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Author: egroshan Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: UGMA Accounts Date: 8/4/1998 7:25 PM
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My 16 y/o has money in an UGMA account. He also has a job and earns over $2000 a year. Can money be withdrawn from the UGMA account to fund a Roth IRA? Thanks for any help with this.
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Author: roadcage One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4700 of 121219
Subject: Re: UGMA Accounts Date: 8/4/1998 10:28 PM
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UGMA funds have to be used for the 'benefit' of the minor. Now a 50+ year tax free compounding vehicle sure sounds like the long term benefit but ........

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Author: DarrellK One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4756 of 121219
Subject: Re: UGMA Accounts Date: 8/7/1998 2:09 PM
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egroshan writes:
> My 16 y/o has money in an UGMA account. He also has a
> job and earns over $2000 a year.
> Can money be withdrawn from the UGMA account to fund
> a Roth IRA? Thanks for any help with this.

roadcage replies:
> UGMA funds have to be used for the 'benefit' of the
> minor. Now a 50+ year tax free compounding vehicle
> sure sounds like the long term benefit but ........ 

I see no "but" here.  It seems pretty clear to me
that these funds are being used for the benefit of 
the minor, and that they're not being used to pay
for any "basic parental obligations", so my guess
is that this would be a legitimate use of UGMA funds.

Check with a professional to be sure.

- Darrell


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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 4836 of 121219
Subject: Re: UGMA Accounts Date: 8/12/1998 8:56 PM
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[[My 16 y/o has money in an UGMA account. He also has a job and earns over $2000 a year. Can
money be withdrawn from the UGMA account to fund a Roth IRA? Thanks for any help with this.]]

As roadcage noted, the UGMA money should be used for the benefit of the child. And while a long term investment in a potentially tax free vehicle should certainly be considered a "benefit", I don't believe that it would be an appropriate distribution. He'll simply have to fund the Roth IRA from his earnings.

TMF Taxes
Roy

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Author: dweiss3 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5055 of 121219
Subject: Re: UGMA Accounts Date: 8/25/1998 12:53 PM
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The only real issue as far as the use of UGM funds is between the custodian and the minor. The funds can be used for ANY purpose so long as the minor does not later challange the usage. If your child agrees that he would rather use the UMG funds to make the IRA contribution, thus letting him claim a tax break on his earned income, just do it.

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Author: RecoveringFool Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5056 of 121219
Subject: Re: UGMA Accounts Date: 8/25/1998 3:06 PM
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<<The funds can be used for ANY purpose so long as the minor does not later challange the usage >>

My understanding has always been that the UGMA money can not be used to pay for things that are normally a parent's responsibility - food, clothing , shelter, medical care. It can be used for music lessons, camps, private schools, college,etc. The reason there's a custodian is to decide how to use the money, not the child. The parent can fund the IRA as long as the amount is not more than the earned income for the child.

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Author: SnootFool Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5078 of 121219
Subject: Re: UGMA Accounts Date: 8/27/1998 1:01 AM
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RecoveringFool:
<My understanding has always been that the UGMA money can not be used to pay for things that
are normally a parent's responsibility - food, clothing , shelter, medical care. It can be used for
music lessons, camps, private schools, college,etc.>

One other IRA destination for UGMA/UTMA money which parents might want to look into is an Education IRA. This has the added bonus of having a 10% penalty attached to it if Junior decides use the dough to buy drums for his rock band rather than attend Enormous State University. UGMA money has no strings attached, which could get ugly if his maturity lags his majority by a good number of years, as has been known to happen.
The only downside is the paltry amount of money you can salt away in this fashion- a mere $500/year.

Chris

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 5091 of 121219
Subject: Re: UGMA Accounts Date: 8/27/1998 2:44 AM
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[[The only real issue as far as the use of UGM funds is between the custodian and the minor. The
funds can be used for ANY purpose so long as the minor does not later challange the usage. If your
child agrees that he would rather use the UMG funds to make the IRA contribution, thus letting him
claim a tax break on his earned income, just do it.]]

I've gotta go with RecoveringFool on this one. The funds can not be used for any purpose. There are real, live legal restrictions on the use of the funds.

Your answer supposes that the child will go on to live a long and healthy life. But what about the unfortunate curcumstance when the child becomes injured or disabled, and another person is directed to manage the child's affairs. One of the FIRST things this person should do is to review the UGMA accounts and track the funds. While the child may never sue the parents (but, that is not certain whatsoever), the bigger issue would be if somebody else becomes in charge of the child's estate.

TMF Taxes
Roy

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