UTMA Opened - Allowance Funded

Yesterday, I opened the UTMA (Uniform Transfer to Minors Act) account for our daughter with TD Ameritrade. I also funded it with $10,000 to qualify for a free IPod Nano.

As I posted earlier, this UTMA is a tax advantaged way that I am using fund her allowances until she is 18. In addition, my spouse will get a free IPod Nano she can use.

For one day, I am a personal finance hero:-) My daughter gets $10,000 and guaranteed allowances until she is 18. My wife gets an additional Valentine's Day gift of a IPod Nano. I get a tax break and a free promotion for what I needed to do anyway. It doesn't get any better than that.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Opening a UTMA - IPod Account Bonus

In two earlier posts, I wrote about opening a UTMA (Uniform Transfer to Minors Account) account to fund our daughter's allowance (with tax free earnings) and on how I was getting bonuses for opening new accounts. As always, I am not a fan of opening an account to get a bonus. However, this another case of needing a new account and getting the most from opening one.

I have decided to proceed with the plan I outlined on using a UTMA to fund our daughter's allowance. The benefit is that all the earnings in the UTMA account will be tax exempt (up to $850) and my interpretation is that an allowance is an appropriate use of the funds that enable the account to maintain tax exempt status. In looking for a new account, I recall that TD Ameritrade had previously offered a free IPod promotion for new account (not new person) openings. It turns out TD Ameritrade is again offering the same promotion, with a $10,000 deposit for 9 months. The offer expires on February 28, 2007.

This is a terrific win/win/win. First, our daughter's allowance will be funded until she is 18. Second, we will get an IPod Nano, which my spouse would like to use. Third, I will be sheltering about $500 of income from taxes.

Here is the link to the TD Ameritrade IPod Nano Offer. Also, if you already have a hard copy application, the Promo code is 931, which can be written in any open space at the top of the application. Call TD Ameritrade at 1-800-934-4448 to confirm. I am passing this information along as a service to our Personal Finance community. Disclosure: I am not receiving any compensation for this post nor any referral fee for the link or Promo code.

Enjoy!!!

For more on New Beginnings, check back every Sunday for a new segment.

Photo Credit: TD Ameritrade Link for IPod Nano Offer

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Funding Allowances with a UTMA

The Uniform Transfers to Minors Act (UTMA) or the earlier Uniform Gift to Minors Act (UGMA) allows a parent to give a gift to a child and have custodial rights for that gift until the child turns 18. Once a UTMA is established, the funds belong to the child. At age 18, the funds of the UTMA account transfer completely to the child. A benefit of a UTMA is that the first $850 of income is exempt from taxes. To maintain this tax benefit, the funds must be used for the child and for other than required support expenses.

Fund Allowances with a UTMA

After reading the regulations, I believe a legitimate use of a UTMA, that maintains the tax benefit status, is to fund the child's future allowances. In addition, the UTMA allowance account could be designed to be zero before he goes to college.

For example, if a child's allowance per week is equal to twice his age, he will receive $17,784 in allowance through the age of 18. To fund $17,784 of allowance would require putting $9,195 at birth and earning 5% interest. In each succeeding year, the child would receive a weekly allowance equal to twice his age. The child can spend this money as he chooses. In his 18th year, the UTMA account would be depleted to zero.

Net, $8,589 of interest would be earned tax free and used to fund the allowance. This allows an initial contribution of $9,195 to yield $17,784 in total allowance over 18 years. The table below shows how the UTMA account would be grow and the be depleted by allowance payments over 18 years.

Age	Yearly Allowance	UTMA Account
Birth	0	$9195
1	$104	$9,655
2	$208	$10,028
3	$312	$10,311
4	$416	$10,499
5	$520	$10,587
6	$624	$10,570
7	$728	$10,444
8	$832	$10,202
9	$936	$9,838
10	$1,040	$8723
11	$1,144	$8,722
12	$1,248	$7,958
13	$1,352	$7,045
14	$1,456	$5,978
15	$1,560	$4,748
16	$1,664	$3,347
17	$1,768	$1,767
18	$1,872	$0

For more financial topics on previous and future generations, check back every Thursday for the Crossing Generations segment.


Photo Credit: morgueFile.com, Daniel T. Yara

This is not financial, saving or parenting advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC