The difference between UTMAs and UGMAs

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Q. What’s the difference between an UTMA and an UGMA?
— Confused

A. If you’re setting aside money for your kids’ futures, you might consider an UTMA (Uniform Transfer to Minor’s Act) or an UGMA (Uniform Gifts to Minors Act (UGMA).

These accounts have fallen out of favor in recent years with the introduction of the 529 Plan, which has more tax benefits than UTMAs and UGMAs.

But if you want to give money to your kids and the funds aren’t earmarked for college, an UTMA or UGMA may be the way to go.

The names of these accounts come from two different uniform codes, said Vicky Tomaro, an Investment Advisor Representative with Tomaro Financial Group in Wall.

She said the accounts have strong similarities.

“They were both created to give custodians the ability to transfer assets to minors without establishing special trusts,” Tomaro said. “UTMAs and UGMAs require a parent (or appointed relative/friend) to manage the asset on behalf of the minor.”

All contributions are irrevocable gifts and are not assets of an estate once given, Tomaro said.

Assets in the account are taxed at the child’s rate up to certain limits. After that, taxes are calculated based on the parent’s tax rate.

It’s important to note that funds in both UTMAs and UGMAs may reduce the amount of financial aid a student may qualify for because the assets are in the student’s name, she said.

Learn more about what these accounts mean to college aid here.

Tomaro said the intrinsic difference between an UTMA and an UGMA is the kind of assets that can be held in the account.

“An UTMA allows for almost any kind of asset including real estate to be transferred to a minor,” she said. “The laws for UGMAs limit gifts/transfers to bank deposits, various securities and insurance policies.”

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This post was first published in September 2016. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.