For assorted reasons, parents, grandparents, and others sometimes wish to transfer ownership of money to children. One way to do this is to establish a trust. The UGMA/UTMA provides an alternative to the trust that may be simpler and less expensive.

These accounts allow you to invest for a child while taking advantage of the child's potentially lower tax rate. An account can be established for a child under the Uniform Gift to Minors Act (UGMA) or the Uniform Transfer to Minors Act (UTMA), depending on the state in which you live. The transfers made to an account of this type are considered an irrevocable transfer to the minor in whose name the account is registered.

Though not specifically designed for college expenses, many people are using UGMA/UTMA accounts as an alternative way to save for college.

  • Eligibility Requirements

    • Depending on the type of transfer provided in the UGMA/UTMA statute, UGMA/UTMA accounts can be established for any child under the applicable age (usually 18 or 21, but in some states it’s 25).
    • An adult is designated as the custodian to manage the account for the benefit of the minor until the child reaches the age specified in the statute. Upon reaching that age, the custodian is responsible for distributing or transferring the funds to the minor. Custodians have certain powers and responsibilities under these laws and they should consult with legal counsel to understand their obligations with respect to the account.
    • No income restrictions exist. You may make gifts to a child's UGMA/UTMA account regardless of your income.
    • Anyone may make gifts to a child's UGMA/UTMA account.

  • Annual Contribution Limits And Timing

    • No contribution limit exists.
    • Under the annual federal gift-tax exclusion, each donor may generally make gifts of $13,000 per year, per child without federal gift-tax consequences. Please consult your tax advisor concerning your individual circumstances.
    • You can make annual contributions to an UGMA/UTMA account during the calendar year: January 1 through December 31.

  • Tax Considerations

    All earnings are reported to the IRS under the child's social security number. Consult your tax advisor about federal and state income tax consequences.

  • Financial Aid Considerations

    The account may be included in the child's assets when determining financial aid eligibility.

  • Distribution Guidelines

    • When the minor reaches the applicable age (usually 18 or 21, but in some cases, 25), the custodian is responsible for distributing or transferring the funds to the minor.
    • Once the child gains control of the account, the funds in the account can be used for any purpose and the minor is not limited in using the funds. The funds are not required to be used for education expenses.
    • Consult your tax or legal advisor for specific advice.

MPC #111247 EXP. 06.12

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