A UGMA (Uniform Gift to Minors Act) account or commonly called a Custodial account allows a parent to set up an account in the child’s name with the parent or designated person acting as custodian until the child reaches adulthood. The age at which a child is considered an adult varies state by state, ranging between 18 and 21 years of age. Once a child reaches legal age, the money legally belongs to them and the funds can be used however they choose.

There are some tax advantages associated with a UGMA. The income from a UGMA account must be reported on the child’s tax return and is taxed at the child’s rate, which is often lower than the parent’s tax rate. The funds accumulated in a UGMA can affect financial aid.

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Disclosures

The information provided represents the opinions of Monetta Financial Services and is for informational purposes only. It should not be construed as a recommendation to buy or sell any security, nor as investment advise.