The main advantage of using an UTMA account is that the money contributed into the account is exempted from paying a gift tax, up to a maximum of $15,000 per year. Moreover, any income earned on the contributed funds is taxed at the tax rate of the minor who is being gifted the funds.

Who claims the interest on a UTMA account?

Because money placed in an UGMA/UTMA account is owned by the child, earnings are generally taxed at the child’s—usually lower—tax rate, rather than the parent’s rate.

Can you take money out of a UTMA account?

As the custodian of a UTMA/UGMA account, a parent can withdraw money whenever needed to benefit the child.

Does a UTMA affect financial aid?

Also, since UGMA and UTMA accounts are in the name of a single child, the funds are not transferrable to another beneficiary. For financial aid purposes, custodial accounts are considered assets of the student. This means that custodial bank and brokerage accounts have a high impact on financial aid eligibility.

Who is responsible for a minor’s UTMA account?

Under the UTMA, the gift giver or an appointed custodian manages the minor’s account until the latter is of age. The Act also shields the minor from tax consequences on the gifts, up to a specified value.

Are there contribution limits on UGMA / UTMA accounts?

There are no contribution limits on UGMA/UTMA accounts. Objective-focused — Select a fund of funds portfolio that is based on your objective like growth, income and preservation. Customized — Build an education savings portfolio of American Funds tailored to your specific needs.

Can a minor withdraw money from an UGMA account?

UTMA and UGMA Withdrawal Rules. UGMA and UTMA custodial accounts allow adults to make a financial gift to a minor, and also name someone (including themselves) as the custodian of the account. The important word here is “gift.” The money in these accounts, once given, is the legal property of the minor.

How much can you give to a minor under UTMA?

The IRS allows for an exclusion from the gift tax of up to $14,000 for a qualifying gift to minors. The UTMA provides for a convenient way for children to save and invest without carrying the tax burden. The minor’s Social Security number is used for tax reporting purposes on UTMA accounts.