Have a Tax Question? Ask a Tax Expert
Thank you - one more, if you don't mind. Our biggest concern here is avoiding a 1099 for the account holder (now 18 years old). Will the liquidation done earlier produce a 1099 for the acct holder? The custodian is willing to pay the taxes to help the acct holder - but we are mostly concerned with the reporting of these funds.
Thank you - the parents are not in question here, but the grandparent (custodian), who is willing to pay the taxes on the gain realized at the liquidation of the UTMA - which is around $14,000 for the year. While the custodian/grandparent is willing to pay the taxes, nonetheless, the acct holder will be penalized if there is a 1099 issued to HER showing this gain. I guess what I'm trying to ask is the government going to produce a reviewable document (1099) that will be indicate these funds to any third party?
So, no matter what we do, if the child's SSN is on the account, this account and gain will show up. We are trying to move the funds into an insurance policy (which is allowed by law) for the child's long-term benefit.
We have an extremely interesting situation that you might want to know more about. I'm trying to get the best advice possible on how to proceed. The child is my daughter and the custodian my mother in law. I'm pulling my hair out about this trying to preserve child's assets for grad school. We have been advised to put the funds into a single premium life policy that can be cashed in after college to pay for grad school and that if we do this now, since the fafsa/etc reporting is finished for this year, we will be successful in sheltering the funds. I respect your time and appreciate your patience. If there is some way to speak with you off-line/private agreement, I would like that. This forum/comm method is extremely limiting. You have provided excellent service!
We're not worried about the income/gains as much as the existence of the account itself. FAFSA requires reporting on such accounts, but reporting insurance polices are not required. We also don't want to convert to a 529 and lose 25 of the account for the next 4 years. We just found out about this custodial acct and are scrambling to shelter these funds, otherwise the university will eat them up in decreased aid - and they have billions in endowment and we're just middle class folks trying to find the funds for what we are already going to have to pay. Thanks for your help and original answer that the distribution of the UTMA is not itself a taxable event. Take care! (and Go Texas!)