What is the point of UTMA?

The main purpose of an UTMA custodial account is to hold and protect assets for a child until he or she reaches the state-defined “majority age”. Who is Eligible for an UTMA Account? Any minor can be named as the designated beneficiary of an UTMA account.

Can you withdraw money from UGMA?

Typically, UGMA assets are used to fund a child’s education, but the donor can make withdrawals for just about any expenses that benefit the minor. There are no withdrawal penalties.

What happens to UTMA when child turns 18?

When the minor beneficiary of an UTMA custodial account reaches the age of majority, the custodianship is over, and they get legal control over everything that’s in the account. It’s important to note that the age of majority is slightly different in each state. In most cases, it’s either 18 or 21.

Who pays the taxes on a UTMA account?

Because money placed in an UGMA/UTMA account is owned by the child, earnings are generally taxed at the child’s—usually lower—tax rate, rather than the parent’s rate. For some families, this savings can be significant. Up to $1,050 in earnings tax-free. The next $1,050 is taxable at the child’s tax rate.

Is UTMA a good idea?

UGMA / UTMA accounts can be good for some things, bad for others. UTMA (Uniform Transfers to Minors Act) has replaced UGMA (Uniform Gifts to Minors Act) in most states. The main “upgrade” is greater flexibility – UGMAs only hold securities, UTMAs can hold securities and others assets, such as real estate.

Which is better UGMA or UTMA?

The biggest difference between UGMA and UTMA accounts is that UTMAs allow for more types of assets. While UGMA accounts are typically limited to things you find in most IRAs like stocks, bonds, and mutual funds, UTMAs can also hold things like real estate, art, patents, and even cars.

Can parent take money out of UTMA account?

Parents can take cash out of a UTMA or a UGMA account as long as the money is spent for the benefit of the child, who is the account’s beneficiary.

Is UTMA better than 529?

A 529 savings plan is most beneficial when it’s used for educational expenses; you may even have to pay a penalty if you use the money in the account for something else. On the other hand, the designated beneficiary of an UTMA account can spend the money on anything — even something other than college tuition.

Can you terminate a UTMA early?

Unfortunately, a UTMA is an irrevocable account and legally belongs to your child. This means you cannot simply terminate it like you would a living trust or your own accounts.

How much can a dependent child earn in 2020 and still be claimed?

Do they make less than $4,300 in 2020 or 2021? Your relative cannot have a gross income of more than $4,300 in 2020 or 2021 and be claimed by you as a dependent.

Which is better UTMA or UGMA?

How much money can you put in a UTMA account?

Anyone can contribute up to $15,000 per child each year free of gift-tax consequences ($30,000 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 taken.

When was the Uniform Gifts to Minors Act created?

The Uniform Gifts to Minors Act (UGMA), developed in 1956 and revised in 1966, allows individuals to give or transfer assets to underage beneficiaries—traditionally, parents and their children, respectively. The amount is free of gift tax, up to a certain amount.

How is a minor restricted from doing a juristic act?

A minor is restricted from doing juristic acts – for example, signing contracts. When minors wish to do a juristic act, they have to obtain the consent from their legal representative, usually (but not always) the parents and otherwise the act is voidable.

What’s the legal age to become a minor?

In law, a minor is a person under a certain age, usually the age of majority, which legally demarcates childhood from adulthood.The age of majority depends upon jurisdiction and application, but it is generally 18.

How does the uniform transfer to Minors Act work?

The Act allows the donor to name a custodian, who has the fiduciary duty to manage and invest the property on behalf of the minor until the minor becomes of legal age. The property belongs to the minor from the time the property is gifted.