This is the final part of our series on college savings plans. We’ve already covered the 529 College Savings Account and the 529 Pre-paid Tuition Plan, so let’s take a look at the Uniform Gifts/Transfers to Minors Act.
The Uniform Gifts/Transfer to Minors Act (UGMA/UTMA) allows you to create a child-owned investment account. These funds can be used for anything for that child, including college, private grade school, even a car, laptop, trip abroad, etc. There is a named “custodian” who controls the money until the child has reached the age of majority. Money contributed to a UGMA/UTMA is an irrevocable gift to that child and cannot be used by the custodian for personal reasons.
Pros of the Uniform Gifts/Transfer to Minors Act
- Money can be used for many things for the child, not just college
- Can be redeemed at any time, as long as the money is used for the benefit of the child
- If used for college, no limits on which college they attend.
- Can be used for tuition and room and board.
Cons of the Uniform Gifts/Transfer to Minors Act
- Could be taxes due as the account grows.
- Because this is a child-owned asset, it counts more heavily against the child (as compared to a 529) when applying for financial aid.
- Unlike the 529 college savings account, the funds must be used for only the child named.
- Any funds not used for the child by the time they have reached age 21 (or 18, depending on the state) become property of that child, and are no longer controlled by the custodian.
To sum up this three-part series about college savings, I most often recommended the 529 savings account (but every situation is different, so please speak with your advisor). The 529 happens to be appropriate for many people because of its flexibility and tax-efficiency.
If you’re thinking about starting to put money away for your kids’ or grandkids’ college education costs, give us a call and we’ll talk about what’s best for you and your goals.