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What is a UGMA account?

By The Loved Investing Team October 28, 2020

What is a UGMA account?

Overview:

  • A UGMA account is usually referred to as a custodial account
  • There are many tax advantages to a UGMA account
  • Setting up a UGMA account is much easier than alternatives

What is a UGMA account?

The Uniform Gift to Minors Act (UGMA) allows adults to transfer financial products such as stocks, bonds, and cash to minors. It differs from the UTMA account

UGMA account rules

Many parents and guardians contribute to UGMA accounts as they require less effort to setup than a trust. UGMA accounts function as custodial accounts and allow the contributor to choose a custodian to oversee the account on the minor’s behalf.

While there are no income tax benefits from contributing to a UGMA account, you can contribute up to $15,000 without incurring any gift tax ($30,000 for married couples that file jointly). Moreover, there no withdrawal penalties and UGMA accounts can be used for anything once they benefit the child. This allows for more freedom than your typical education savings plans.

How do UGMA accounts affect taxes?

UGMA account income can be taxed at the child’s tax rate if the child themselves earned less than $2,100 in a year (including the UGMA earnings). In this case, the first $1,050 is tax-free while the other $1,050 is taxed at the child’s rate. Anything above that is taxed at the parent’s tax rate.

We at Loved offer such an account that gives you the opportunity to invest in dozens of stocks and ETF's allowing to grow your family's future.

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