About 17 years ago, my husband set up Mutual Funds accounts for our children and was told to put it under a "Unif Tran Min Act MO" to keep it exempt from taxes. These funds (originally $2,000) have grown over the years to about $9,000 and was intended for college. Our oldest child will need to draw out these funds soon for college. A few years ago, I heard something about withdrawals from certain types of funds being tax free in the year 2007. Does anyone know what this Act may be and if it will qualify for the tax free withdrawal in 2007? Thank you.
Optional Information: Kansas City, MissouriAlready Tried: To get my husband to call his mutual funds company - he "hasn't had time". I don't have an account with the company, so they won't talk to me.
Uniform transfer to Minor accounts are not "exempt from tax". Generally, minors with these accounts don't have to file taxes, so earnings under the child's name is XXXXX XXXXX if under a certain amount. If the child earns only investment income and it is more than the standard deduction for dependents with only investment income (850 in 2006), then the child has a filing requirment for federal taxes. If the child has earned income, the Calculation is a little different.
What you may be referring to that you heard about withdrawals from a certain type of account is probably either Coverdell ESA (meant for education expenses) or Education 529 accounts. In these types of accounts, distributions including earnings are tax free if used for qualified education expenses.
There is no such law yet regarding UTMA accounts. When you cash in the funds, the gain will be taxable to the child.
10+ years tax preparation and tax advice.
Reply to Wendy Rieger's Post: Thank you. One more question, though. My daughter will have to file for the first time for 2006 due to a parttime job. Will she need to claim dividends and Long-term capital gains for 2006 only or for the whole thing since 1990? She will be cashing in the fund soon (in this year 2007) for school.39117.3318458681
Never mind. I think I found the answer to that. She only reports the dividends if they're over $1,500 - they are not. (Only $2.34) And the capital gains only need to be reported when she cashes out all her funds.
Hi there again,
If none of the funds were sold, there will be no capital gains (capital gains are recognized when the funds are sold). However, since these are mutual funds, there may be what is called "capital gain distributions". Both dividends and capital gain distributions for the Tax Year must be reported on your daughter's return for 2006 if she is filing a return, no matter how much they are. You do not have to report the full amount of dividends from 1990. You should get a 1099DIV from the brokerage reporting 2006 dividends and capital gain distributions.