Custodial Accounts, or the Uniform Gifts and Transfers to Minors Act (UGMA/UTMA)
Parents, grandparents, aunts, and uncles can help pay education costs through Custodial Accounts, also known as the Uniform Gifts and Transfers to Minors Act (UGMA/UTMA). Though not specifically designed for college expenses, many people use these accounts as a way to save for higher education. Custodial Accounts make it possible to transfer money or property to a minor without going through the trouble and expense of establishing a trust.
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A Closer Look
- Anyone can make contributions to the account, and there are no contribution limits
- The account belongs to the minor whose name is on the account
- Once the child gains control of the account, the funds can be used for any purpose and are not required to be used for education expenses
- Since custodial accounts are considered assets of the student, they can have a major impact on financial aid eligibility
You can either save in an FDIC-insured account, or invest in a mutual funds portfolio that can help you keep pace with rising costs and inflation. Your State Farm® agent can explain these choices in easy-to-understand terms. Contact an agent
- The first $1,000 of a child's investment income is tax free and the next $1,000 is taxed at his or her own rate, but any unearned income in excess of $2,000 is taxed at the parents' presumably higher tax rate.
- 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.)
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Neither State Farm® nor its agents provide investment, tax or legal advice. Consult your investment, tax or legal advisor regarding your personal situation.
State Farm Bank®, Bloomington, Illinois, is a Member FDIC and Equal Housing Lender. NMLS ID 139716. The other products offered by affiliate companies of State Farm Bank are not FDIC insured, not a State Farm Bank obligation or guaranteed by State Farm Bank, and subject to investment risk, including possible loss of principal invested. Contact State Farm Bank toll-free at 877-SF4-BANK (877-734-2265). Callers who are hearing or speech impaired should dial 711 or use a preferred Telecommunications Relay Service.
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