Kiddie Tax and IRA Accounts
Estate Planning Attorney | While many grandparents are interested in leaving an IRA account to a grandchild, they should be aware of some tax penalties and rules that still apply to the grandchildren. Many people will assume that a minor will have to pay less taxes than the parents, but this is not always the case. An estate planning attorney will advise on how to handle this, and prepare you for the taxation of your child or grandchild’s investment income.
It’s important to know that the lowered income tax rate does not apply to all unearned income. This “kiddie tax” was enacted to prevent parents from shifting the income onto the children to receive a lesser tax rate. As a result, the first $1,050 is taxed at the parent’s rate, which could be as high as 35 percent depending on certain factors.
This kiddie tax is applicable for individuals under the age of 18 who have an earned income that is less than ha