The Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) allow an adult to give a gift, such as shares of a mutual fund, to a minor. There is one custodian and one minor allowed for each UGMA/UTMA account, and the custodian directs transactions for the minor.

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 the contributions and assumes that the custodian is releasing the 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.


Advantages
  • Allows a minor to own shares of mutual funds.
  • There is no limit on the amount that may be contributed each year.
  • Investment income or other unearned income received by dependent children 18 and younger is taxed at various rates (see Taxability below for more information). Starting in 2008, the rules also include dependent full-time students under 24 years.
Eligibility
  • Only one custodian and one minor per account is allowed.
  • The custodian must be age 18 or older.
  • The custodian and the minor must be residents or resident aliens of the U.S. or one of its territories.
  • All states, except South Carolina and Vermont, have adopted the UTMA. Those two states use the UGMA.
Investment Choices Select from a variety of American Century Investments mutual funds based on your risk tolerance and investment objectives.
Minimum Initial Investment $2,500 per fund. Some funds may require higher minimums.
Additional Investment $50 minimum on additional investments.
Distributions Capital Gains:
  • All funds pay any capital gains distributions annually in December.
  • Some Stock funds pay any capital gains distributions twice per year in March and December.
Dividends:
  • Most Stock funds pay any dividends annually in December.
  • Asset Allocation/Balanced funds and some income-producing Stock funds pay any dividends quarterly.
  • Most Bond funds pay dividends monthly.
  • Money Market funds accrue dividends daily and pay them monthly.
Taxability
  • Account earnings and transactions are reported to the IRS under the minor's Social Security number.
  • Contributions larger than $14,000 a year may be subject to the federal gift tax.1 
  • Any dividends and capital gains distributed by the fund each year are taxable (see Taxation Guidelines).1
  • Any capital gains resulting from the sale or exchange of shares are taxable. The tax rate varies depending on how long the shares were held and the following Taxation Guidelines:1
Federal Taxation Guidelines: 2014 Tax Year1
First $1,000 is federal tax free.
Next $1,000 is taxed at the child's rate.
Income over $2,000 is taxed at the parent's or legal guardian's rate. The dollar limits may change annually.
Service Fees2 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).
Secure Online Account Access3 Simply create a User Name and Password and Log In to:
  • View account balances
  • Conduct online transactions
  • View tax forms (if available)
  • Perform account maintenance, such as changing your address
  • And more.

1State and local taxes may apply.
2Secure online account access is not available for UGMA/UTMA accounts where the minor has multiple accounts and different custodians. As a result, these accounts are not subject to the semiannual account maintenance fee.
3Online account access is not available for UGMA/UTMA accounts where the minor has multiple accounts and different custodians.

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 not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.