UTMA - certificate of deposit

Please reply - thanks in advance

I am planning to open a UTMA account (certificat of deposit) for my child, because my accountant told me that upto $ 750 of interest on such a account is tax free.

The next $750 of interest will be taxed according to the child's tax bracket according to the accountant.

I am planning to open UTMA (certificate of deposit for one year term and get the $750 tax free

Do any of you see any problems with that?

Are UTMA; UGTMA; UGMA these threee names refering to the same type of account.

Another question: If the UTMA account is a certificate of deposit for 1 year then at the end of the year you can close it and get the money back. I confirmed with the bank - they say that the account can be closed at maturity (or even earlier with penalty for early CD closure) and the money will go to the custodian on the account (me).

Please clarify this

Thanks in advance

I can't tell from your posts, but you do understand that once you open an UTMA or UGMA the money there belongs to your child?

It is a legal completed gift.

If you are talking about $750 in annual income, you are talking about a pretty substantial amount going into the account. Ask your accountant about the gift tax issues.

TJ

I think the $750 mentioned only indicates the current limits for non-taxation on a minor's (under 14) assets.

As for the UTMA going back to the custodian, this is not actually true. If you open an UTMA account, you will receive a K-1 form in the name of the trust when you withdraw the funds. This is used as a "marker" for the future use of your child's assets. If a K-1 has been issued, it is essentially proof of the UTMA's existance, and from that point on, the use of the UTMA assets can be tracked and checked for legitimate usage for the DIRECT benefit of the child only.

UGMA accounts are a little less stringent, but once you gift the proceeds to your minor, he'she has legal ownership of the assets. Impropriety can come back to haunt you if you use the assets yourself.