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What is an UTMA, and how does it work?

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Uniform Transfers to Minors Act (UTMA) accounts allow adults to transfer assets to a minor to be used for any purpose—including education.

Once assets are transferred to a minor in a UTMA account, the transfer is irrevocable and the assets are then owned by the minor, but are controlled by an adult “Custodian” until the minor reaches the age of majority under their state’s UTMA rules, which may differ from that state’s “legal age of majority.” By law, the assets must be used for the minor's benefit.

What Are the Benefits of UTMA Accounts?

Complete Flexibility

It can be used for any purpose that benefits the minor, education or otherwise.

Full Control at Adulthood

The Custodian must turn over control of the assets to the minor at adulthood.

Who Is Eligible?

The investments are only for minor children.

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Who Owns and Controls the Account?

The minor owns the account. The custodian establishes and maintains control until the minor reaches the age of majority specified by the specific state's UTMA law.

How Much Can I Contribute?

You can contribute any amount to UTMA accounts. There are no account maximums or income restrictions.

Investment account minimums are typically $2,500, depending on the American Century Investments fund you choose.

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How Will This Impact Financial Aid?

The money in the account is counted as the student's assets, not the parents’.

Additional Details

For UTMA accounts, unearned income (capital gains distributions, dividends and interest income) is reported to the IRS under the minor's Social Security number.

Here’s how the IRS “kiddie tax” applies (amounts are for 2022¹ ²):

  • The first $1,150 of unearned income qualifies for the standard deduction and isn’t taxed.

  • An additional $1,150 is taxed at the child's income tax rate.

  • Unearned income above $2,300 is taxed at the parents' marginal tax rate.

You are not permitted to change the account owner after the account is established, but the minor may change ownership once he or she reaches the age of majority and the custodian has been removed.

Funds held directly with American Century Investments: A $25 annual account maintenance fee is charged to investors whose total investments with us are less than $10,000 for each taxpayer identification number (for example, Social Security number).

Ready to Invest?

Start your account application now and choose your investments.

The dollar limits may change annually.

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.

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.