UTMA bridge account?

[jsmoove123]

Hi, I'm starting a UTMA account for my 1 year old son. I plan to put his cash gifts there, take advantage of tax gain harvesting as much as possible, and would like to use at least some portion of the funds to pay for things for him during his childhood (music lessons, sports, personal electronics, toys etc) as I understand that this is possible before age 18/21.

 

I read another forum post where a user suggested the use of a "UTMA bridge" account, to which UTMA withdrawals go, and from which the expenditures come. What do you all think - is this necessary? Do you need to, and if so how do you, track such expenditures?

Thanks!

[jfoxcpacfp]

I am unable to find the post to which you refer - perhaps you could add a link? I'm not exactly sure of the purpose of the "bridge" or how it would work. Perhaps it's early and my hard drive is running slow   .

UTMA/UGMA accounts for small amounts are safe, I suppose, and no harm in using one. Relatively minor benefits in the big scheme of things. When the accounts grow large is when I become concerned as the balance must be turned over to the beneficiary at age 18.

Given your goals for the account, it sounds perfectly appropriate. Given the age of your son, I would strongly recommend setting up a Coverdell ESA account, also. It can receive $2k/year/child and the account growth is tax-free, same as a 529. However, the ESA can be used also for elementary and high school + supplies. Yes, it has a small contribution limit, but i see no reason to not take advantage and I find these are quite often overlooked. High income taxpayers cannot make contributions but that is quite easily solved by designating the contribution source as your child or another family member.

[jsmoove123]

Here is the link:
http://talk.collegeconfidential.com/financial-aid-scholarships/544705-how-to-withdraw-custodial-account-funds-ugma-utma-so-they-are-traceable.html

On further review, it looks like the purpose of the bridge account is because you cannot easily spend directly from the UTMA, but it may also keep things simpler in terms of record keeping.

Thanks for letting me know about the Coverdell ESA, this sounds very promising.