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Put savings in your child’s name with an UGMA/UTMA account

UGMA/UTMA (Uniform Gifts to Minors Act and Uniform Transfers to Minors Act) accounts are a way for an adult to save for a child. This trust-like account is typically set up by a parent or grandparent as a way to gift money to the child for future use. You can open an UGMA/UTMA account at a bank, credit union, or brokerage firm.

Using your UGMA/UTMA funds

Beyond the annual $14,000 gift tax (the amount that the IRS allows you to gift to someone without having to pay federal taxes on it), there aren’t contribution restrictions or limits with an UGMA/UTMA.

Because the account’s funds are legally your child's, there are few limitations on how the funds can be used. Unlike ESAs or 529 plan accounts, the money doesn’t have to be used for education expenses. When your child reaches the age of majority (generally 18 – 21, depending on your state), they control the money and can use it for a college education, a car, a trip, a wedding, or anything else.

Impact of an UGMA/UTMA on financial aid

Since the assets in an UGMA/UTMA are technically in your child’s name, the impact of one of these accounts on financial aid is higher than if the assets were held in your name—as they are with a 529 plan or Coverdell ESA.

Benefits of UGMAs/UTMAs

  • There are no contribution limits beyond the standard $14,000 gift tax exclusion (the annual amount of money an individual can gift without incurring a gift tax).
  • Parents or grandparents can set up the account in a child’s name.
  • There can be estate benefits for the person who sets up the trust.
  • The account’s money can be used for any purpose.

Considerations of UGMAs/UTMAs

  • Your child has control over the money once they reach the age of majority.
  • Since the money is held in your child’s name, it may have a bigger impact on federal financial aid than other college savings plans.

As with any investment, be sure to check with your financial or tax advisor before opening an account.