We setup a UTMA account for my oldest son years ago as soon as he was born. I funded it for a couple of years and then the 529 plans came out, so I shifted my savings.
I checked the UTMA balance a few weeks ago and noticed that it had grown to a sizable amount. I was always thinking to use this money for college, but I read through the details and it appears that UTMA money can be used for anything that “benefits” the child.
Does anyone have any experience with using money from these types of trust funds for boarding school tuition? Would this work?
@payn4ward: thanks! it appears that boarding school tuition can indeed be used from a UTMA trust. Thats great news.
However it appears that all of the interest he’s earned over the years would be taxable (except the first $2000).
Does this mean if I withdraw all of the UTMA at once only the first $2K is tax free? The rest would be taxed? Or am I reading this incorrectly?
Although the there a few state-specific nuances, funds in either UTMA or UGMA technically belong to the minor. A portion of earnings on the funds (interest, partnership distributions and capital gains) are tax-free, a portion are taxed at a reduced rate, and the rest are taxed at the parents’ rate. So if the earnings are meaningful, the child is required to file a tax return and pay taxes along the way. Consult your tax advisor. Yes, you can use the funds to pay for boarding school tuition as long as the recipient is a minor (before 18-21 yrs depending on the state). After that point, the guardian has no control over the funds - the former minor can invest, spend or blow it any way they want. AND those funds count against FA eligibility. FWIW I have UGMA accounts for 3 kids, one out of college, one in, and one at BS.