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Test Your Knowledge of UTMA Account Tax Rules

(Updated: 11/05/2018)

A Uniform Transfers to Minors Act (UTMA) account is a custodial account that makes it simple for minors to own securities and certain types of property. With an UTMA account, the money in the account belongs to the minor but is controlled by the account’s appointed custodian until the minor reaches the age of trust termination

True or False?
Distributions from an UTMA account are taxable to the minor beneficiary of the account.

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Answer: True

Once money is deposited in an UTMA account, any earnings the account generates are taxable to the minor. In some cases, the IRS’s kiddie tax provisions will apply. Under the kiddie tax rules for 2018, children can claim the standard deduction against their first $1,050 of investment income, and they pay taxes at their tax rate on the next $1,050 of investment income. Anything they make from investments in excess of $2,100 is taxed at the estate’s and trust’s tax rates.

Please note: Before the passing of the Tax Cuts and Jobs Act of 2017, unearned income in excess of $2,100 was taxed at the parent’s tax rate.

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