01 Dec How a UGMA or UTMA Can Help You Afford College
Using the Uniform Gifts to Minors and Uniform Transfers to Minors Acts to fund your university education
Attending college opens the doors to your future, but anxiety about how to pay for a university education can interfere with your studies. That’s why every future college student (and college parent) should understand all the options available to fund your higher education goals. Today we’ll introduce you to the Uniform Gifts (or Transfers) to Minors Acts, which can help make university fees easier to manage.
What Are UGMA and UTMA Accounts?
These two college funding options are considered custodial accounts, according to the UTMA (Uniform Transfers to Minors Act) or the UGMA (Uniform Gifts to Minors Act). State laws allow these accounts to receive irreversible, transferred or gifted, funds for a college-bound student.
UGMA or UTMA accounts are opened using the minor student’s SSN and a custodian (often a parent) manages the account assets. Custodians may withdraw from UGMA or UTMA accounts only to benefit the minor.
- You can make deposits (transfer or gift) for any amount into the account.
- There’s no penalty if account balances aren’t used for college. (Some other college savings plans do require deposited funds to be used for college.)
- The account custodian(s) may be the same people making the transfer/gift but aren’t required to be.
- Account custodians can be any adult family member, court-appointed guardian, (provided they’re a US citizen or resident alien), and/or an organization.
- A custodian can select another individual to take over (as a “successor” custodian) or choose a limited agent to manage the UGMA or UTMA account.
- Custodians turn account funds over to the minor at the state-mandated age.
- The former minor can use the money as they like, for college or not.
Choosing the Best Account for Your College Financial Needs
Keep these facts in mind when considering UGMA and OTMA accounts for college:
- UTMAs and UGMAs are considered custodial accounts, which contain minor-owned assets, under the minor’s (beneficiary’s) SSN (social security number).
- Transfers or gifts into UTMAs and UGMAs can’t be canceled or taken back (irrevocable).
- Gifted or transferred amounts above $15,000 per year (or $30,000 for married couples filing jointly) are subject to the federal gift tax.
- The account’s minor beneficiary can’t be changed.
- When the account-owning minor becomes an adult per state law, the custodian turns over control of the unused account assets.
- State rules differ for account-opening age and/or the age that minors become adults when custodianship must end.
- Some states allow the person opening the UTMA/UGMA to choose the age for account termination (account turnover to the owner, the former minor).
- The custodian must be a US citizen or resident alien living in the US or a US territory.
- Since these accounts are owned by the minor beneficiary (under their SSA number), balances DO affect federal college financial aid.
- Interest or account earnings are federally taxed and could be taxed by the state/local areas.
- Contributions are not tax-deductible.
How to Attend Your Chosen University–Without Worrying About Finances
Learn more about funding your college education with a UTMA or UGMA from Accolade Financial. Contact the national college-funding experts at Accolade Financial today!