Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) custodial accounts are investment accounts where the minor owns the funds received as a gift, but the donor may serve as custodian and has complete control of the account until the minor reaches the UTMA/UGMA age of termination (can range from age 18 to age 25 depending on the state), at which point the custodian is required under the law to turn the assets over to the former minor.
Because the assets are considered the property of the minor, a certain amount of the investment income will go untaxed while an equal amount is taxed at the child’s tax rate, instead of the parents’ rate. It is important to discuss the taxation on UTMA/UGMA accounts with a trusted tax advisor to see if they are right for you.
The 530 A Account is a tax-advantaged investment account designed to help children build long-term financial security. Eligible children under age 18 can have an account opened in their name, allowing family members, employers, and others to contribute up to the annual contribution limit. You can elect to open an Account for your eligible children using IRS Form 4547. You can fill out and submit the form in the Trump Accounts app, when you file your taxes, or through the secure IRS website called Individual Online Accounts, or IOLA.
Children born between January 1, 2025, and December 31, 2028, who meet the eligibility requirements may also qualify for a one-time $1,000 federal seed contribution. Funds grow tax-deferred and are invested in low-cost index funds. Beginning at age 18, the account can be used for qualified expenses such as higher education, purchasing a first home, or starting a business, or it can continue growing for retirement, subject to applicable tax rules.
Losing a loved one is an emotional journey. Imagine your heirs having to settle your estate. The claims process can be complicated and time-consuming to complete. There are many decisions to be made that have complicated legalities to navigate and that will affect the tax treatment of their inheritance. We can help your loved ones by working with the involved attorneys, accountants, and investment companies to navigate the estate settlement process after death.