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CHAPTER 9

Investing under the minor’s name—UGMA/UTMA

Initial investment $5000 Son $50,000

= $5000 = $50,000 = Backpacking in the Himalayas = Son’s money at age 18

Because the account is UGMA or UTMA, it becomes the son’s at the age of majority, normally 18. However, this will vary by state.

is a gift and will revert to the minor when he or she reaches the age of majority. The gift, also, doesn’t have to be just cash. The minor may be given bonds, stock, etc., in lieu of cash. The gift tax laws apply to these types of accounts. That is, an individual may give up to $11,000 per year, per individual before triggering any gift tax. Any more money given to a minor by one individual would be taxed. The value of a UGMA/UTMA may also reduce your child’s eligibility for financial aid.

EDUCATION IRAS

With the recent changes in the federal tax law, education IRAs have become a more attractive choice to help fund education than they used to be. Education IRAs are essentially a tax-deferred way of growing money to help pay for a child’s higher education. The main attraction to these accounts is that as long as the money is used for qualifying expenses, which we discuss, the distributions are tax-free.

Under the old tax law, contributions were limited to $500 per year. Considering the fact that this money was going to be used for college

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