A man opened a Uniform Transfers to Minors Account for his grandson several years ago ...

By Investopedia Staff AAA
Q:
A 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?
a) The grandfather’s, because he opened the account
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
A:
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.

RELATED FAQS

  1. The Chairman of Bright Star Life and Casual had a meeting with his broker this afternoon ...

    The correct answer is b) Insider trading would include information that is material and non-public. Certainly, a poor earnings ...
  2. Which statements about common shareholder rights are FALSE? I. A shareholder may ...

    The correct answer is a. I should be the the other way around: convertible bond holders can exchange their bonds for shares. ...
  3. If ABC Company had the following Income Statement figures, what is the Operating ...

    The correct answer is c): The operating margin is a very useful test of the efficiency of corporate management. Operating ...
  4. A customer sells a 6% corporate bond on Tuesday October 4th for regular settlement ...

    Free info on financial certification exams including study guides, exam questions, and much more!
RELATED TERMS
  1. Series 79

    A examination to ensure a candidate is qualified to become a ...
  2. Research Analyst

    A person who prepares investigative reports on equity securities. ...
  3. Series 34

    An exam required for individuals seeking to engage in off-exchange ...
  4. Financial Advisor

    One who provides financial advice or guidance to customers for ...
  5. Series 23

    An exam offered by the Financial Industry Regulatory Authority ...
  6. Series 28

    An exam given by the Financial Industry Regulatory Authority ...

You May Also Like

Related Articles
  1. Insurance

    Municipal Bond Tips For The Series 7 ...

  2. Retirement

    6 Proven Tips For Series 6 Success

  3. Insurance

    Tips For Passing The Series 6 Exam

  4. Professionals

    Banker Or Broker: Which Career Is Right ...

  5. Professionals

    Breaking Down Financial Securities Licenses

Trading Center