In 2024, my 17-year-old daughter experienced two significant financial events. She started her first job, and received a bodily-harm settlement deposited in a court-restricted money market account that becomes available to her in 2025 after a petition for release.
She is on track to earn about $11,000 from employment, and basically spends none of it. I’ll coach her to start a Roth IRA ($7,000) and will probably give her the funds for this first year. Her settlement fund is on track to earn about $12,000/year, which is above the $2,600 Kiddie Tax threshold for 2024.
Question: Is there any exception to the Kiddie Tax law for a court-restricted account that no one can access without court approval? I don’t think so but could argue that the intent of the law was not to jack up the tax rate on settlement funds no one can easily access.
In 2025, I’ll let TurboTax sort it out. In the end, I’ll let my daughter pay the tax on her own earnings, but it just seems “wrong” for most of it to be taxed at my marginal rate given the circumstances.
She is on track to earn about $11,000 from employment, and basically spends none of it. I’ll coach her to start a Roth IRA ($7,000) and will probably give her the funds for this first year. Her settlement fund is on track to earn about $12,000/year, which is above the $2,600 Kiddie Tax threshold for 2024.
Question: Is there any exception to the Kiddie Tax law for a court-restricted account that no one can access without court approval? I don’t think so but could argue that the intent of the law was not to jack up the tax rate on settlement funds no one can easily access.
In 2025, I’ll let TurboTax sort it out. In the end, I’ll let my daughter pay the tax on her own earnings, but it just seems “wrong” for most of it to be taxed at my marginal rate given the circumstances.
Statistics: Posted by TierArtz — Thu Aug 15, 2024 11:57 pm — Replies 3 — Views 457