Home > Financial Aid > College Savings Accounts > Considering Custodial Accounts The Utma Option

Considering Custodial Accounts

The UTMA Option

For parents who do not like the regulations of the 529 and Coverdell Account, check out another option called the Uniform Transfer to Minors Account. The UTMA is a savings account that does not have spending restrictions. The UTMA is a revised version of the Uniform Gift to Minors Act (UGMA) and has been adopted by every state except South Carolina and Virginia, who still employ the UGMA.


The UTMA is an alternative to having minors own stocks, bonds, or mutual funds. Through this account, money is left to minors who will have legal access to the funds once they reach maturation age. Maturation age ranges from 18-21 by state. In the meantime, the child’s custodian oversees the account. During that time, the money can be used to pay for the child’s expenses. Unlike the 529 and the Coverdell, expenses are not restricted to educational expenditures. However, purchases must benefit the child. Acceptable expenses range from camping trips to dance lessons. Essentials such as food, clothing, housing, and medical expenses, are not acceptable.

Once the child takes over the account, there are no spending restrictions. This is great for the kid, but scary for the parent. If you are uneasy about your child’s ability to make responsible financial decisions, this account is not a good option. The account cannot be returned to the giver, and cannot roll over to a sibling’s account.

Cash in a UTMA account is taxable. However, there are small tax incentives. For example, the account has child tax rates. Since children have little to no income, there will be little to no tax. Also, the first $950 dollars earned each year is not taxed for children under 18. The next $950 has a child’s tax rate which is lower than adult rates. When the yearly earnings exceed $1,900 adult tax rates apply. These tax incentives are not as good as the incentives for the Coverdell and 529, however there is no contribution cap so the UTMA has unlimited growth potential.

The UTMA does effect financial aid. Because the UTMA is in the child’s name, it will lower financial aid significantly. It is more efficient to tax the parent’s assets rather than the student’s. Assume that 35% of a child’s assets are put away for college. Only 5.6% of the parent’s assets are used for a child’s education. Therefore this account is a setback when student’s apply for financial aid.

If you do not want spending restrictions like on 529 and Coverdell plans, the UTMA is a good option. Keep in mind that you can set up a 529 or Coverdell account in your name while having an UTMA in your child’s name. Also, UTMA savings can be rolled over to a 529 account with some restrictions. Remember to prioritize your options before committing to a savings strategy.

Last Edited: November 2015

Latest College & Financial Aid News

University Suspends Free Yoga Class Over "Cultural Issues"

November 24, 2015

by Susan Dutca

The University of Ottawa recently suspended their yoga class after students raised concerns that the exercises were offensive and a form of "cultural appropriation." Instructor Jennifer Sharf, who teaches the class for free, feels "people are just looking for a reason to be offended by anything they can find." The Student Federation, who also happen to be the ones to invite Scharf to the [...]

International Men’s Day Cancelled Following University Male Student’s Suicide

November 19, 2015

by Susan Dutca

According to Breitbart news, a 21-year old student at the U.K.'s University of York committed suicide 24 hours before the university's cancellation of International Men's Day. After 200 feminist campaigners, students, staff and alumni expressed their fury over a professor's comments about International Men's Day, the university decided to not observe the November 19 holiday and instead continue [...]

International Men's Day Cancelled at University After Complaints Surface

November 17, 2015

by Susan Dutca

The University of York cancelled International Men's Day (IMD) on Thursday after outraged students, staff, and alumni protested comments made by a male faculty member and requested an apology for "the manner in which it [the release] was framed." Dr. Aidan Lee of the University’s Equality and Diversity Committee stated that "[although there's focus on] raising awareness about - and removing [...]

Follow Us:

facebook twitter rss feed