Avoid UTMA regret. Read this article.

1/6/2014 11:13:55 AM

Avoid UTMA regret. Read this article.
Learn if this savings plan may be right for you.

When it comes to saving for children and educations costs, the options can be confusing.  Before opening an UTMA account for your child, make sure you know the pros and cons to avoid any regret later.  UTMA stands for Uniform Transfer to Minors Act and are custodial accounts for minors until they reach their state’s age of majority.  Any funds placed into an UTMA account must be used for the benefit of that child.  An UTMA account can offer several advantages, including:

·         More investment options, including halal and socially responsible investments, than Section 529 accounts

·         Flexibility to use funds for any benefit of the child, including pre-college education or non-education related expenses

·         A small tax benefit by shifting some annual investment income to a child’s lower bracket

·         Ability to shift wealth to a child over time without incurring gift or estate taxes

However, families should also be aware of potential disadvantages of an UTMA account:

·         After the first $1900 in income potentially sheltered from taxes, excess income is taxed at a parent’s marginal tax bracket

·         If you think your child may qualify for ‘needs’ based financial aid, an UTMA account could hurt their chances.  Custodial assets count more heavily against a student’s financial aid application than parental assets, since they are considered an asset of the child.  Of course, this should not affect ‘merit’ based financial aid.

·         An UTMA requires a custodian to give control of the assets to the child between ages 18-21, depending on the state.  A strained relationship between a child and custodian could pose a problem in finding agreement on how the assets should be used.

Contact your Azzad investment advisor to find out which savings options will fit best with your family’s needs and goals.

Opinions expressed are those of the author or fund manager, are subject to change, are not guaranteed and should not be considered recommendations to buy or sell any security and should not be considered investment advice.

Fund holdings and sector allocations are subject to change and are not a recommendation to buy or sell any security. Click here for Azzad Ethical Fund current top 10 holdings. Click here for the Azzad Wise Capital Fund current top 10 holdings.

Past performance does not guarantee future results.

The Azzad Ethical Fund is non-diversified and may invest a larger percentage of its assets in fewer companies exposing it to more volatility and/or market risk than diversified funds. The Fund may not achieve its objective and/or could lose money on your investment in the Fund. Stock markets and investments in individual stocks can decline significantly in response to issuer, market, economic, political, regulatory, geographical, and other conditions. Investments in mid-cap companies can be more volatile than investments in larger companies. Investments in growth companies can be more sensitive to the company’s earnings and more volatile than the stock market in general. Because the portfolio may invest substantial amount of its asset in issuers located in a single country or in a limited number of countries, it may be more volatile that a portfolio that is more geographically diversified. See the prospectus for more details about risks.

Investments in smaller and medium sized companies involve additional risks such as limited liquidity and greater volatility. Investments in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower rated and non-rated securities present a great risk of loss to principal and interest than higher rated securities.

The Azzad Wise Capital Fund is non-diversified with a high concentration of securities in the financial sector which can expose the Fund to more volatility and/or market risk than diversified funds. The Fund may not achieve its objective and/or could lose money on your investment in the Fund. The Fund mainly invests in securities issues by foreign entities which expose the Fund to country specific risks such as market, economic, political, regulatory, geographical, and other risks. The Fund intends to invest in certain instruments that may be illiquid. As a result, if the Fund receives large amount of redemptions, the Fund may be forced to sell such illiquid investments at a significant loss to be able to meet such redemption requests. See the prospectus for more details about risks.