Unified Gift To Minors/UTMA Accounts

These custodial accounts, which are named for the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA), let investors take advantage of the lower tax rate for children while saving for education.

Who pays tax on UTMA account?

How much income is taxed on a UGMA account?

• Usually, the first $1,100 of unearned income is free from tax. The next $1,100 is taxed at the minor’s tax rate. Earnings above $2,200 are taxed at the parents’ tax rate.
  

Who Should Consider an UGMA/UTMA Account?

Investors who want a tax-advantaged investment

Anyone can contribute up to $17,000 per person each year free of gift-tax consequences ($34,000 for married couples). This amount is indexed for inflation and may increase over time. Because contributions are made with after-tax dollars, a deduction cannot be made.

Investors who aren’t confident the beneficiary will attend college

UGMA/UTMA accounts aren’t limited to education expenses. Withdrawals can be used for anything that benefits the beneficiary.

Investors who want the beneficiary to gain control of the account

Once the age of majority has been reached — 18 or 21 in most states — the beneficiary is entitled to the account.

Investors who expect to make large contributions

There are no contribution limits on UGMA/UTMA accounts.