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3 . UTMA Custodial Account: This plan allows an adult to open an account using the beneficiary’s Social Security Number in the benefici- ary’s behalf. The adult acts as custodian of the account. This is a more flexible account as the funds are not required to be used exclusively for education-related expenses. Contributions can be made up to $11,000 per year. The first $750 is not taxed. If the beneficiary is under 14, the next $750 is taxed at the child’s rate, but any contributions over $1500 are taxed at the parent’s tax rate. If the beneficiary is over 14, any contributions beyond the first $750 are taxed at the child’s rate, which can be considerably less than the parent’s rate.
Benefits:
• Account does not have to be opened by a relative.
• Funds are directed to a predetermined institution so savings amount needed can be better assessed.
• Funds are flexible and can be used for expenses in addition to education-related needs.
• A portion of annual contributions is not taxed.
• There is no contribution limit.
Drawbacks
• The beneficiary takes control of the account at age 18.
• The account must remain in the original beneficiary’s name.
• The funds are considered assets of the beneficiary so they affect applications for college financial aid.
Be sure to compare the plans carefully with the help of your financial advisor so you can decide which features and benefits are best suited to the educational goals you have.
There's More to an Education
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