UGMA vs UTMA College Funds - Everything to Know

Oct 13, 2022 By Susan Kelly


As custodial accounts, the UGMA and UTMA accounts permit adults to transfer money, investments, and real estate to a kid in the case of UTMAs. The adult is the account's owner or custodian until the kid hits the state's legal majority age. The child can then use the funds and utilize them as they like.

The Basics of UGMA and UTMA Accounts UGMA and UTMA accounts are custodial accounts that adults can create for underage recipients. Essentially, they are a trust that keeps the assets while the receiver is a child.

These accounts accept deposits of any financial asset, including cash, stocks, and bonds. When the receiver attains the age of adulthood, which is usually between 18 and 21, the account, including its principal ay investment returns, becomes their property.

This transfer is final and irreversible. Under either of these regulations, once money is deposited into a custodial account, it is locked and cannot be accessed or withdrawn. It becomes the minor recipient's property.

Principal advantages of a UGMA and a UTMA

  • No limitations on finances. There is no restriction on the child's use of the funds, and contributions are unlimited.
  • They could learn about money from it. They can participate in the investment choices while you watch the money increase. Through this, they might learn about the stock market, investment, and compound interest.
  • Custodial authority: The custodian shall control the account until the child reaches adulthood. However, the minor is the owner of every item in the account. Knowing the youngster will gain from your efforts will give you peace of mind.

Utma vs Ugma

There is another significant distinction between UTMA and UGMA accounts, in addition to knowing how to contribute to each account and who is permitted to utilize them. This has an immediate bearing on how your child will make money decisions in the future.

The structure of the account's assets is one difference between ugma and utma. Only financial instruments like stocks, bonds, and mutual funds are included in the UGMA.

Both material and monetary assets are possible for UTMAs. Property, jewels, and fine art are a few examples of tangible assets. A UTMA may be a preferable choice if you don't want to go through the procedure of creating a trust to leave tangible assets for your loved ones.

Date of Maturity: UGMA vs UTMA

Custodial accounts like the UGMA and UTMA are used to retain and safeguard children's assets until they reach the state's legal majority age. While UGMA recipients may be able to access their funds as early as age 18 in some states, the account custodian may set a maximum age of 25 for that purpose.

Comparing UGMA and UTMA lists of transferable assets

There are limitations on what can be moved into UGMA accounts. Only monetary donations, stock, bonds, mutual funds, and insurance policy transfers are permitted. Contrarily, there are fewer limitations on the types of assets given to UTMAs.

Costs that Qualify: UGMA vs UTMA

Regarding the costs for proper necessities, a custodian may start a draw for the kid's advantage. The custodian may use money from the custodial account to cover costs for the child's benefit, such as pre-college university costs. These costs, however, are not restricted to school and can be used for anything, unlike other college savings.


If the bank or brokerage account fails, the Federal Deposit Insurance Corporation (FDIC) will provide coverage of up to $250,000 for the child's UGMA and UTMA accounts.

Of course, the FDIC cannot offer protection against unsuccessful investments. Losses are possible when investing in stocks or mutual funds because the stock market is, by nature, erratic.


Both UGMA and UTMA funds provide a lot of freedom. For instance, both accounts allow custodians to withdraw funds whenever they choose as long as they are used for the child's benefit. This is a significant difference between ugma and utma.

Parents frequently open these accounts young, let the money grow, and then utilize the money to pay for things like sports equipment, music lessons, and other similar things.


Which is better, a UGMA, UTMA, or 529 plan?

The circumstances of your family and your financial objectives will ultimately determine which of these college savings strategies you choose.

A 529 plan will typically provide better tax advantages, but to maximize those advantages, the funds must be spent for educational purposes. On the other hand, UGMA and UTMA plans provide additional flexibility.

When should you start saving for college?

It's usually essential to start saving for college as early as possible, while your children are still small, due to the power of compounding.

How much money should I save for my kid's college education?

Depending on what you can manage and what you anticipate from your kids in terms of contributing to pay for their school, you should set a savings target for college.


Be careful when selecting the custodial account for your kid's well-being. If you are sure that your child will attend college, weigh all of your options and determine the costs. Verify that you are taking full advantage of the tax benefits when investing in your kid's education.

Examine your alternatives for UGMA vs UTMA if you want more control over how you utilize the money and are less concerned about your tax liability. The UTMA has more versatility if you wish to include other assets for your child, but if you're a classic investor, the UGMA might be adequate.

It's crucial to consider the child's needs and ambitions while selecting an account. A custodial account may be beneficial in some circumstances and facilitate planning.

For instance, if your child receives an inheritance or a gift of money, you may handle it in a custodial account until they are old enough to do so on their own. Creating trust might be a better option for people requiring more financial control.

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