[Golden]

UTMA vs Brokerage under parent’s name earmarked for kids.
What’s the advantage of one over another?

When considering investment options for children, two common choices are setting up a UTMA

(Uniform Transfers to Minors Act) account or a brokerage account under a parent’s name.

Both have their own benefits and potential drawbacks, depending on the financial goals and circumstances.

I’m curious to know what others think: What are the key advantages of a UTMA account compared to a brokerage account under a parent’s name?

Specifically, how do factors like tax implications, control over the account, and long-term financial planning for the child’s future play into the decision?

I’d love to hear your insights and experiences with these two options!

[Brittany]

One advantage we’ve seen so far is that we can harvest a small amount of capital gains annually at 0% in our kid’s UTMA (we target harvesting about $1000 in gains per year).

Which works fine because we don’t want the balance crazy high so the annual gains have generally been under the taxable amount when we harvest them.

This also allows us to create a sort of stepped up basis so when it becomes their money and they use it, the taxable amount will theoretically be negligible to them.

If we did the same in a brokerage account in our name, the gains would be taxed at 15% at our current AGI.

[Isabel]

We went with 529s – and they’ve worked out great on so many levels .

[Jennel]

We have a 529 account mainly so we can transfer the max to a Roth and a brokerage account.

[Raj]

I would choose the earmarked brokerage due to more control by the parent as to when you want to gift shares to the child

(vs. 18yrs with the UTMA), and it won’t be factored into the child’s financial aid package the way an UTMA would.

[Dan]

Brokerage all day long. The UTMAs count heavier against college aid, you have no control over the money once the kid turns the age of majority, and you may be subject to the kiddie tax!

With a brokerage you always control the money and it will be more tax advantaged

(those odds assuming you have good investment growth) and you can control when the kid gets the money and for what.

[Rachel]

I just have the brokerage earmarked for my kiddo. It just seemed to be the easiest route.

[Author]

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