UTMA Accounts are popular in 2024, and many people are eager to learn how they work and what the main benefits of using one are. UTMA stands for The Uniform Transfers to Minors Act, for those of you who may be unfamiliar with the term.
UTMA Accounts, or the concept of UTMA Accounts to be more precise, are not liked by the younger generations, but it’s for their good. Here’s the thing, parents often want to leave many of their assets to their young ones, but we live in a world where having tons of financial belongings at a young age can make you not appreciate the right things in life enough. This is why UTMA accounts are a perfect choice.
This concept can be the perfect solution for those who don’t want to “spoil” their loved ones, but also ensure them that they’ll receive something after a few years go by. There are currently many ways to open up such an account, as tons of websites allow such a service. Let’s take a look at this concept slightly more in-depth.
Benefits in the tax field
If you are a full-time student, up to the age of 24 you are allowed to get something that’s called an “unearned income” from your parents, but you’ll pay a reduced tax rate for it. If it’s less than $1100, you don’t have to pay taxes for it at all, while the next $1100 is taxed at a reduced rate. Something called “the child’s bracket” in the tax field. Then, amounts higher than that have to be taxed sometimes even up to thirty-five percent. So, obviously, for lower amounts, you get huge benefits.
Benefits in the “responsibility” field as a parent
It’s well-known that those who are given everything from the earliest age usually don’t appreciate materialistic value later on in life. There’s a term used for this and it’s “spoiling”, although we don’t want to use that one because not every parent wants to spoil their child. But, sometimes it happens against our will. It’s simple if your child doesn’t know how difficult it is to earn in today’s world, and they have everything from the very start, they’ll simply have a different perception about life, not that it’s their fault, but it’s just what money does at an early age.
If you want to be a responsible parent and you want your child to “get up on their feet” before getting anything for you, then the UTMA solution is probably what you should go for. At loved.com you can easily learn more on this topic if it’s still not clear how all this works.
You can still withdraw for “eligible expenses”
It’s not like most people think that their money is trapped in there and they can never pull the funds out unless something significant happens. It’s not like that. You can withdraw the funds for the benefit of your child if the expenses are not something considered a luxury.
For example, you can withdraw for pre-educational expenses and other similar costs. When the child becomes an adult, they can withdraw everything and use it for whatever they need. Buying a car, investing in real estate, purchasing a house, or spending it on all on traveling if that’s what they want. This concept is created with only one purpose in mind, to protect your child from the negative psychological impact money can have at an early age, especially if they have lots of it.
Things you have to know
Unfortunately, sometimes tragic things happen in life, so if you end up losing your child, and you want to transfer the account to another child, you won’t be able to. It’s just something that conflicts with the law and the policies. Of course, this may change in the future, and in some countries, it may be even different than what we just wrote above. But, for some situations, this applies, so keep it in mind before putting everything in a UTMA account. You cannot change the beneficiaries either if you for some reason change your mind.
Do I need any help before creating the account?
Well, according to a lot of financial experts, it may be a very smart thing to consult with a professional personal financial advisor before making this decision in your life. You see, it’s sort of an investment that’s different from all the others we know.
There will always be things that aren’t transparent enough, especially if you are new to this and it’s the first time you’re doing it. Make sure to thoroughly read everything about UTMA accounts from different perspectives and user experiences even, so that you are ready for everything.
What happens with unused money?
Depending on the country, the money must be added into the account before the child reaches their legal age. In different countries, the number will be different. Somewhere it’s 18, in other places it’s 21. The most we know is 25. If the person you’re trying to open an account for is older than any of these pages, you won’t be able to proceed.
UTMA Accounts are a great thing for those willing to save money, whether for college or something else. This is a topic that got a lot of attention in the past, and it’s pretty trending at the moment as well. Honestly, the entire concept for UTMA Accounts is not that clear for many people, which is why we decided to explain it in the article above. It’s worth remembering that the first $1050 is tax-free when they come from your UTMA Account. And, the rest is taxed but only by the child’s rate.
If you’re feeling unsure or uneasy about the fact your child having the ability to control valuable assets before the age of eighteen, UTMA is the right choice for you. But, for in-detail information, reading the guide above will clear up a lot of things for you.