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UTMAs allow minors to invest for any purpose—including education—and take advantage of children's taxation rates (see table below).
UTMA accounts allow assets to be transferred to a minor child with an adult "Custodian," who controls the assets for the benefit of the minor until they reach the age of majority in their state. By law, the transfer of the assets is irrevocable and must be used for the minor's benefit.1
You can choose any American Century Investments® funds for an UTMA account (fund minimums apply).
It can be used for any purpose that benefits the child, education or otherwise.
You must meet the fund minimum, typically $2,500. There are no account maximums.
Account earnings, distributions and transactions are reported to the IRS under the minor's Social Security number and may also be taxable at the state and local levels.
The tax rate varies depending on how long the shares were held and the Children's Taxation Guidelines (shown below). Contributions over a certain amount may be subject to federal gift tax
The minor owns the account, however the Custodian establishes and maintains control until the minor reaches the age of majority in his or her state (typically 18) or at the time specified by the specific state's law.
There are no income limitations.
Yes, the investments are only for minor children.
You are not permitted to change the account owner, but the owner may change ownership once he or she reaches the age of majority (typically age 18) and the custodian has been removed.
American Century Investments charges a $12.50 semiannual account maintenance fee to investors whose total investments with us are less than $10,000 for each taxpayer identification number (for example, Social Security number).
This is in addition to any fund management fees. Please see your fund's prospectus for details.
The assets are counted as the student's asset.
With a UTMA account, earnings, distributions and transactions are reported to the IRS under the minor's Social Security number and are taxed at the same rates for estates and trusts as shown below. Taxes on long-term capital gains and qualified dividend distributions will be taxed at the reduced long-term rates as shown below.
1 South Carolina uses the Uniform Gifts to Minors Act (UGMA) account type. Since UGMA/UTMA provisions vary by state, the custodian should consult a legal advisor regarding obligations. American Century Investments does not have knowledge of the source of contributions and assumes that the custodian is releasing control of the account in compliance with source guidelines. American Century Investments strongly recommends consulting your financial planner or tax advisor to determine what would be best for your individual financial situation.
2 The dollar limits may change annually.
3 The Tax Cut and Jobs Act passed in late 2017 changed many of the tax provisions in the tax code, in an effort to simplify the tax code. Please note that some of these provisions will sunset after 2025, which means those provisions revert back to "pre-Act" rates after that date, unless Congress acts again to extend them or make them permanent.
Start your account online, or give us a call at 1-800-345-2021.
IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.
This information is for educational purposes only and is not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.
This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.