Can an 18 year old use UTMA account and not be a dependent

Home Fairmark Forum Retirement Savings and Benefits Can an 18 year old use UTMA account and not be a dependent


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    My son recently turned 18 and is in college. He is living on campus and will likely work there this summer as well. We have a large UTMA account in his name. My earnings are too high for him to qualify for the American Opportunity Credit or other credits available to college students, and we also derive no benefit from other credits available to parents of dependents, such as the earned income tax credit. My son cannot currently claim the education credits this year as he is my dependent, and he is subject to the kiddie tax.

    My understanding is that if my son paid more than 50% of his own support, then he would no longer by classified as a dependent. This would allow him to claim the American Opportunity credit, to avoid the Kiddie tax, and also perhaps take advantage of a low capital gain tax rate (potentially 0%).

    My proposal is that we transfer custody of the UTMA account to my son and have him pay his own college tuition (or at least >50%) from that account. Assuming we are careful to ensure that he pays >50% of his own support out of his own account, am I right to suggest that he is no longer a dependent for tax purposes, and thus can take advantage of the items noted above? What if we were to gift to his account stock or cash equivalents equal to the amount he is spending on his education, either this year or in future years (up to the maximum gift allowed per year, of course)?

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