Why do experts at Forbes.com feel that opening UTMA accounts may not be such a great idea?

Experts at Forbes.com feel that creating UTMA accounts for children may not be such a great idea because, over the long term, the account may incur a large tax burden. Before UTMA replaced the Uniform Gifts to Minors Act, parents could enjoy a sizable tax advantage by transferring money to their kids. But under UTMA, a child will enjoy the first $1,000 of earned income tax-free but the second $1,000 of earned income is taxed at 15%. Please consult with a tax adviser to further understand the tax implications of gifting or transferring money to minors, including any updates to the current code.

What does the term "irrevocable" mean?

The term "irrevocable" means a custodial account cannot be changed. The person for whom you originally created the account must remain the same, and cannot be changed after the account is initially created.

What if my bank doesn't allow accounts for kids?

If your bank doesn't allow accounts for kids, shop around until you find one that does. It is important to obtain comparison information from each bank, including the minimum age, interest rate, and minimum deposit to open an account.

Can I give money to my children without incurring any tax liability?

A parent may give a gift of $14,000 or less to a child without having to pay a gift tax and filing form 709 for the filing year 2013. Additionally, a spouse may also give a minor $14,000, and "split" the gift for a total of $28,000. In this case, you must file a form 709,

Not all banks allow minors to open accounts, but shop around for one that does. It's a good way to teach them about financial responsibility.

and the spouse needs to sign the form. Please consult your tax adviser for more information, as these amounts may change from year to year.