Can a parent withdraw money from a UTM Account?
Understanding the rules and regulations surrounding UTM accounts is crucial for parents who are managing these accounts for their children. One common question that often arises is whether a parent can withdraw money from a UTM account. In this article, we will delve into this topic and provide you with a comprehensive understanding of the rules governing UTM account withdrawals.
What is a UTM Account?
A UTM account, also known as a UTM 529 account, is a tax-advantaged savings plan designed to help families save for their children’s higher education expenses. These accounts are sponsored by state governments and offer tax benefits, such as tax-deferred growth and tax-free withdrawals for qualified education expenses.
Can a Parent Withdraw Money from a UTM Account?
Yes, a parent can withdraw money from a UTM account; however, there are specific rules and conditions that must be met. Here are some key points to consider:
1.
Qualified Education Expenses:
Withdrawals from a UTM account are tax-free only if they are used for qualified education expenses. These expenses include tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. Room and board expenses are also eligible if the student is enrolled at least half-time.
2.
Non-Qualified Withdrawals:
If the money is withdrawn for non-qualified expenses, such as personal expenses or savings, the earnings portion of the withdrawal will be subject to income tax and a 10% penalty. This means that the parent will have to pay taxes on the earnings and a penalty on the amount withdrawn.
3.
Penalties for Early Withdrawals:
In addition to the taxes and penalties on non-qualified withdrawals, parents may also face penalties for early withdrawals. While there is no specific penalty for withdrawing funds from a UTM account before the child reaches the age of 30, some states may impose penalties for early withdrawals.
4.
Rolling Over the Withdrawal:
If a parent withdraws money from a UTM account for non-qualified expenses, they may have the option to roll over the funds into another qualified education savings account, such as another UTM account or a 529 plan in another state. This can help avoid taxes and penalties, but it’s essential to consult with a tax professional before making this decision.
Conclusion:
In conclusion, parents can withdraw money from a UTM account, but they must adhere to the rules and regulations surrounding qualified education expenses and potential penalties. It’s crucial to understand the tax implications and consult with a financial advisor or tax professional when considering a withdrawal from a UTM account. By doing so, parents can ensure that they are making the most informed decisions for their child’s education and financial future.
