Key takeaways

  1. The Uniform Transfers to Minors Act (UTMA) allows minors to receive property transfers without the need for a trust or guardian
  2. A custodian manages the assets until the beneficiary reaches the age of majority
  3. UTMA accounts can hold a wider variety of assets than Uniform Gifts to Minors Act (UGMA) accounts
  4. Contributions to UTMA accounts are considered irrevocable gifts, but custodians can withdraw funds for the beneficiary's benefit
  5. There are no contribution limits, but contributions over $17,000 per child are subject to federal gift tax

Uniform Transfers to Minors Act (UTMA) explained

The Uniform Transfers to Minors Act (UTMA) is a law that allows a minor to receive gifts and other transfers of property without the need for a trust or an appointed guardian. 

These custodial accounts are typically used by parents or grandparents to transfer assets such as money, securities, real estate, and intellectual property rights to their children and grandchildren without having to set up a trust.

How does a UTMA account work?

In most cases, the intended recipient of a UTMA account must be under the age of 21 (the exact age limits vary from state to state). The donor generally appoints a custodian (an adult) to manage the property on behalf of the minor. 

The custodian is responsible for prudently investing and reinvesting the assets, using reasonable care to preserve principal and maintain liquidity.

What’s the difference between UTMA and UGMA accounts?

The Uniform Gifts to Minors Act (UGMA) is similar to UTMA but with a few key differences. The biggest difference is that UGMA accounts are limited to only certain types of property, such as stocks, bonds, mutual funds, and cash. 

UTMA accounts can hold many more types of assets, including artwork and real estate. Additionally, UGMAs are subject to taxation when the child reaches age 21, while UTMAs are taxed at the donor’s rate until the beneficiary reaches 18 or 21 in most states. 

Can a parent take money out of a UTMA?

No, a parent cannot take money out of a UTMA account. The assets remain under the control of the custodian until the minor reaches the majority age. At that time, all remaining funds in the account are turned over to the beneficiary, free from further court supervision or management. 

Tax treatment of UTMA accounts

Let’s break down how UTMAs are taxed based on circumstance.


  • You can make contributions to UTMA accounts with money that has already been taxed. This means custodians can withdraw your contributions without tax implications, but certain conditions apply.
  • Anyone can contribute to a UTMA account, but their contribution is considered an irrevocable gift. This means only the custodian has the right to withdraw funds, and it has to be for the child’s benefit. 
  • The custodian has a fiduciary duty to act in the child’s best interest.
  • Under some circumstances, you can also transfer money to another custodial account, like a 529 plan in the minor’s name, and avoid taxes or penalties. 

Unearned income

The IRS determines the tax implications of UTMAs, depending on the amount of unearned income (interest, dividends, and capital gains) the account generates. 

Here are the unearned income limits for 2023:

  • A minor with no earned income will not be taxed up to $1,250 
  • The next $1,250 is taxed at the child’s tax rate 
  • Amounts above $2,500 are taxed at the parent’s rate

What financial assets can go into a UTMA account?

UTMA accounts can hold a variety of assets, including: 

  • Cash 
  • Stocks, bonds, mutual funds, exchange-traded funds, and other securities
  • Real estate or life insurance policies 
  • Intellectual property rights (copyrights and patents)
  • Fine art
  • Royalties 

What are the contribution limits for UTMA accounts?

No limits exist to how much a donor can contribute to a UTMA. However, contributions over $17,000 per child (if married, $34,000) are subject to federal gift tax

This limit may go up over time due to inflation. However, it’s important to note that since the contributions are made with after-tax money, they cannot be claimed as a deduction.

Advantages of UTMA and UGMA accounts

  • Grow a nest egg for kids: Custodial accounts provide a chance for children to begin investing and growing their assets earlier in life. Having a substantial account balance can significantly impact a child’s future when they gain access to the funds.
  • Unlimited contributions: Anyone can contribute to a child’s future without limits. Just remember that amounts exceeding $17,000 per child are subject to the federal gift tax.
  • Flexible spending: Even though deposits made to a UTMA account are considered irrevocable gifts, custodians can withdraw funds for the benefit of the minor beneficiary under certain circumstances. When the minor reaches the qualifying age in their state, the UTMA account will close, and the funds can be used for any purpose. In contrast, 529 plan funds must go toward qualified education expenses only.

Disadvantages of UTMA and UGMA accounts

  • Lack of significant tax benefits: Neither a UTMA nor a UGMA custodial account offers any significant tax benefits like 529 plans and Roth IRAs. This is particularly important for high-earning parents, who may receive a large kiddie tax bill in the next tax season.
  • You can’t put the genie back in the bottle: Although you can withdraw money from a UTMA or UGMA account early for the benefit of the beneficiary, it’s essential to understand that the money you deposit becomes an irrevocable gift. This means that the deposited money now belongs to the minor and is protected by the custodian. It’s crucial to recognize that UTMA funds are not the same as your personal savings, and treating them differently is best for everyone involved.
  • UTMA/UGMA balances will count as available resources: This applies to both financial aid and Social Security disability benefit calculations. When the minor beneficiary reaches the termination age, their UTMA money transfers to their name only. It is considered a usable asset when calculating a potential financial aid award. Additionally, if the minor is disabled, any newly-released UTMA funds will be used in consideration of future Social Security benefit payments.

Final word

UTMA accounts can be an excellent way to provide financial support and stability to minors. They can hold a variety of assets and have no contribution limits, but they also come with certain disadvantages that must be understood before taking the plunge. 

Facet can help you determine what custodial account is right for your situation. If you’re looking for expert advice on securing your minor child’s financial future, click below.