Home  >  Financial Articles and Q&A  >  What should my kids do with their UGMA accounts?

What should my kids do with their UGMA accounts?

Both of my kids have UGMA accounts, and my older son will will turn 18 this spring. We expect (hope) that the funds will be used for college expenses (not tuition), but i don't really know what his options are for continuing to invest the money vs. just putting it into a checking account. Are there any tax implications to this transfer?

Jan 04, 2012 by Michael in  |  Flag
4 Answers  |  5 Followers
Follow Question
7 votes

Michael, Upon your son turning 18, the UGMA account can be retitled into an account with his name and the assets transferred to that account. There will be tax implications if there are securities held in the account and they are sold or redeemed. Please consult your tax advisor for your specific circumstances. Also take into account financial aid considerations and the effect of such a transfer, if any.

Comment   |  Flag   |  Jan 09, 2012 from Lowell, MI

1|600 characters needed characters left
4 votes


An UGMA account is a Uniform Gift to Minor Account that provided the parent with control over the funds until the child reaches age 18. Then they can access the funds and spend the funds as the child wants, no parental controls. Yes when the securities are sold their would be tax consequences for your child which you should review the tax consequences with them and your tax advisor before selling any or all of the securities.

The key point here, this is a great opportunity for you the parent to teach your child about being an adult and their financial responsibilities surrounding needs and wants and etc!

Good luck.

Comment   |  Flag   |  May 26, 2013 from Milwaukee, WI

1|600 characters needed characters left
4 votes
Andy Tilp, CFP® Level 16

Michael, Robert and Craig made some good points. Just to reiterate regarding the retitling of the account. The money in the account will legally become your son’s and he can use it for whatever purpose he so chooses. (This is why UGMAs are sometimes called Ferrari funds…..). I assume this isn’t the case in your situation. It is just a note for others who may be interested in your question and considering an UGMA.

On a related note regarding UGMA and college. In particular regarding applying for student financial aid, you may be aware of the EFC (expected family contribution) or the amount the family is expected to pay for a student's education. This is calculated based on a number of factors, including the student's assets and income, the families income and assets, the number of individuals in college and others item. (The FASFA is standard application for student aid and has you put in all this info. If you are unfamiliar with the student aid process, good sites include is finaid.org and savingforcollege.com). The point is: student resources are weighted more heavily against receiving student aid. The reasoning is, if the child has resources of their own, then the college financial aid dept expects them to use the assets toward college. Thus, if you are applying for student aid, consider how and when to use the UGMA account in order to maximize aid in subsequent years of school.

Another consideration to make is to transfer the funds in the UGMA to a 529 college savings account. There are some tax advantages to transferring the funds to a 529 and also there are benefits to help mitigate the student aid issue described above. To fulfill the UGMA trust, the 529 funds will eventualyl be under the control of the child when they reach the age of majority (18 in your case). However, because the funds in 529 are designated for college expenses, it can help prevent (but can’t stop) the funds from drifting to ‘other’ spending that may not involve higher education.

The whole student aid process can be quite involved. If you need help, I’d suggest you talk with a fee only financial planner in your area. A good place to find a fee only planner that charges by the hour is at NAPFA and Garrett Planning Network.

Comment   |  Flag   |  May 27, 2013 from Sherwood, OR

1|600 characters needed characters left
1 vote

Given the stated intent of expecting the UGMAs be used for college, I agree with Andy's point about considering a 529 UGMA. Your oldest is 18 so the benefit of future investment gains growing tax-free and if used for college remaining tax-free may be limited. Also his time horizon is very short as an 18-yr old and if haven't yet, shifting to safer funds is prudent. Your other child has more time to benefit from this deferral. If your state has tax deductible 529 contributions that is another benefit that can more than offset any marginal fees a 529 plan must charge.

Comment   |  Flag   |  Sep 10, 2013 from Western Springs, IL

1|600 characters needed characters left