Parents may want more than one account to maximize tax benefits or supplement prepaid plans, experts say. By opening separate college savings accounts, parents can tailor their investments to fit each child. These plans also offer the flexibility to change the beneficiary from one relative to another, which makes opening one larger account with pooled resources an attractive solution for college-saving families. Also, opening separate accounts allows parents to choose the proper investment allocation for each child.
Parents can open a regular 529 account to save for additional qualified expenses, such as books, computers, and room and board, says Nancy Farmer, president of Private College 529 Plan, a prepaid tuition plan sponsored by more than 275 private colleges and universities. Even if parents choose not to open a 529 savings plan in addition to their prepaid account, they will still have to supplement with another prepaid plan if they have more than one child. Custodial accounts are established under your state’s Uniform Transfers to Minors Act, or UTMA, or Uniform Gifts to Minors Act, or UGMA.  State law, rather than a trust agreement, spells out the relevant terms and conditions. The Uniform Transfer to Minors Act, or UTMA, is quite similar, but also allows for the transfer of other types of property to minors.  A UTMA account is also generally more flexible than a UGMA account. An adult can generally set up a UTMA account or UGMA account at a bank, mutual fund company, broker, or other type of financial institution for the benefit of a child, grandchild, neighbour, friend, or other minor of his or her choosing.


The adult who sets up the account also appoints a custodian to manage the account assets for the benefit of the minor until the account terminates.  The custodian may be the same person who created the account or another adult. Assets held in a custodial account become the property of the child as soon as the transfer to the UTMA account or UGMA account is completed, even though the minor cannot control the custodial property until later (generally upon reaching the age of majority).
Since transfers to a custodial account are irrevocable, the transferor cannot take the money back if he or she later has a change of heart or an unexpected expense arises. When setting up a UGMA account or UTMA account, the donor appoints an account custodian, who is similar to a trustee.  The donor can designate him or herself or any other adult. The custodian manages the account for the benefit of the minor and makes all investment decisions until the child reaches the age of majority or other date when the custodianship ends.  Although the minor is the owner of the account, he or she cannot control the custodial property during this time.
Contrary to popular belief, there are is no special tax treatment for a UTMA account or UGMA account.  However, it is important to understand the tax consequences of custodial accounts.
A number of years ago, many parents would transfer assets to their children in custodial accounts.  Since the minor child is the owner of custodial account funds, any income or gains generated in the account also belong to the child and were taxed at the child’s marginal tax rate rather than the parent’s (usually) higher rate.
Depending on the amount of income generated in the UGMA account or UTMA account and any other income the child may have, the child may need to file his or her own federal (and possibly state) income tax return and taxes may need to be paid.  If certain requirements are met, the child’s parents may elect to report the child’s unearned income on their own tax return. Transferring assets to a custodial account is generally a completed gift for federal gift tax purposes.  Each year, each parent can generally transfer up to $14,000 (indexed for inflation) to each child or any other recipient (via custodial account, trust, outright, etc) without using up any of their gift tax exemption, paying gift taxes, or having to file a gift tax return (provided certain conditions are met).


If you are wealthy, you may not want to transfer assets to a UTMA account or UGMA account and name yourself as the custodian.
The DTC also happens to be one of the more lucrative non-refundable tax credits, providing real financial support if your family is dealing with the stress of illness or a health care crisis. It’s our experience here at Sloan Partners that most people are not familiar with the qualifying conditions permitting the entitlement to the DTC, and so miss out on potential tax savings. The drawback, however, is that the funds within prepaid accounts typically cover only tuition and mandatory enrollment fees.
Continuing at the next level will be football players Nick Davidson, Nate Hoff, Austin Stock, Cory Stuart and Solon track athlete, Paige Yaeger.



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