UGMA/UTMA Custodial Accounts
Custodial accounts named for the Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) may offer tax benefits to some clients.
All American Funds with the exception of American Funds College Target Date Series® are available for UGMA/UTMA account investments.
Who Would Benefit?
Clients who want a tax-advantaged investment
Anyone can contribute up to $14,000 per child each year free of gift tax consequences ($28,000 for married couples). This amount is indexed for inflation and may increase over time. Because contributions are made with after-tax dollars, a deduction cannot be made.
For children under age 19 and for full-time students under age 24 whose earned income is less than one-half of their support, the first $1,050 of earnings is tax-free. Earnings between $1,050 and $2,100 are taxed at the child’s rate; earnings above $2,100 are taxed at the parents’ rate.
Clients who aren’t confident the beneficiary will attend college
UGMA/UTMA accounts aren’t limited to education expenses. Withdrawals can be used for anything that benefits the beneficiary.
Clients who want the beneficiary to gain control of the account
Once the age of majority has been reached — 18 or 21 in most states — the beneficiary is entitled to the account.
Clients who expect to make large contributions
There are no contribution limits on UGMA/UTMA accounts.