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UGMA/UTMA Accounts Overview

UGMA and UTMA accounts allow your clients to invest for a child's education while taking advantage of the child's potentially lower tax rate.

What are UGMA/UTMAs?

A way you can transfer assets to a minor under the Uniform Gifts to Minors Act (UGMA) and/or Uniform Transfers to Minors Act (UTMA). Most states have established these acts, allowing adults to transfer assets to a minor.1

Children can own securities. The Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) allow a minor to own securities in an account without forcing families to underwrite the expense of having an attorney draw up a special trust.

While UGMA and UTMA accounts are not specifically designed to provide financing for college, many investors use them for this purpose because the assets become available to the minor when he or she reaches the age of majority specified under the state's UGMA or UTMA law (See “Age of majority in your state” below).

Similarities and differences. UGMA and UTMA accounts are similar in many ways, but they differ in the type of assets you can transfer to them.2


  • Both are managed by custodians.
  • Parents, grandparents, relatives and friends can make irrevocable transfers in any amount to the account.
  • If the donor, acting as custodian, dies before the funds are turned over to the child, the account may be taxable as part of the donor’s estate.


  • UTMA law allows virtually any kind of asset, including real estate, to be transferred to a minor.
  • UGMA law limits gifts/transfers to bank deposits, securities (including mutual funds), and insurance policies.

Tax benefits

A donor’s income taxes may be lowered by transferring income-producing assets to a child, who is likely to be in a lower tax bracket. If a parent, acting as custodian dies before the funds are turned over to the beneficiary, the account may be taxable as part of your client’s estate.

UGMA and UTMA Account Tax Benefits
Income LimitsUnder age 18Age 18 years and older
First $950 of unearned income Exempt Exempt
Second $950 of unearned income Taxed at child’s rate Taxed at child’s rate
More than $1,900 of unearned income Taxed at the higher of the child’s or parents’ rates Taxed at child’s rate

The first $950 of the account’s unearned income (interest, dividends or capital gains) is exempt from federal income tax if the child is under age 18 at the end of the tax year. The second $950 of unearned income is taxed at the child’s rate. Any unearned income over $1,900 is taxed at the higher of the child’s or parents’ marginal tax rates.

“Ugh, Ma, I don't want to go to college.”

It’s important to note that all assets transferred under UGMA and UTMA law represent irrevocable transfers. This means that the child owns the assets even if he or she decides not to go to college.

Age of majority in your state

Upon reaching the age of majority under the state UGMA/UTMA law—usually 18 or 21, depending on the state—the child (minor) gains control of the assets and may use them as he/she sees fit. Please use the drop-down menus below to determine the age a custodianship typically terminates under your state's law.2

Financial aid implications

Keep in mind that an UGMA or UTMA account may affect the amount of financial aid your child receives. Therefore, some parents invest in their own name instead of the child’s because when it comes to qualifying for financial aid, parental income is less important than the child’s. Custodians may, as permitted by law, use UGMA and UTMA assets for the benefit of the child prior to completing financial aid forms; hence, parents receive the tax benefit and avoid losing financial aid.


  1. All states except for Vermont and South Carolina have adopted UTMA law, which has superseded UGMA law.

  2. Some states may have special provisions, such as a different age of termination under UTMA for certain types of transfers, or provisions that permit the donor or transferor to extend the age of termination at the time the gift or transfer is made.

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