Question

The tax benefits of custodial accounts mean that:

a. earnings greater than $2,200 are protected.

b. the tax rate on the investment earnings could be as low as 0%.

c. all earnings on investments in custodial accounts are taxed at the custodian’s tax rate.

d. earnings on investments in custodial accounts are tax-free.

Tip has annual expenses of $45,000. Calculate how much Tip should hold in his emergency fund.

Tip's emergency fund should hold   

earnings on investments in custodial accounts are tax-free.

Answer 1

1) The tax benefits of custodial accounts mean that:
a. earnings greater than $2,200 are protected.
b. the tax rate on the investment earnings could be as low as 0%.
c. all earnings on investments in custodial accounts are taxed at the custodian’s tax rate.	Correct	Any investment income—such as dividends, interest, or earnings—generated by Custodial account assets is considered the  custodial income and taxed at the custodial's tax rate once the child reaches age 18.
d. earnings on investments in custodial accounts are tax-free.
Tip has annual expenses of $45,000. Calculate how much Tip should hold in his emergency fund.
Emergency Fund = Annual expenses x 6 months
Tip's emergency fund should hold   = $45000 x 6	270,000.00