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  • Backdoor Coverdell

    Ps I originally posted this in budgeting forum but realize maybe this is  more appropriate here. Sorry for the repeat.

     

     

     

    Anyone knows if I need to open a UTMA or Kids savings account first then contribute from there to coverdell account to create a paper trail that the money is kids money ?

    We are over the income limit and already have 529 but would like to open coverdell as well to help with high school expense.

    I did i make a big miskake contributing directly to coverdell which is opened in my kid’s name.

    Reading through i realize since i although by intent ‘gift’ the cash to my kids but since the money comes out from my account, i cannot prove it that the cash is owned by the kid.

    Please help.

    Thanks

    Irene

  • #2
    If I were your CPA, I would treat a one-time gift as an indirect gift from you to the child. This is not so uncommon. In the future, consider transferring the $ to an UGMA/UTMA account in the child's name and then on to the Coverdell.

    I have deleted your 1st post.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Johanna,

      if i buy ESA using the money from UTMA/UGMA account, I suppose I will have to pay tax on the gains first before withdrawing the money right ?

      Can I use Kids Savings account to buy ESA instead ?

       

      Thanks

      Comment


      • #4




        Johanna,

        if i buy ESA using the money from UTMA/UGMA account, I suppose I will have to pay tax on the gains first before withdrawing the money right ?

        Can I use Kids Savings account to buy ESA instead ?
        Click to expand...


        An UGMA/UTMA is a savings account for children. This is not a tax-deferred account. Using money from any account in your children's names will have no effect on taxes, which are reported on your children's tax returns if high enough.
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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