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My son has lived with my mom for about 15 years as a guardian. She setup an UTMA account in Nebraska. She and her husband owned a farm and have done their taxes every year. My step dad passed away in 2017 and my mom passed away in Feb 2018. I was named successor owner of my son's UTMA account.

He is going to college in January 2019 and wants to use this money for his college expenses, totaling around $11,500 (the balance of the UTMA account). He is not the age of majority to take over the UTMA account.

What tax implications do I have if I cash this out?

I am already in the 22% tax bracket according to 2018 tax filing law but should I hold back 24% federal and 7% Nebraska so when I file it will already be taken out. My does not currently need to file a return next year, will cashing out the UTMA require him to file?

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  • Can you clarify why your son does not need to or plan to file a return next year? Will he not be working or have enough income to need to file?
    – Freiheit
    Commented Aug 6, 2018 at 19:22
  • Have you talked to the administrator of the UTMA? This site can provide some help but the administrator of the UTMA is paid to help questions like this.
    – Freiheit
    Commented Aug 6, 2018 at 19:23

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A UTMA is a completed gift. Prior to 2018, gains above the kiddie tax limit would flow to the parent’s tax rate, if not to their actual return. 2018 changed this a bit. The corpus, the principal balance would be taxed in withdrawal, only gains that occur this year or next. If these funds aren’t “invested”, but only in interest bearing account, the amount is too small to hit the tax radar.

For those with kids with high unearned income, or a mix of earned/unearned, the article 2018 Kiddie Tax: New Rules Means New Strategies might be helpful.

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