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Backdoor Coverdell

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  • jfoxcpacfp
    replied




    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.

    Leave a comment:


  • itoh
    replied
    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

    Leave a comment:


  • jfoxcpacfp
    replied
    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.

    Leave a comment:


  • itoh
    started a topic Backdoor Coverdell

    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
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