UGMA/UTMA brokerage accounts can make sense when saving and investing on behalf of a minor, but there are some important things to know about the accounts. Money put into a custodial account belongs to the beneficiary—it’s called an irrevocable gift.

Why are UGMA and UTMA accounts so popular?

UGMA and UTMA accounts used to be very popular for college savings because of favored tax laws. (The so-called “kiddie tax” changed with the new tax plan, and more changes are expected.

How old do you have to be to open a UGMA account?

Between the age of 18 and 25 (it varies by state) legal control of the account must be turned over to the beneficiary, who can then use the money for any purpose they choose. Looking for a convenient way to manage a child’s money until they grow up?

When to transfer UGMA brokerage account to beneficiary?

UGMA/UTMA brokerage accounts are considered assets owned by the child, which can impact financial aid when applying to college. Also, no matter what kind of custodial account, the custodian must transfer the account to the beneficiary at a relatively young age (between 18 and 25) and the money can be used for any purpose.

When do you transfer control of an UGMA account to a beneficiary?

Here are the logistical details: The adult custodian opens the account for a specific beneficiary. The adult can then add money to the account and choose investments. When the child reaches the age of majority specified by the state, control of the account must be transferred to them.

When does custodianship end on a UTMA account?

For example, if you transfer $50,000 to a UTMA account for your grandson Billy and name Billy’s uncle as the custodian, when Billy reaches a certain age, the custodianship will terminate and the funds will be distributed to Billy. The age is designated by the state statute where you set up the UTMA account.

How old do you have to be to open an UGMA account?

For classic UGMA accounts, this generally occurs at the age of 18. For the newer UTMA accounts, this age is usually 21, but may be as late as 25.

Can a custodian regain control of a UTMA account?

The legal professional may explain the possible options for regaining the account custodianship along with how and when to contact the financial institution. When the funds are put into a custodial account with the UTMA financial institution, they become an irrevocable gift immediately vested for the child.

Who is responsible for paying taxes on UGMA / UTMA account?

While UGMA/UTMA accounts are the property of the named minor, the custodian is responsible for managing them. These responsibilities include both filing tax returns on behalf of the account owner and ensuring that the taxes are paid.

What does UGMA stand for in uniform gifts to Minors Act?

BREAKING DOWN ‘Uniform Gifts to Minors Act – UGMA’. An UGMA account functions as a type of custodial account designed to hold and protect assets for the beneficiary. The donor can appoint him/herself, another person or a financial institution to the role of custodian.