What are UTMA and UGMA accounts?

If you are a parent and looking to invest in your children’s financial future, UTMA and UGMA accounts are something you definitely need to know about. Using UTMA and UGMA, you can secure your children’s financial future while having tax benefits.

UGMA

UGMA is the Uniform Gifts to Minors Act. It allows individuals (parents or legal guardians) to give or transfer assets to underage children; tax-free (up to a certain amount). Parents manage UGMA accounts until children reach 18 or 21 years old (depending on the state). The custodians (parents) can use the funds on the account to buy stocks, bonds, and other securities on behalf of the children. Also, friends and family can make contributions to the account. Once children reach a certain age, they are granted full access to the account. Usually, UGMA accounts are used for a child’s education. It is the best way to save for college.

UTMA

UTMA is Uniform Transfers to Minors Act is a law that allows children to receive gifts without the aid of a guardian or trustee. Gifts can be money, royalties, real estate, or art. It authorizes parents (or custodians) to hold assets on behalf of a minor child until the child reaches a certain age - typically either 18 or 21, depending on the state. Also, there are no tax consequences for children (up to a certain amount) until they reach legal age for the state in which the account is set up. Although the parent is the custodian, the UTMA account is assigned to the child’s Social Security number.

Money contributed into the UTMA account is exempted from paying a gift tax of up to $16,000 per year for 2022.

Difference between UGMA and UTMA

UTMA is, in fact, an extended version of UGMA, but both of them serve similar purposes. UTMA allows for a broader range of assets to be gifted, including financial securities such as stocks and bonds. UTMA is especially good for bonds because it provides additional time for the assets being gifted to reach their maturity dates. If you invest with Hodlify, you can use the benefits of UGMA and UTMA while saving for your children’s future. You can open a free account here.