What Are UTMA Accounts?

When planning to transfer property to a minor, both the Uniform Transfers to Minors Act (UTMA) and the Uniform Gifts to Minors Act (UGMA) provide two options for people to consider. Although these terms are often used interchangeably, UTMA accounts provide additional benefits that can enhance asset management and future financial planning. 

Here's what you should know about UTMA and UGMA accounts.

 

About UTMA & UGMA Accounts

The Uniform Gifts to Minors Act (UGMA) is the original law established to allow minors to own financial assets—such as cash, stocks, bonds, and mutual funds—under the management of a custodian until they reach adulthood. This law provided a way for parents and guardians to transfer financial gifts to their children without setting up a trust.  

The UTMA offers families more flexibility in how they can transfer assets to their children compared to its predecessor, the UGMA.

The Uniform Transfers to Minors Act (UTMA) expanded upon UGMA by allowing the transfer of a much broader range of assets beyond financial accounts. Under UTMA, minors can receive real estate, valuable collectibles, intellectual property and even distributions from trusts or estates.  

Because these laws enable the creation of custodial accounts, the terms UTMA accounts and UGMA accounts refer to the specific accounts established under these legal frameworks.  

Here are some examples of assets that can be transferred under UTMA:

• Real estate, like a rental property or family home
• Valuable artwork, antiques or collectibles
• Royalties, from creative works like books, movies or music

How the UGMA Differs from UTMA

Both UGMA and UTMA accounts help parents and guardians save for their children’s future. However, the two accounts differ when it comes to the types of assets they can hold.

UGMA was the original custodial account that was established to let minors benefit from investments before they were old enough to legally manage them.

The UGMA is valid in all 50 states and is limited to the following financial assets:

• Cash
• Stocks and bonds
• Mutual funds
• Certificates of deposit (CDs) 
• Insurance policies

The UTMA, on the other hand, accommodates real property and real estate in addition to the assets covered under UGMA. However, UTMA accounts are not available in South Carolina and Vermont. 

Additionally, UTMA allows for the transfer of distributions from trusts, estates or a child’s own assets, such as an inheritance or legal settlement. For example, if you own a rental property, placing it in a UTMA account allows your child to benefit from any income the property generates. Similarly, if you’re an author, royalties from your book might be a long-term income stream for your child.   

When Can a Minor Withdraw UTMA & UGMA Funds

In most cases, children under the age of 18 aren’t legally allowed to own stocks, real estate or other investments by themselves. A custodial account bridges that gap by letting parents or guardians manage the assets on the child’s behalf, while still benefiting from potential growth over time. 

The rules for when a minor can access their UTMA or UGMA funds depend on state law; however, most states set the age at 18 or 21 years old. Once the minor reaches the legal age, the custodianship ends, and the account officially transfers to their control. At that point, they are free to use the money however they choose.

 

Tax Rules for UTMA & UGMA Accounts

Contributions to UTMA and UGMA accounts are made using after-tax dollars. This means that donors don’t receive an income tax deduction for the money they contribute. Additionally, the IRS considers these contributions as gifts, which may be subject to gift taxes.

For 2025, the annual gift tax exclusion limits are:

• $19,000 for individuals
• $38,000 for married couples filing jointly

The income generated by investments in UTMA/UGMA accounts is considered unearned income and is taxable per the “kiddie tax.” This tax prevents families from using a child’s lower tax rate to avoid paying higher taxes on investment income.

The kiddie tax applies if the child is:

• Under age 18 at the end of the tax year
• Age 18 at the end of the tax year and didn’t have earned income exceeding half of their support
• A full-time student between the ages of 19 and 23 who didn’t have earned income exceeding half of their support 

For the 2025 tax year, the taxation of unearned income is as follows:

• The first $1,350 of unearned income qualifies for the standard deduction and isn’t taxed.
• The next $1,350 is taxed at the child’s income tax rate. 
• Any unearned income above $2,700 is taxed at the parent’s marginal income tax rate.  

UTMA & UGMA Contribution Limits

There are no set contribution limits on UGMA and UTMA accounts. This allows families to contribute as much as they want without the restrictions found in other accounts, like retirement accounts.  

However, contributions exceeding the annual gift tax exclusion amount may be subject to the gift tax. Families should be familiar with those limits, especially when transferring larger amounts or high-value assets. 

 

Pros & Cons of UTMA & UGMA Accounts

UTMA and UGMA accounts both have their benefits and drawbacks.

Here’s a breakdown:

	UGMA Accounts	UTMA Accounts
Pros	Available in all 50 states Unearned income taxed at the child’s rate up to a threshold Funds can be used for anything benefiting the child Great for traditional financial assets Helps kids learn about saving and managing investments	Includes real estate, art, patents and financial assets Unearned income taxed at the child’s rate up to a threshold Funds can be used for anything benefiting the child More investment options compared to UGMA Helps kids learn about saving and managing investments
Cons	Limited to cash, stocks, bonds and other financial accounts Child can’t gain full control until they turn 18 or 21, depending on the state May negatively affect the child’s eligibility for financial aid Contributions are permanent and cannot be taken back Higher income from investments can result in taxes at the parents’ rate	Not available in all states Assets aren’t protected if the child faces legal or financial trouble Contributions are permanent and cannot be taken back May negatively affect the child’s eligibility for financial aid Child can’t gain full control until they turn 18 or 21 (25 in some states), depending on the state

 

Are Coogan Accounts the Same as UTMA or UGMA Accounts?

A Coogan account is a type of protected savings account that is required for child performers in the state of California. However, the term "Coogan account" is not used in all states. Rather, the phrase is used colloquially to describe requirements for UGMA- or UTMA-compliant trust accounts that operate in a similar way to Coogan accounts in California.

To learn more about Coogan accounts, visit our article about the topic.

States with account requirements for child performers include:

• California
• New York
• Illinois
• Louisiana
• New Mexico

 

Is a UTMA or UGMA Account Right for You?

Choosing a UTMA or UGMA account depends on your specific goals and the needs of the child. If your child inherits money or is gifted substantial amounts while still too young to manage it themselves, a custodial account may be a good fit.  

However, if your main goal is saving for a child’s education, a 529 college savings plan may be a better option. A 529 plan is a tax-advantaged savings account that covers education costs, including tuition and room and board. This account features tax-free growth and tax-free withdrawals when the funds are used for eligible education expenses. 

Before making a decision, it’s important that you have an understanding of the tax rules, limitations and benefits of your options. A financial services professional can help you through the process and determine the best solution for your family. 

Speak with a City National Bank advisor today to learn how a UTMA or UGMA account can help you prepare for your child’s future.