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Ugma/utma Conversions to 529 When Do They Make Sense

Financial Professional Content Many parents have established an UGMA/UTMA custodial account as a funding vehicle for a child's future educational expenses. Oftentimes, these accounts have significant investment balances. Should an existing UGMA/UTMA be converted to a 529 plan? The answer will usually depend on whether or not the child is exposed to the insidious "kiddie tax." Here are the rules of thumb that will make it easier to make the proper decision. The kiddie tax refers to the set of federal tax rules that applies the parent's marginal tax rate to the unearned income above $2,000 reported by a child under 19 or a full-time college student under 24. Carve-outs from the kiddie tax apply to certain children who can show enough earned income to be self-supportive. Even when subject to the kiddie tax, the child's first $1,000 of unearned income is sheltered completely by the standard deduction, and the next $1,000 of unearned income is taxed at the child's own tax bracket (10 percent for ordinary income and 0 percent for long-term capital gains). Rule-of-thumb 1: If you know the child is subject to the kiddie tax in 2013, and will be in future years, seriously consider a conversion to a 529. Explanation: Some portion of the child's investment income is currently being taxed at a high rateï ¿ ½i.e. the parents' rateï ¿ ½and so the tax savings potential of a 529 plan becomes compelling. Because only cash contributions may be made to a 529 plan, the conversion will trigger capital gains on any built-up appreciation in the UGMA/UTMA, and those gains will be subject to the kiddie tax as well. But you might decide the capital gains are going to be triggered at some point anyway, either when the account is spent down or when its investments are reallocated, and it simply becomes a matter of this year versus a future year. If the built-up gains in the UGMA/UTMA are so large as to cause a tax or financial-aid detriment if triggered all at once, reconsider the conversion strategy. Rule-of-thumb 2: If you know the child will NEVER have enough unearned income to be subject to the kiddie tax, hold off on the conversion. Explanation: The child is already in a very favorable tax situation with the existing UGMA/UTMA, and little, if any, advantage can be gained by using a 529 plan. This is especially true if a conversion to a 529 would trigger the kiddie tax because of capital gains. Remember, even if the account is appreciating so much that the liquidation of the UGMA/UTMA might cause a kiddie tax problem in the future, the custodian can take steps each year to "release" part of the gain (keeping total unearned income below $2,000) and reduce or eliminate that future problem. Let's assume you expect a 5 percent total annualized return in the UGMA/UTMA. An account balance below $40,000 ($2,000 divided by 5%) can probably be managed to stay below the kiddie tax threshold. However, consider the effect of compounding on future account balances. Rule-of-thumb 3: If the child is not currently subject to the kiddie tax, but would be if all appreciation in the UGMA/UTMA were recognized each year for taxes, a projection exercise may be necessary. Explanation: Unfortunately, the projection will not be easy to do with any level of precision. For one thing, the kiddie tax threshold increases each year with inflation, and so only the account appreciation in excess of the inflation rate will benefit from the tax sheltering of a 529 plan. For another, the timing of the gains recognition might be managed to lower the future exposure to the kiddie tax. If you are lucky, a modest effort to project the future will steer you toward one of the first two rules of thumb. Rule-of-thumb 4: If the child is in the process of applying for financial aid, most likely make the conversion. Explanation: Converting a non-529 UGMA/UTMA to a 529 UGMA/UTMA immediately boosts a studentï ¿ ½s financial-aid eligibility by recharacterizing the asset from a student asset (included in Expected Family Contribution at 20% of value) to a parent asset (included in EFC at 5.64% or less of value). There is no particular logic in this ruleï ¿ ½it is simply what the law says as a way to remove disincentives for college savings. This conclusion assumes, of course, that you will be liquidating the account and recognizing capital gains anyway, in order to pay for college. Financial Professional Content Many parents have established an UGMA/UTMA custodial account as a funding vehicle for a child's future educational expenses. Oftentimes, these accounts have significant investment balances. Should an existing UGMA/UTMA be converted to a 529 plan? The answer will usually depend on whether or not the child is exposed to the insidious "kiddie tax." Here are the rules of thumb that will make it easier to make the proper decision. The kiddie tax refers to the set of federal tax rules that applies the parent's marginal tax rate to the unearned income above $2,000 reported by a child under 19 or a full-time college student under 24. Carve-outs from the kiddie tax apply to certain children who can show enough earned income to be self-supportive. Even when subject to the kiddie tax, the child's first $1,000 of unearned income is sheltered completely by the standard deduction, and the next $1,000 of unearned income is taxed at the child's own tax bracket (10 percent for ordinary income and 0 percent for long-term capital gains). Rule-of-thumb 1: If you know the child is subject to the kiddie tax in 2013, and will be in future years, seriously consider a conversion to a 529. Explanation: Some portion of the child's investment income is currently being taxed at a high rateï ¿ ½i.e. the parents' rateï ¿ ½and so the tax savings potential of a 529 plan becomes compelling. Because only cash contributions may be made to a 529 plan, the conversion will trigger capital gains on any built-up appreciation in the UGMA/UTMA, and those gains will be subject to the kiddie tax as well. But you might decide the capital gains are going to be triggered at some point anyway, either when the account is spent down or when its investments are reallocated, and it simply becomes a matter of this year versus a future year. If the built-up gains in the UGMA/UTMA are so large as to cause a tax or financial-aid detriment if triggered all at once, reconsider the conversion strategy. Rule-of-thumb 2: If you know the child will NEVER have enough unearned income to be subject to the kiddie tax, hold off on the conversion. Explanation: The child is already in a very favorable tax situation with the existing UGMA/UTMA, and little, if any, advantage can be gained by using a 529 plan. This is especially true if a conversion to a 529 would trigger the kiddie tax because of capital gains. Remember, even if the account is appreciating so much that the liquidation of the UGMA/UTMA might cause a kiddie tax problem in the future, the custodian can take steps each year to "release" part of the gain (keeping total unearned income below $2,000) and reduce or eliminate that future problem. Let's assume you expect a 5 percent total annualized return in the UGMA/UTMA. An account balance below $40,000 ($2,000 divided by 5%) can probably be managed to stay below the kiddie tax threshold. However, consider the effect of compounding on future account balances. Rule-of-thumb 3: If the child is not currently subject to the kiddie tax, but would be if all appreciation in the UGMA/UTMA were recognized each year for taxes, a projection exercise may be necessary. Explanation: Unfortunately, the projection will not be easy to do with any level of precision. For one thing, the kiddie tax threshold increases each year with inflation, and so only the account appreciation in excess of the inflation rate will benefit from the tax sheltering of a 529 plan. For another, the timing of the gains recognition might be managed to lower the future exposure to the kiddie tax. If you are lucky, a modest effort to project the future will steer you toward one of the first two rules of thumb. Rule-of-thumb 4: If the child is in the process of applying for financial aid, most likely make the conversion. Explanation: Converting a non-529 UGMA/UTMA to a 529 UGMA/UTMA immediately boosts a studentï ¿ ½s financial-aid eligibility by recharacterizing the asset from a student asset (included in Expected Family Contribution at 20% of value) to a parent asset (included in EFC at 5.64% or less of value). There is no particular logic in this ruleï ¿ ½it is simply what the law says as a way to remove disincentives for college savings. This conclusion assumes, of course, that you will be liquidating the account and recognizing capital gains anyway, in order to pay for college.

Maternal Depression Case Study - 1431 Words

Wojcicki et al. (2015) also focuses on a sample of low-income Latino mothers and children by examining the genetic impacts on Latino preschool children, who have been exposed to maternal depression. Utilizing genomic DNA samples from 108 four-year-old children and 92 five-year-old children and their mothers, Wojcicki et al. (2015) examines the telomere length within these children. Shorter telomere length has been linked to health conditions, such as cancer, diabetes, and obesity in adults, so determining early-life risk factors can improve the health trajectories of many children (Wojcicki et al., 2015). The purpose of the study is to determine the effects that exposure to maternal depression has on telomere length in children as well as†¦show more content†¦(2010) examines when maternal MDD has the greatest impact on child behavior. Bagner et al. (2010) focuses on the child’s first year of life, which is a sensitive period, in relation to the 175 participants, who w ere mothers from the Oregon Adolescent Depression Project. Bagner et al. (2010) hypothesized that mothers, who had MDD after giving birth rather than before, would have children, who were more likely to have behavioral and emotional issues due to the mother’s inability to help regulate her infant’s emotions and form a secure attachment. Additionally, Bagner et al. (2010) hypothesized that behavioral issues would be stronger among boys than girls in relation to their mother’s MDD, since previous research has shown more adverse effects on boys. The results indicate that maternal MDD during the sensitive period is significantly associated with higher child internalizing and total behavioral problems (Bagner et al., 2010). The results also suggest that there are no significant differences among the child’s gender and behavioral issues (Bagner et al., 2010). One important limitation to the study is that the children’s behaviors were also self-reported b y the mothers, which could have contributed to self-reporting biases. Besides developmental impacts in relation to emotional and behavioral issues when exposedShow MoreRelatedMaternal Depression And Its Impact On Infant Health1144 Words   |  5 Pages10/31/2016 Maternal Depression and its’ Impact on Infant Health â€Å"Maternal Depression† is a term that includes a range of depressive conditions, which impact mothers while pregnant and up to 12 months after delivery (NIHCM). Such depressive conditions include prenatal depression, postpartum depression and postpartum psychosis (NIHCM). In this paper, current literature that examines both prenatal depression and postpartum depression in relation to infant health will be reviewed. 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As of today, there are a plethora of studies and evidence that explain how and why inbreeding occurs within populations even though it is deleterious for the populations. However,Read MoreA Look Into Advanced Maternal Age Pregnancies1370 Words   |  6 Pages A Necessary Timeline? A Look into Advanced Maternal Age Pregnancies Krystie Johnson, SRN Unitek College â€Å"Children learn more from what you are than what you teach,† W.E.B DuBois. If this statement is true, then one could say that becoming pregnant and starting a family later in life would be beneficial to the growth of a child. A woman over 35 would have lived more, had more life experience, and in most cases, be a more mature, stable person. However, society and medical

Juvenile Justice And Its Effects On Society - 1722 Words

Juvenile justice is compared in chapter thirteen. In the nineteenth century, there was an increased number of children at risk and chronic poverty. This overall was a general concern because there was an increase of people in the â€Å"dangerous classes†. There was a child saving movement, in which the poor children represented a threat to the moral fabric of society. The nineteenth century was a time where they had a house of refuge. In this house of refuge, they had a society for the prevention of pauperism and they privately managed, but publicly funded. The development in the nineteenth century for juveniles was reform schools, work, basic education and they were segregated. Juvenile justice in the nineteenth century had a society for the prevention of cruelty to children in New York. In this society they were granted the authority to remove children from where ever they were being mistreated and they assisted the courts in making placement decisions. 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