How To Help Your Child Graduate College Without Debt
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UTMA/UGMA accounts
UTMA stands for Uniform Transfers to Minors Act and UGMA stands for Universal Gifts to Minors Act. These accounts can be opened by a parent, in a child’s name. The parent can make contributions, so the funds can grow for their child. The benefit behind these types of accounts is that they allow an adult to transfer funds to a minor without establishing a trust. Furthermore, because the funds are in the child’s name, they are taxed at the child’s income rate – which is typically much lower than the parent’s. The first $1,050 in earnings are even tax-free. The main difference between the two is that the UTMA allows the funds to mature longer before being transferred to a beneficiary (25 years of age), while the UGMA must be transferred at 18 years of age.
