man opened a Uniform Transfers to Minors Account
for his grandson several years ago. The grandson
is now 13 years old, and this year the mutual funds
in the account produced earnings of $6,000. The taxes
due on the account are based on whose tax bracket?
The grandfather’s, because he opened
b) The child’s tax bracket because this
is a minor’s account
c) The parents’ top marginal bracket
d) There is no tax on the earnings because this
is a tax-deferred account
The correct answer is c.
Income in UGMA/UTMA accounts is always taxable, the
question is at whose bracket. The general rule is that
unearned income (growth) to a minor child exceeding
$1,500 in a year is taxed to the child at the parents’ top
marginal tax bracket. The grandfather’s tax bracket
is irrelevant to the taxes owed by the child.