Compare College Savings Plans > Custodial Accounts (UGMA/UTMA)

Invest on behalf of a minor for any future expense

A custodial account, also known as Uniform Gifts to Minors Act/Uniform Transfers to Minors Act (UGMA/UTMA), gives you the flexibility to set aside money to pay for education or any expense that benefits a child. All funds in the account are considered a permanent gift that becomes the child’s assets once they reach age of termination.
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  • Ability to use funds for any beneficiary expense
  • Enjoying the flexibility of a cash management account
  • Accessing a full range of investment choices
  • Making contributions up to annual gift tax limits
 
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Why a custodial account may be right for you

The Uniform Gift to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) are custodial accounts that allow you to invest in a college education or any other expense that benefits the minor. Funds in the account are considered an irrevocable gift that becomes the minor's assets once they reach age of termination.
 
What are the benefits of a custodial account?
  • Funds can be used for any purpose as long as it benefits the minor (no penalty if the assets aren't used for college)
  • Can be funded with cash or securities
  • Anyone can contribute on behalf of the minor

UGMA/UTMA accounts have unique features and requirements that are important to keep in mind. Of particular importance is the custodian's obligation to use the assets only for the benefit of the minor and to turn the assets over to the minor when they reach the termination age.

What are the tax advantages of a custodial account?

In 2020, the first $1,100 of a child's income generally is tax-exempt, the next $1,100 of unearned income generally is taxed at the child's tax rate, and unearned income over $2,200 generally is taxed at the parent's tax rate if the child is under 18, or the child is age 18 and does not have earned income that is more than half of his or her financial support, or is a full-time student who is at least age 19 and under age 24 and who does not have earned income that is more than half of his or her financial support if at least one parent is living at the end of the tax year and the child is not filing a joint return for the tax year. (Retroactively for 2018 and 2019, taxpayers may make an election to have the child's parents' tax rate apply instead of the estates and trusts rate that was applicable in 2018 and 2019.)

What are the investment choices for a custodial account?

Access a full range of investments choices, including: stocks, exchange-traded funds (ETFs), bonds and thousands of well-known mutual funds.

Who controls a custodial account?

The account is owned by a custodian until the child inherits the assets upon age of termination. Beneficiaries cannot be changed because contributions into the account are considered an irrevocable gift.

How much can I contribute to a custodial account?

There's no limit to the amount you can contribute. And there's no age limit for making contributions and withdrawals, but account ownership will be transferred to the minor upon age of termination. You can contribute up to the annual gifting limits of $15,000 (or $30,000 for couples) annually gift tax-free.

Can anyone else contribute to a custodial account?

Anyone can contribute to a custodial account, including family members and friends.

How will this account type impact financial aid?

The impact is less favorable than that of assets held in a Section 529 account.

 
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Pricing & Fees

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BofA Global Research is equity research produced by Merrill Lynch, Pierce, Fenner & Smith incorporated and/or one or more of its non-U.S. affiliates.

Neither Merrill Lynch nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

Asterisk *Other fees may apply. Free and $0 means there is no commission charged for these trades. $0 option trades are subject to a $0.65 per-contract fee. Sales are subject to a transaction fee of between $0.01 and $0.03 per $1,000 of principal. There are costs associated with owning ETFs. To learn more about Merrill pricing, visit our Pricing page.

Footnote 1 Merrill waives its commissions for all online stock, ETF and option trades placed in a Merrill Edge® Self-Directed brokerage account. Brokerage fees associated with, but not limited to, margin transactions, special stock registration/gifting, account transfer and processing and termination apply. $0 option trades are subject to a $0.65 per-contract fee. Other fees and restrictions may apply. Pricing is subject to change without advance notice.

Footnote 2 You have choices for what to do with your employer sponsored retirement plan. Depending on your financial circumstances, needs and goals, you may choose to roll over to an IRA or convert to a Roth, roll over to an employer sponsored plan from a prior employer to an employer sponsored plan at your new employer, take a distribution or leave the account where it is. Each choice may offer different investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment and provide different protection from creditors and legal judgments. These are complex choices and should be considered with care. Visit http://www.merrilledge.com/retirement/rollover-ira or call a Merrill Edge rollover specialist at 1.888.637.3343 for additional information about your choices.

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