With all this additional income, I want to give money to the kids to save on tax

Question

With all this additional income, I want to give money to the kids to save on taxes. How much can I five them? Now, is this going to cost them a lot in taxes? I want to pay that too if it is a lot of money. I also want to help the two new grandkids with their college. They are two and four years old and I figured I could help them with college (because between you and me their parents can't save a dime) and get a tax deduction at the same time. The teller at the bank said I should open up a Uniform Gift to Minor's account. What do you think and if so how much can I put in to save on taxes?

Explanation / Answer

Answer :

Uniform Gift to Minor's account.:

An UGMA is the Uniform Gift to Minors Act, means giving money to the minor. As per the IRS regulations allows a person to lots of money to any minor with no tax consequences and it provides a way for the minor to own the assets if the donor who created the account is acted custodian without involving an attorney. Due to a minor’s limited power under the law to agreement the gift act simplifies the transfer of assets to minor children without establishing a special trust. . Financial aid planning is concern since you have lot of money and have 5 grand children and two new grandkids with their college and another two and four years old child. Transfers funds to UGMA accounts are known as gifts. As per the gift law single taxpayers are allowed to gifts up to $14,000 tax-free.

The benefit of these type of accounts is that child owns the rights and authority to use the account balance when he or she reaches majority age, either 18 or 21. but has no legal rights to ask how child uses the funds .The parents and grandparents pay for college for grandkids to save their own taxes by transferring income or assets to their children who are not or lesser tax bracket as per the federal law. In UGMA if the child is under 18 and more than $2,000 of unearned income is available, then additional amount will be taxed at either the parent’s tax bracket or the child’s tax bracket, whichever one is higher. These type of accounts guaranteed that parents who transferred large amount to college savings accounts should be used for college. Any withdrawals are subject to federal income tax and 10 percent penalty If the funds are used for other purpose than qualified educational expenses because the purposes of these types of accounts to avoid income taxes. I assume that the parents of the child have fulfilled the child’s tax obligations so that the maturity of the account would not in itself cause any further tax implication. I am assuming the child’s tax obligations have been fulfilled and no tax implication when account gets matured when you transfer the funds to your grandkids and any interest earned in the account during the current year will be add to your grandchildren’s other incomes. UGMA account is only limited for the benefit of the child, so parents or grandparents should understand the limitations and permissions before using these accounts as used to avoid taxes.

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