Custodial accounts (UGMA & UTMA)
Custodial savings accounts may help you save for future education costs, enjoy tax advantages and maintain investment flexibility.
There are two types of custodial accounts to consider:
- Uniform Gifts to Minors (UGMA)
- Uniform Transfers to Minors Accounts (UTMA)
How do custodial accounts work?
UGMAs and UTMAs allow an adult to make an irrevocable gift to a minor.
- The account is set up by an adult to benefit a minor child.
- Control of the account passes to the child when he or she turns 18 or 21 (depending on state law).
- Adults can take advantage of the annual gift tax exclusion of $12,000 and $24,000 for married couples in 2008, by making a contribution to this account.
- Investment earnings over $1,800 are generally taxed at the adult's income tax rate from the opening of the custodial account until the year the child turns 19 (or 24 for full time students whose earned income does not exceed one-half of their support in some states).
- The accounts are considered the student's assets in financial aid calculations.
Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA and SIPC.