Q:
A:
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 grandfatherâ€™s, because he opened the account
b) The childâ€™s tax bracket because this is a minorâ€™s account
c) The parentsâ€™ top marginal bracket
d) There is no tax on the earnings because this is a taxdeferred account
a) The grandfatherâ€™s, because he opened the account
b) The childâ€™s tax bracket because this is a minorâ€™s account
c) The parentsâ€™ top marginal bracket
d) There is no tax on the earnings because this is a taxdeferred 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 parentsâ€™ top marginal tax bracket. The grandfatherâ€™s tax bracket is irrelevant to the taxes owed by the child.
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 parentsâ€™ top marginal tax bracket. The grandfatherâ€™s tax bracket is irrelevant to the taxes owed by the child.
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