Personal Custodial Accounts

Though not solely intended for educational expenses, Custodial Accounts (Uniform Gifts to Minors Act, or UGMA; Uniform Transfers to Minors Act, or UTMA) are a tax-preferred way for grandparents and other relatives to transfer assets to a child. When the child turns 18 or 21, depending on the state of residence (21 in Texas), they can use these assets however they wish, including for college.

• assets and income are owned by the child, not the custodian
• assets and income are taxed at the child’s rate (over a certain threshold, they are taxed at the parent’s rate)
• may impact child’s eligibility for financial aid
• doesn’t have to be used for educational purposes