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Education & Custodial Accounts

UGMA/UTMA Custodial Account

An UGMA/UTMA Custodial Account is much like an Individual Investment account, but it allows you to make investments on behalf of a minor while maintaining control of the account yourself. With a custodial account, the child will take control of the account when he or she reaches the age of majority (18 or 21, depending on the state). It’s important to consider that a custodial account is irrevocable, meaning that funds cannot be transferred back to the parent or other account custodian.
Eligibility: Beneficiary must be under 18
Investment Minimum: $2,000
Contribution Limit: Unlimited
Income Restrictions: None
Tax Considerations:

Fully taxable
Federal gift tax applies to all contributions
Earnings are subject to “kiddie tax” rules, meaning:

  • The first $900 in capital gains or investment income is tax free
  • The next $900 is taxed at the child’s tax rate (usually 10%)
  • Income over $1,800 per year is taxed at the parent’s marginal tax rate

These figures are based on 2008 numbers, please consult with your financial advisor for more details.

Withdrawal Restrictions: No restrictions as long as funds are used for the child’s benefit
Control of Account: Parent or account custodian until child reaches age of majority