can be transferred into a 529 plan.
I was going that way until I discovered the Q&A on Fidelity site. Not
> Let's all back up for a moment. There is no guidance nor any rulings on
> whether a UTMA/UGMA account can be transferred into a 529 plan.
citing regulations, but trusting that Fidelity would know what's
permitted or not. They mentioned the ability to have a UTMA 529 account,
which I agree seemed mutually exclusive.
Message has been deleted
Bob Sandler
Dec 23, 2012, 1:41:29 PM12/23/12
to
>A general question on the UTMA: As money is withdrawn for use by the
>beneficiary (no 529 conversion), are the taxes calculated in the same
>way as any investment e.g. you sell some shares in the fund it's
>sitting in, withdraw the proceeds, and you pay taxes on only the
>capital gain involved? Or are there some funky rules for the UTMA?
Yes, the same as any other investment, as you described. No
"funky" rules. But remember that it's the minor's capital
gain, and has to be reported as income on the minor's tax
return. Even if the minor is not required to file based on
income, he or she would have to file a return to avoid
having the IRS treat the entire proceeds of the sale as
income, instead of just the gain.
Bob Sandler
>beneficiary (no 529 conversion), are the taxes calculated in the same
>way as any investment e.g. you sell some shares in the fund it's
>sitting in, withdraw the proceeds, and you pay taxes on only the
>capital gain involved? Or are there some funky rules for the UTMA?
Yes, the same as any other investment, as you described. No
"funky" rules. But remember that it's the minor's capital
gain, and has to be reported as income on the minor's tax
return. Even if the minor is not required to file based on
income, he or she would have to file a return to avoid
having the IRS treat the entire proceeds of the sale as
income, instead of just the gain.
Bob Sandler
Alan
Dec 23, 2012, 1:43:44 PM12/23/12
to
On Sunday, December 23, 2012 10:55:15 AM UTC-7, Another Poster wrote:
> On Thu, 8 Nov 2012 12:58:50 EST, JoeTaxpayer <JoeTa...@comcast.net>
>
> issues. I may have later questions for you guys.
> On Thu, 8 Nov 2012 12:58:50 EST, JoeTaxpayer <JoeTa...@comcast.net>
>
> wrote:
>
>
>
> >On 11/8/12 12:49 PM, Alan wrote:
>
> >
>
> >> Let's all back up for a moment. There is no guidance nor any rulings on
>
> >> whether a UTMA/UGMA account can be transferred into a 529 plan.
>
> >
>
> >I was going that way until I discovered the Q&A on Fidelity site. Not
>
> >citing regulations, but trusting that Fidelity would know what's
>
> >permitted or not. They mentioned the ability to have a UTMA 529 account,
>
> >which I agree seemed mutually exclusive.
>
>
>
>
>
> Sorry... I let this hang a while. I'm checking on more of the 529
> wrote:
>
>
>
> >On 11/8/12 12:49 PM, Alan wrote:
>
> >
>
> >> Let's all back up for a moment. There is no guidance nor any rulings on
>
> >> whether a UTMA/UGMA account can be transferred into a 529 plan.
>
> >
>
> >I was going that way until I discovered the Q&A on Fidelity site. Not
>
> >citing regulations, but trusting that Fidelity would know what's
>
> >permitted or not. They mentioned the ability to have a UTMA 529 account,
>
> >which I agree seemed mutually exclusive.
>
>
>
>
>
>
> issues. I may have later questions for you guys.
>
>
>
> A general question on the UTMA: As money is withdrawn for use by the
>
> beneficiary (no 529 conversion), are the taxes calculated in the same
>
> way as any investment e.g. you sell some shares in the fund it's
>
> sitting in, withdraw the proceeds, and you pay taxes on only the
>
> capital gain involved? Or are there some funky rules for the UTMA?
>
>
Distributions are irrelevant. The account is no different than any other taxable investment account. If you have interest income, dividend income, capital gains/losses, royalties, etc., they would get reported on the beneficiary's tax return if there was enough income to require filing. It does not matter whether the income remains in the account or is withdrawn.
>
>
> A general question on the UTMA: As money is withdrawn for use by the
>
> beneficiary (no 529 conversion), are the taxes calculated in the same
>
> way as any investment e.g. you sell some shares in the fund it's
>
> sitting in, withdraw the proceeds, and you pay taxes on only the
>
> capital gain involved? Or are there some funky rules for the UTMA?
>
>
Message has been deleted
Rich Carreiro
Dec 23, 2012, 8:01:18 PM12/23/12
to
"D. Stussy" <spam+ne...@bde-arc.ampr.org> writes:
>Agreed for pre-2012 sales, but not for post-2011 sales where basis is
>required to be reported on 1099-B. Gross income includes gain (or
Basis is *not* required to be unconditionally-reported for
post-2011 sales. It only has to be reported if the shares
being sold were purchased recently enough to be considered
"covered" shares for purposes of the basis reporting rules.
If the shares were purchased before that, no basis has to
be reported, even for post-2011 sales.
--
Rich Carreiro rlc-...@rlcarr.com
>Agreed for pre-2012 sales, but not for post-2011 sales where basis is
>required to be reported on 1099-B. Gross income includes gain (or
Basis is *not* required to be unconditionally-reported for
post-2011 sales. It only has to be reported if the shares
being sold were purchased recently enough to be considered
"covered" shares for purposes of the basis reporting rules.
If the shares were purchased before that, no basis has to
be reported, even for post-2011 sales.
--
Rich Carreiro rlc-...@rlcarr.com
Message has been deleted
Message has been deleted
Message has been deleted
Stuart A. Bronstein
Dec 27, 2012, 2:33:11 PM12/27/12
to
Another Poster <so...@noemailviausenet.com> wrote:
> a gift of stock/funds purchased long before, what is the minor's
> basis? Is it the originals basis of the purchaser (i.e. $10/
> share when originally purchased in 1980) or is it the basis when
> gifted (i.e. $100/share in 1995 when the UTMA was set up).
If the gift was made while the donor was still alive, the minor's
basis is the donor's basis. If the gift was made as the result of
the death of the donor, the basis is generally the value on date of
the donor's death.
___
Stu
http://DownToEarthLawyer.com
> Rich Carreiro <rlc-...@rlcarr.com> wrote:
>
>>If the shares were purchased before that, no basis has to
>>be reported, even for post-2011 sales.
>
> A basic basis question... if some of the funds in the UTMA were
>
>>If the shares were purchased before that, no basis has to
>>be reported, even for post-2011 sales.
>
> a gift of stock/funds purchased long before, what is the minor's
> basis? Is it the originals basis of the purchaser (i.e. $10/
> share when originally purchased in 1980) or is it the basis when
> gifted (i.e. $100/share in 1995 when the UTMA was set up).
If the gift was made while the donor was still alive, the minor's
basis is the donor's basis. If the gift was made as the result of
the death of the donor, the basis is generally the value on date of
the donor's death.
___
Stu
http://DownToEarthLawyer.com
Arthur Kamlet
Dec 27, 2012, 2:36:56 PM12/27/12
to
In article <a80pd89klqhd7e490...@4ax.com>,
Another Poster <so...@noemailviausenet.com> wrote:
>On Sun, 23 Dec 2012 20:01:18 EST, Rich Carreiro <rlc-...@rlcarr.com>
>wrote:
basis is donor's basis.
Else the stock acquires a dual basis, the acual basis is determined at
time of sale, as follows: To calculate gain use donor's basis, and to
calculate loss use FMV at time of gift as basis. It is possible this
results in neither gain nor loss.
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
Another Poster <so...@noemailviausenet.com> wrote:
>On Sun, 23 Dec 2012 20:01:18 EST, Rich Carreiro <rlc-...@rlcarr.com>
>wrote:
>
>>If the shares were purchased before that, no basis has to
>>be reported, even for post-2011 sales.
>
>
>>If the shares were purchased before that, no basis has to
>>be reported, even for post-2011 sales.
>
>
>A basic basis question... if some of the funds in the UTMA were a gift
>of stock/funds purchased long before, what is the minor's basis? Is it
>the originals basis of the purchaser (i.e. $10/ share when originally
>purchased in 1980) or is it the basis when gifted (i.e. $100/share in
>1995 when the UTMA was set up).
If FMV at time of gift is more than donor's basis, recipient's
>of stock/funds purchased long before, what is the minor's basis? Is it
>the originals basis of the purchaser (i.e. $10/ share when originally
>purchased in 1980) or is it the basis when gifted (i.e. $100/share in
>1995 when the UTMA was set up).
basis is donor's basis.
Else the stock acquires a dual basis, the acual basis is determined at
time of sale, as follows: To calculate gain use donor's basis, and to
calculate loss use FMV at time of gift as basis. It is possible this
results in neither gain nor loss.
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
Stuart A. Bronstein
Dec 27, 2012, 3:12:04 PM12/27/12
to
kam...@panix.com (Arthur Kamlet) wrote:
>>A basic basis question... if some of the funds in the UTMA were
>>a gift of stock/funds purchased long before, what is the minor's
>>basis? Is it the originals basis of the purchaser (i.e. $10/
>>share when originally purchased in 1980) or is it the basis when
>>gifted (i.e. $100/share in 1995 when the UTMA was set up).
>
>
> If FMV at time of gift is more than donor's basis, recipient's
> basis is donor's basis.
>
>
> Else the stock acquires a dual basis, the acual basis is
> determined at time of sale, as follows: To calculate gain use
> donor's basis, and to calculate loss use FMV at time of gift as
> basis. It is possible this results in neither gain nor loss.
Thanks, Art. your response is more complete than mine.
>>A basic basis question... if some of the funds in the UTMA were
>>a gift of stock/funds purchased long before, what is the minor's
>>basis? Is it the originals basis of the purchaser (i.e. $10/
>>share when originally purchased in 1980) or is it the basis when
>>gifted (i.e. $100/share in 1995 when the UTMA was set up).
>
>
> If FMV at time of gift is more than donor's basis, recipient's
> basis is donor's basis.
>
>
> Else the stock acquires a dual basis, the acual basis is
> determined at time of sale, as follows: To calculate gain use
> donor's basis, and to calculate loss use FMV at time of gift as
> basis. It is possible this results in neither gain nor loss.
___
Stu
http://DownToEarthLawyer.com
Message has been deleted
Message has been deleted
Stuart A. Bronstein
Feb 26, 2013, 11:14:28 AM2/26/13
to
Another Poster <so...@noemailviausenet.com> wrote:
> The UTMA needs to be liquidated very, very soon. My options are
> to have it converted to a 529 (discussed above) for the minor or
> have the minor give it back to me to cover college expenses I've
> been paying. I assume that as custodian I can do that, but
> correct me if I'm wrong.
Depending on how the UTMA is set up, the beneficiary is supposed to
take control somewhere between the ages of 18 and 25. Once the
applicable age is reached, you lose control and he takes over.
> I'm not really looking for college financing advice here, but I
> will note that there is a financing advantage if the money is in
> my coffers right now as opposed to in the student's name. So the
> "distribute back to me for college use" option has some
> advantages. However, I'm concerned about the tax impact.
I don't know why there would be a financing advantage, but if you
transfer it back to yourself, your child might be required to file
a gift tax return on that amount. It might be better if you were
to borrow it, at reasonable interest.
> Questions:
>
> If the UTMA is converted to a 529 all in the student's name, who
> is assigned and pays the capital gain tax? The UTMA
> beneficiary/student?
As soon as the UTMA is set up, any interest/income etc., should be
reported on the taxes of the UTMA beneficiary. That doesn't
change.
> Is there any TAX advantage to the UTMA -> 529 conversion other
> than the funds picking up new tax deferred status in the 529? In
> other words, is there any difference between doing this
> conversion and just setting up a new 529 fresh? Is any of the
> previous UTMA gain tax advantaged?
As far as I am aware there is no tax deferral for a UTMA trust.
It's just that the income is transferred from you to the
beneficiary.
I am not aware of any other benefits to the creation of a 529 plan
under the circumstances, but others here know more than I do about
that point.
> If the UTMA is distributed/gifted back to me to cover previously
> paid and new college expenses, who pays the capital gain tax?
If there is a capital gain from the sale of an asset in the UTMA,
the beneficiary recognizes that on his income tax.
> Is it within the rules of a UTMA for me to distribute it in the
> way I choose as long as the minor's interests are truly being
> addressed?
As long as the beneficiary is allowed to take full control when he
reaches the proper age.
> Does the gift tax kick in if it's distributed back to me to
> cover expenses, or is that not a gift... just a distribution on
> behalf od he minor?
If he owed it to you it could be the repayment of a loan rather
than a gift. In that case you will probably have to recognize
imputed interest on your taxes.
> Would the IRS frown on it being done to
> reimburse me for expenses in previous years or again, is it
> legit as it's in the minor's interest?
In part it will depend on what the documents that create the UTMA
trust say. Read them.
--
Stu
http://DownToEarthLawyer.com
> The UTMA needs to be liquidated very, very soon. My options are
> to have it converted to a 529 (discussed above) for the minor or
> have the minor give it back to me to cover college expenses I've
> been paying. I assume that as custodian I can do that, but
> correct me if I'm wrong.
Depending on how the UTMA is set up, the beneficiary is supposed to
take control somewhere between the ages of 18 and 25. Once the
applicable age is reached, you lose control and he takes over.
> I'm not really looking for college financing advice here, but I
> will note that there is a financing advantage if the money is in
> my coffers right now as opposed to in the student's name. So the
> "distribute back to me for college use" option has some
> advantages. However, I'm concerned about the tax impact.
I don't know why there would be a financing advantage, but if you
transfer it back to yourself, your child might be required to file
a gift tax return on that amount. It might be better if you were
to borrow it, at reasonable interest.
> Questions:
>
> If the UTMA is converted to a 529 all in the student's name, who
> is assigned and pays the capital gain tax? The UTMA
> beneficiary/student?
As soon as the UTMA is set up, any interest/income etc., should be
reported on the taxes of the UTMA beneficiary. That doesn't
change.
> Is there any TAX advantage to the UTMA -> 529 conversion other
> than the funds picking up new tax deferred status in the 529? In
> other words, is there any difference between doing this
> conversion and just setting up a new 529 fresh? Is any of the
> previous UTMA gain tax advantaged?
As far as I am aware there is no tax deferral for a UTMA trust.
It's just that the income is transferred from you to the
beneficiary.
I am not aware of any other benefits to the creation of a 529 plan
under the circumstances, but others here know more than I do about
that point.
> If the UTMA is distributed/gifted back to me to cover previously
> paid and new college expenses, who pays the capital gain tax?
If there is a capital gain from the sale of an asset in the UTMA,
the beneficiary recognizes that on his income tax.
> Is it within the rules of a UTMA for me to distribute it in the
> way I choose as long as the minor's interests are truly being
> addressed?
As long as the beneficiary is allowed to take full control when he
reaches the proper age.
> Does the gift tax kick in if it's distributed back to me to
> cover expenses, or is that not a gift... just a distribution on
> behalf od he minor?
If he owed it to you it could be the repayment of a loan rather
than a gift. In that case you will probably have to recognize
imputed interest on your taxes.
> Would the IRS frown on it being done to
> reimburse me for expenses in previous years or again, is it
> legit as it's in the minor's interest?
In part it will depend on what the documents that create the UTMA
trust say. Read them.
--
Stu
http://DownToEarthLawyer.com
JoeTaxpayer
Feb 26, 2013, 11:55:21 AM2/26/13
to
On 2/25/13 11:13 PM, Another Poster wrote:
> The UTMA needs to be liquidated very, very soon. My options are to
> have it converted to a 529 (discussed above) for the minor or have the
> minor give it back to me to cover college expenses I've been paying. I
> assume that as custodian I can do that, but correct me if I'm wrong.
The UTMA has to be converted to a UTMA flavored 529.
> The UTMA needs to be liquidated very, very soon. My options are to
> have it converted to a 529 (discussed above) for the minor or have the
> minor give it back to me to cover college expenses I've been paying. I
> assume that as custodian I can do that, but correct me if I'm wrong.
Since a 529 has the ability to be transferred to others, you can't take
a UTMA which is a custodial account for one individual's benefit, and
put it into the standard 529 whose ownership is less than complete.
Just a warning (this is an old thread and it may have already been
discussed) - deposits to the 529 have to be made in cash, no transfer of
assets. In fact, the 529 has limited investment options, which may not
be to your liking. When you liquidate the UTMA, all gains are recognized
at once, which may not be an issue, but something to consider.
Message has been deleted
JoeTaxpayer
Feb 26, 2013, 7:43:42 PM2/26/13
to
On 2/26/13 7:15 PM, Another Poster wrote:
> If the UTMA account goes to "maturity" and is converted to a brokerage
> account for the child without selling the securities (assuming that's
> legal... broker says it's OK), will the child accrue automatic Capital
> Gains in the year she takes possession based on the original basis vs.
> the current FMV - or are those deferred until she actually sells some
> shares and has a gain/loss at some point in the future?
The contents of a UTMA aren't affected by the minor when she becomes a
major. The cost basis remains the same, and assets are taxed as they
were, i.e. interest and dividends should flow to her, as well as long or
short term gains. I doubt the account number will even change, it's just
that she has legal access to the account. I believe the guardian removal
isn't automatic, you should ask the broker how they handle this, and
discuss with your daughter.
> If the UTMA account goes to "maturity" and is converted to a brokerage
> account for the child without selling the securities (assuming that's
> legal... broker says it's OK), will the child accrue automatic Capital
> Gains in the year she takes possession based on the original basis vs.
> the current FMV - or are those deferred until she actually sells some
> shares and has a gain/loss at some point in the future?
The contents of a UTMA aren't affected by the minor when she becomes a
major. The cost basis remains the same, and assets are taxed as they
were, i.e. interest and dividends should flow to her, as well as long or
short term gains. I doubt the account number will even change, it's just
that she has legal access to the account. I believe the guardian removal
isn't automatic, you should ask the broker how they handle this, and
discuss with your daughter.
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