Test Your UTMA Account Knowledge
True or false? Distributions from a Uniform Transfer to Minors Act (UTMA) account are taxable to the minor beneficiary of the account.
Once money is deposited in an UTMA account, any earnings it generates are taxable to the minor, who is technically the owner of the account. In most cases, the Internal Revenue Service’s “kiddie tax” provisions will apply. Under the kiddie tax rules for 2017, children can claim the standard deduction against their first $1,050 of investment income, and they pay taxes at their tax rate on the next $1,050 of investment income. Anything they make from investments in excess of $2,100 is taxed at their parents’ rate.
We understand that it can be tricky navigating the world of personal finance. Everyone seems to have an opinion, and it can be hard to know what to believe. We created this series as a way to present and debunk some of the most common financial myths.
Fiction: There's no long-term effect if I use a little bit of my retirement savings to establish an emergency fund.
Fact: When setting up an emergency fund, withdrawing money allocated to other resources, particularly your retirement savings account, can do long-term damage to your financial picture. For starters, if you borrow from your retirement account and default on the loan, you could face serious tax implications and penalties. You're also limiting the advantage of compounding returns from the money you had put aside. Think of it this way: Taking cash out of your retirement account is like stealing from yourself in your golden years. The most common excuse for not maintaining an emergency fund is that you don’t make enough money to save. Know that you don't need to put away hundreds or thousands of dollars all at once. Starting small can work just as well.