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UTMA/UGMA means what?

Ways to save for college

“UTMA” or “UGMA” looks like something the military might use to communicate about an operation. It is actually a way to save money for a child’s future. A few weeks ago, we started looking at savings for college using savings accounts and savings bonds (check out Then we looked at ESA and 529s ( As I shared last week, my husband and I made many mistakes, but I learned a lot, and I hope I can help you avoid some of them.

As a mom of three adult children, I made many financial mistakes trying to save for their future. One important thing I learned was how much you save for college is important, but how you save it will impact financial aid in the future. There are many different “vehicles” to build college money. Some are tax-advantaged, meaning you don’t pay taxes on the money if it is used for educational purposes. Unfortunately, if your student chooses not to go to school and wants to use the money for some other purpose, there will be taxes and penalties. One vehicle that is taxed is a UTMA/UGMA.

UTMA/UGMA stands for Uniformed Transfer to Minor Act or the Uniformed Gift to Minor Act. The main difference between them is the type of assets. UGMA can hold only money and securities (think stocks), while the UTMA can have other types of property (i.e., real estate, precious metals, fine art, or intellectual property). Since we did not own any special property to give to our kids, we used a UGMA. An adult sets up the account and controls it until the child turns eighteen. Once the child turns eighteen, they control the account and can use it however they want.

This is not designated as a tax-advantaged education account. It can be used for anything, and any withdrawal will be taxed. Since this account is the child’s property, it will greatly impact financial aid. These types of accounts cannot be transferred between beneficiaries. Each college will look at UTMA/UGMA as the student’s asset, which will be used before the college gives any financial aid to the student.

When I set up the UGMA for my children, I did not understand that it would cause them to be taxed every year they had “unearned income.” Unearned income is income from dividends, capital gain distributions, and interest. Capital gains are usually the profits from the sale of stocks. Dividends are the share of profits by companies. Interest is what companies pay to encourage people to save. When my kids started having “unearned income,” the first $1250 was not taxed, but the next $1250 was taxed at the child’s tax rate. Anything above that $2500 is taxed at our tax rate, which is called “The Kiddie Tax.”

Because of the way I saved, my kids were taxed, and they lost opportunities for scholarships and grants. I did not know the way I saved was as important as how much I saved. If I could only go back…

As you look to the future, planning is key to success. The website has a wonderful chart summarizing your choices. On their website is a good pamphlet called “Smart Savings for College—Buy Better Degrees,” which you can download in a PDF format. Each Friday, we will explore finances, and I pray you will ask me questions and engage others in what you learn.



Hi, thanks for stopping by! 

Jennifer Wake is an Army wife, mother of 3 grown children, PWOC board member, teacher, trainer and women’s speaker and writer. 

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