Custodial Accounts - Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA)
You and others can help pay education costs and related expenses through Custodial Accounts, also known as the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA). Though not limited to college expenses, these accounts are intended to be used for the benefit of the minor, including expenses related to education. Custodial Accounts could make it possible to transfer money or property to a minor without having to establish a trust.
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
- The account may be included in the child's assets, so these funds may affect the amount of financial aid the student receives
Funding Options through State Farm Bank®
You can save in an FDIC-insured State Farm Bank UTMA Custodial account.
Investment Options through State Farm Mutual Funds®
You can invest in a mutual funds portfolio that can help you keep pace with rising costs and inflation.
All or a portion of the investment income may be eligible to be taxed at the child's tax rate. For 2017, investment income in excess of $2,100 may be taxed at the parents' tax rate instead of the child's 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.)
- 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 child 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 child. 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.
- No contribution limit exists.
- Under the annual federal gift-tax exclusion, each donor may generally make gifts of $14,000 per year, per child without federal gift-tax consequences. Please consult your tax advisor concerning your individual circumstances.
- You can make contributions to an eligible UGMA/UTMA account any time during the calendar year: January 1 through December 31.
- When the child 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.
The account may be included in the child's assets, so these funds may affect the amount of financial aid the student receives.
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