Custodial accounts under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) allow you to save on behalf of a child for education or any other purpose that benefits the child (other than parental obligations such as food, clothing, and shelter).
Key benefits of an UGMA/UTMA
You can contribute as much as you want, but amounts above $15,000 per year ($30,000 for a married couple filing jointly) will incur federal gift tax.
Anyone can open or contribute on behalf of a child.
There is no penalty if account assets aren't used for college.
These are custodial accounts with assets held in the child's name, so contributions are irrevocable.
Upon reaching the age of majority, the beneficiary can use the assets for any purpose—educational or otherwise.
There is a significant impact on federal financial aid. The account is treated as the child's asset and weighed more heavily in financial aid calculations.
You can't change beneficiaries.
Contributions aren't tax-deductible.
Earnings are subject to federal income or capital gains tax.
A Vanguard UGMA/UTMA offers you more
A broad lineup of Vanguard mutual funds.
Among the lowest expense ratios in the industry.
No enrollment, transfer, or advisor fees.
Custom scheduling to electronically move money between your bank account or other Vanguard accounts and your UGMA/UTMA.
Tip: You can redeem an UGMA/UTMA held at another company and contribute the assets to a Vanguard UGMA/UTMA or Vanguard 529 Plan account. Note that such a transfer may be a taxable event.
