An UGMA/UTMA account is a brokerage account that allows you to invest on behalf of a minor. Funds can be used for any expense the child incurs, including education. The child assumes ownership of the account, at a designated age, with a portion of withdrawals taxed at their rate.
Who is it for?
An UGMA/UTMA account is for anyone looking for a tax-efficient way to transfer wealth to a child.
What can I invest in?
Mutual funds, Exchange-Traded Funds (ETFs).stocks, and bonds.
Contributions & Withdrawals
Federal tax law allows contributions in 2009 of up to $13,000 ($26,000 if married filing jointly) per beneficiary each year without incurring gift tax.
Tax Advantages
The Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) offer a favorable tax treatment of investment earnings. Effective for 2009, earnings are untaxed up to $950 and then taxed at the child's rate up to $1,900. Earnings are then taxed at parent's tax rate until the child turns 18 or if the child's investment income exceeds $1,900.
Originally this rule applied to children under 14 years of age, and it became known as the kiddie tax. Congress moved the age limit up to 18 as of 2006, and beginning in 2008 it can apply to students until they reach age 24, making the term kiddie tax something of a misnomer.
Normal commissions and transaction fees apply for stock, bond, and mutual fund trades.
Minimum Initial Investment
$1000