DRIPS and the Uniform Gift/Transfer to Minor Account
by Steve Gail
To each and every one of you readers out there, I want to wish you a Happy Valentine's day. In keeping with the spirit of love and nurturing, this might not be a bad time for you to think about doing a creating a little gift of love for your children on this holiday of love. What a fantastic idea to set up a DRIP account for your child as a UNIFORM GIFT/TRANSFER TO MINOR ACCOUNT.
Just as a recap, for all of you who are not familiar with a UGMA/UTMA, it is one of the most flexible and cost-effective ways you can save for college. Most states have established these acts to provide adults with a flexible alternative to contributing assets to a minor for college expenses.
Some of the benefits of a UGMA/UTMA custodial account is that it allows you to transfer or gift assets to a minor without setting up a trust and the withdrawals from the account can be used for any purpose, and the minor is not limited in his or her use of the funds. Additionally other adults and members of the family can contribute to this account. One can contribute up to $11,000 per person per year free of gift tax, the only condition is that while the minor is below the legal adult age, a custodian must oversee and be appointed to the account. However, once the minor/child has reached legal age, the minor then gains control of the withdrawals from the account. (The only thing you want to be careful of, if you planned this for college and you minor, when they become of age decides to change his mind about college, there is nothing you can do once he reaches age.) Just something to think about.
What an excellent vehicle to use in conjunction with A DRIP plan. You can set up an account with a company that has both dividend reinvestment as well as optional cash reinvestment and have as much as $900 a month automatically taken from your checking account and contributed to buy additional shares of stock.
However, let me remind you that you do not have to contribute anywhere near that amount, I was just pointing out the maximum that can be contributed. Two other issues that might be important to consider is the maximum amount that your DRIP plan allows for you to contribute monthly and to remember that the UNIFORM GIFT/TRANSFER TO MINOR account needs to be set up using your minor's social security number and not yours. Also, try and consider a company DRIP that offers options cash reinvestment as well as just dividend reinvestments, for this is the only way to come close to maximizing the advantage of the UNIFORM GIFT/TRANSFER TO MINOR ACCOUNTS, which is to contribute up to the $11,000 maximum that is allowed. Maybe a great Valentine's day gift?
Until next time,