How are taxes handled on accounts for minors?
A Uniform Transfer to Minors Act (UTMA) account is a custodial account opened by an adult as custodian for a minor (child). Any gifts to these accounts are irrevocable: the donor may not take back the gift, nor may the minor return the gift unless he/she has reached the age of majority (state laws range from 18-21). When the minor reaches the age of majority, custodianship of the account ends and the child may take control of the funds. The minor’s Social Security Number appears on the account and the minor must file an annual income tax return and pay taxes on any income produced. Taxes on UTMA accounts depend on the amount and type of the income earned. The income may be taxed at the parent’s marginal tax rate rather than the child’s potentially lower rate.
