What is a Uniform Transfers to Minors Act (UTMA)/Uniform Gift to Minors Act (UGMA) account?
UTMA/UGMA accounts are custodial accounts established on behalf of a minor child. They require an adult, often the parent or legal guardian, to be custodian of the account. Prior to the advent of Coverdell accounts and 529 plans, custodial accounts were a popular way to save for a child’s education. However, they are currently less popular because they offer comparatively fewer benefits such as tax-free accumulation and distribution. Additionally the child obtains control at the age of majority and is therefore considered the owner of the account which may negatively impact a student seeking to qualify for financial aid.
