As you choose a gift for that special child, consider opening or contributing to a UGMA/UTMA Account. An UGMA* or UTMA* is a type of account that allows you to gift or transfer money to a minor and maintain control over the assets until the child reaches the age of majority (usually 18 or 21, depending on the state). Upon reaching the age of majority, the child has the right to take control of the account.
* States have adopted either the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act.
UGMA/UTMA Contribution Rules
- There are no contribution limits or deadlines for UGMA/UTMA accounts.
- All UGMA/UTMA contributions, gifts, and transfers are irrevocable and belong to the minor. Assets may not be transferred to anyone else.
- UGMA/UTMA accounts can be established using the UGMA/UTMA Application.
UGMA/UTMA Tax Rules
The UGMA/UTMA account earnings limits noted below are for 2018, and may change as they are indexed for inflation:
- The first $1,050 of earnings for an UGMA/UTMA account are tax-free.
- The next $1,050 of earnings for an UGMA/UTMA account are taxed at the child’s tax rate.
- The earnings above $2,100 for an UGMA/UTMA account are taxed at the following rates:
|10%||$1 to $2,550|
|24%||$2,550 – $9,150|
|35%||$9,150 – $12,500|
The tax rules apply when a child is:
- under age 18
- age 18, when their earned income is less than or equal to half of their support for the year
- a dependent full-time student age 19-23, when their earned income is less than or equal to half of their support for the year
UGMA/UTMA distributions are to be made for the benefit of the child (e.g. tuition, computer, etc.).
UGMA/UTMA Custodial Fee
There is no annual custodial fee for an UGMA/UTMA account.