As parents, we all want to give our children the best start in life — not just in love and care, but also in the opportunities they’ll have when they grow up. One way to do that is by thinking ahead about their financial future. Did you know there’s a type of savings account that can grow alongside your child, right up until they’re ready to step into adulthood? If you’re curious, you can read this easy guide to UGMA accounts to see how they work and why they might be worth considering.
What Exactly Is a UGMA Account?
Think of a UGMA account (Uniform Gifts to Minors Act) as a financial time capsule for your child. You, as the parent or guardian, manage the account now, but the funds legally belong to your child and will be theirs when they reach adulthood. It’s a way to gift money or investments — like cash, stocks, or bonds — that can grow over time.
Why Parents Love This Option
UGMA custodial accounts aren’t just for paying for college. They’re flexible, which means your child could one day use the funds for a down payment on their first home, starting a business, or even taking that dream trip they’ve always wanted. Of course, there are some tax rules to be aware of, and once they’re of age, they can use the money however they wish — so a little trust is involved!
Things to Keep in Mind
- Taxes matter: Any earnings in the account may be taxed, sometimes at your rate.
- Control has an expiration date: Once your child becomes a legal adult, they’re in charge of the account.
- It can affect college aid: Since the assets are in your child’s name, it could influence financial aid eligibility.
Saving for your child’s future isn’t just about money — it’s about giving them the freedom and security to follow their dreams. Starting early, even with small amounts, can make a big difference down the road.
How Families Use UGMA Accounts in Real Life
Every family’s vision for their child’s future is different — and that’s what makes UGMA custodial accounts so versatile. Here are a few ways parents have used them:
- College dreams: One family started contributing $50 a month when their daughter was born. By the time she turned 18, they had enough saved to cover her first year’s tuition without any loans.
- First apartment fund: A couple gifted shares of a mutual fund to their son through a UGMA account. He later used the proceeds for his first rental deposit and furniture.
- Small business start-up: A parent who owned a bakery set aside a small portion of profits for her child each year. When the child turned 21, they used the funds to start their own food truck business.
UGMA vs. Other Savings Options
If you’re weighing your options, it helps to understand how UGMA accounts compare to other common savings tools:
- 529 Plans: Great for education-focused saving, but funds must be used for qualified educational expenses. UGMA accounts have more flexibility.
- Regular Savings Accounts: Easy to open and manage, but generally offer lower returns compared to investment options in a UGMA.
- Trust Funds: Can offer more control over how and when money is used, but often require legal fees and more complex management.