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  • I'm an uncle!

    I'm a first time uncle and wanted to start an account for my newborn nephew.  I think I want to do a UGMA/UTMA but I don't know much about either of them.   From some reading here it looks like the parents are responsible for paying taxes on the account, or would that be me since I'm the custodian of the account?

    I plan on investing entirely in VT and want to start with 3k and then do an additional 1k for every birthday till he turns 18.  I understand that VT is pretty tax efficient so there shouldn't be too much due in tax annually but can y'all give me an estimate on how this might cause his parents tax burden to increase?

    PS - I'm not interested in doing a 529

  • #2
    Congrats!

    I'm not sure what VT is but I'd guess the risk of generating some big tax bill is pretty small.  You could eventually trigger a kiddie tax, but IMO the parents should be happy to pay that since you've given their kid so much money.

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    • #3




      Congrats!

      I’m not sure what VT is but I’d guess the risk of generating some big tax bill is pretty small.  You could eventually trigger a kiddie tax, but IMO the parents should be happy to pay that since you’ve given their kid so much money.
      Click to expand...


      Thanks!  VT is vanguard total world ETF (https://personal.vanguard.com/us/funds/snapshot?FundId=3141&FundIntExt=INT&ps_disable_redirect=true).  Unfortunately my sister is a little difficult to deal with so she may not appreciate being hit with a tax bill even if it pales in comparison to the gift to junior.  It would be better if I could take the tax hit but if thats impossible with the UGMA I'd like to let my sister know approx how much the tax bill will end up being before I open the account.

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      • #4
        Congrats! No advice but that kid is lucky to have you in his life!

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        • #5
          Why not do the 529 then?

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          • #6
            I thought about doing this for some nieces and nephews but frankly I decided that just building personal wealth and being closer to FI if not there when they are teenagers and young adults would accomplish the same thing and not tie up money in accounts that need to be administered, declared on taxes etc.

            More fundamentally: if you care about the kid that much I'm not sure he's going to notice the difference between having a UTMA vs. a generous uncle with the means to help him out.

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            • #7
              I contribute to my niece's and nephew's 529. They're with Merrill Edge, which is kinda bush league: I have to mail a check. A check. Seriously.

              What is this, 1991? Did Nevermind just come out?

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              • #8


                PS – I’m not interested in doing a 529
                Click to expand...


                Why?

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                • #9
                  I personally wouldn’t risk having to get an annoying email from sister complaining they had to fill out the kids taxes and pay 200 bucks after I’ve given their kid thousands.

                  I would just do a 529 or like others said be a cool uncle that drops some cash on him/her when their in their teens and twenties (if you end up liking or are close to the kid)

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                  • #10


                    Thanks!  VT is vanguard total world ETF
                    Click to expand...


                    Lol, and I thought you were dedicated to investing in Vermont. (Seriously.)

                    Congratulations!
                    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                    • #11
                      If having to report $11.00 of dividend income on her return is going to really bother your sister, IMO better to avoid that altogether.

                      Sort of like MPMD said, you can save the money yourself and sprinkle/shower your nieces and nephews with money later in life when they need it.  Help them buy that first car, give them a nicer X, Y, Z in college, money for that vacation with their friends, etc.  You could even help them out with a down payment on their first house.

                      Doing a 529 is really just relieving your sister of the burden of paying for her son's college.   

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                      • #12





                        Thanks!  VT is vanguard total world ETF 
                        Click to expand…


                        Lol, and I thought you were dedicated to investing in Vermont. (Seriously.)

                        Congratulations!
                        Click to expand...


                        +1 I thought this was some sort of Vermont child savings plan or something to do with how they tax kids income.   :lol:

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                        • #13




                          Why not do the 529 then?
                          Click to expand...


                          I like the flexibility of the UGMA.  Who knows if he'll want to go to college or if he'll get a scholarship.  If its in the UGMA it can go towards his wedding, first car, or hopefully give him a headstart to FIRE

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                          • #14







                            Why not do the 529 then?
                            Click to expand…


                            I like the flexibility of the UGMA.  Who knows if he’ll want to go to college or if he’ll get a scholarship.  If its in the UGMA it can go towards his wedding, first car, or hopefully give him a headstart to FIRE ?
                            Click to expand...


                            you seem like a very generous person.  if you sister doesn't want to deal with it, the 529 seems like a good way to avoid tax consequences for child.  also you get a tax benefit.  the money can stay there forever.  you can use it yourself later in life if he does not want to.  you can rename it to other children, nieces/nephews.  you can give it to their spouses when they get married.  it can drop down a generation.  it can be pulled out if (with penalty) if not used for education.    it would depend on whether sister's prickliness about tax concerns outweigh flexibility concerns, imo.

                            good luck.  it is a nice thing you are doing.

                            personally i would just wait and give later or 529.  but different strokes.

                             

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