<p>The $69 billion tax cut bill that President Bush signed this week tripled tax rates for teenagers with college savings funds, despite Mr. Bush's 1999 pledge to veto any tax increase.</p>
<p>sorry, but I have little sympathy for parents who put money in their kids names and have benefited by lower tax rates for the past (up to)18 years.....more like closing a loophole to me.</p>
<p>Ah, well, so many other loopholes that could be closed. I'll start with the mortgage deduction which favors those who own houses as opposed to renters.</p>
<p>Well, I read that article in a complete panic until I saw that it didn't apply for kids 18 and over. But it is a RETROACTIVE increase (back to Jan 1st, so the rules changed AFTER a stock sale for some people) on investment income for those kids 14-17. </p>
<p>Those of you who think this was a loophole should keep in mind that the child had to outright OWN the money at 18 (or 21 depending on the state)--it couldn't be in a revocable investment. The lowest longterm rates were only for those holdings of 5 years or more--so you had to gamble at age 12 that your kid wouldn't sell the stocks for drugs at age 18. </p>
<p>However, it is true that there are many ways in which wealth can be transferred and then taxed at a lower rate. My personal favorite is that kids 14->20 can work for their parents ("casual labor") without having to pay social security and earn up to $4000/year. That $4000/year can then be put in a Roth IRA and ALL the growth is taxfree. Withdrawals from a Roth can be used for many things, once the $$ have been in there five years, including a first house.</p>
<p>Mcgilldad, yes, I noticed this. This was a great strategy for middle class taxpayers to put assets in their children's name ( as long as the kid is age 14 or higher) and have the income taxed at the kid's bracket. Sadly, this age limit was increased to 18. The new tax law also benefits the upper rich in several ways: keeping the 15% tax rate on dividends and capital gains untill 2011 among a few other changes. </p>
<p>Bottom line: the rich get richer, and the middle class get more shafted.</p>
<p>sorry, taxguy, but I know of few "middle class" families whose kids have INVESTMENT income. This law primarily affects the investment income of rich families -- and the extension of the capital gains also affects a similar group. This is much ado about nothing, IMO.</p>
<p>bluebayou, because you knew few middle class families doing this doesn't mean that many weren't doing it. Most tax lawyers and financial advisors were using this technique for years, among other techiques.</p>
<p>Hiring kids in a business is still a very good strategy if you have a business in which they can be hired.</p>
<p>I understand that many tax advisors have been giving out the advice, and, for middle income families, it was all wrong, IMO. Even with incomes of $120k parents can still receive some need-based finaid at many schools. But, if assets are in a kid's name, zero aid -- thus, bad advice, again, IMO. Thus, shifting assets into a kid's name is only good adivce for top 5 %'ers ($155k and up), where no need-based aid is likely.</p>
<p>Bluebayou, there were and still are ways to get assets that are in kid's name and either not have them taxed or put them in certain investments that don't count as assets for FASFA purposes.</p>
<p>I thought once of putting assets into kid's name. But then her 5th grade teacher told the story of her son--when he turned 18, he decided that he didn't need college because he wanted to be an actor and he used the $$ to buy himself a big truck. Nothing she could do about it. </p>
<p>Another way to approach kids' accounts... I worked hard throughout college to minimize my parent's contribution. During my senior year, I held four part-time jobs simultaneously. On graduation day, my father handed me a check which was substantial for back in those days. (Today, it would have paid only a small fraction of a single year at college.) Astonished, I asked what it was for. "It's the balance in your college account." "But, dad, that money is yours." "No, it's not. We didn't tell you, but the money legally became yours when you turned 18." Most 18 year-olds haven't the foggiest notion about these mattters. What they don't know may be to their benefit.</p>