For families seeking ways to invest in their children’s financial future, UTMA accounts offer a flexible and straightforward option. UTMA is short for Uniform Transfers to Minors Act. These accounts provide a convenient way to transfer assets to minors, allowing them to own and eventually manage assets held in their names. They’re not limited to educational expenses, which can open doors to different lifetime opportunities. 

In our blog, we’ll break down what UTMA accounts are and how they work, and answer the most frequent questions Boston families have about them, such as: 

• What are the tax implications of a UTMA account?
• How can UTMA funds be used once a child comes of age?
• How do I set up a UTMA account?

As Boston financial planners, the Sherr Financial Associates (SFA) team provides highly customized wealth management plans to families who want to assist their children or grandchildren in building a strong financial foundation using UTMA accounts and other wealth accumulation strategies. 

What is a UTMA Account?

A UTMA (Uniform Transfers to Minors Act) account is a custodial account set up by an adult, usually a parent or grandparent, to benefit a minor. It’s a flexible way to transfer assets, such as cash, stocks, bonds, mutual funds, or even real estate, to a child without establishing a formal trust account.

The custodian manages the account until the child reaches the age of majority, which is 21 in Massachusetts. At that point, the assets belong to the children, who can use the money as they see fit.

Unlike some college savings plans, UTMA accounts aren’t just for tuition or education expenses. The funds can be used for any purpose that benefits the child, such as buying a car, starting a business, or even making a down payment on a first home.

Top Three Questions About UTMA Accounts

• What are the tax implications of a UTMA account?

The returns generated by a UTMA account, whether from interest, dividends, or capital gains, are taxed under the “kiddie tax” rules. 

• For 2025, the first $1,350 of unearned income is typically tax-free.
• The next $1,350 is taxed at the child’s rate.
• Anything above that is taxed at the parents’ rate.
  

This tax treatment can change yearly, so reviewing updated IRS thresholds is essential. While UTMA accounts can provide tax benefits for smaller amounts, larger accounts may be subject to higher tax rates.

For families that want to gift larger sums to a child, it’s a good idea to weigh these tax rules against other options, like 529 plans or setting up a trust account.

• How can UTMA funds be used once the child comes of age?

One of the most significant advantages of UTMA accounts is their flexibility, and the funds can be used for things such as:

• First car purchase
• Down payment on a house
• Starting a small business
• Travel or enrichment experiences
• Paying off early student loans
  

This flexibility is part of what makes UTMA accounts appealing. However, once the child reaches majority, the assets legally become theirs. That means they could use the money for anything they want, whether it is responsible or not.

Because of this power transfer, families often have detailed conversations about money management and pursuing financial goals with their children. This is a great opportunity to teach your child about investing, budgeting, and stewardship. 

• How do I set up a UTMA account?

Opening a UTMA account in Massachusetts is relatively easy. You can typically open an account at a bank, credit union, or brokerage firm. Here’s what you’ll need:

• The minor’s Social Security number and other identifying details
• The custodian’s information
• Initial funding amount (some accounts require a minimum deposit)
  

The custodian manages the investments and decisions until the child reaches the age of majority. It’s important to note that while the custodian controls the account, the funds legally belong to the child from the moment the account is funded.

Many families work with financial advisors in Boston to set up UTMA accounts as part of a broader financial plan. The right approach depends on your financial goals, the amount you plan to contribute, and how you want those assets managed.

Comparing UTMA to 529 Plans 

Two popular options for planning for a child’s future are UTMA accounts and 529 plans. Both can play an important role in their development, but they work differently and have distinct benefits and trade-offs.

• With a UTMA account, the custodian manages the account until the child reaches the age of majority. However, the assets legally belong to the child, and once they reach that age, they can spend the money anyway they want.
• By contrast, 529 plans are designed specifically for education. Funds grow inside the plans tax-free and can be withdrawn tax-free if used for qualified education expenses, including college tuition, room and board, and even K-12 tuition in some cases. They also typically have less impact on financial aid eligibility because they’re considered the parents’ assets.

Ultimately, UTMA accounts offer more flexibility in how funds are used, but with less control once the child ages. 529 plans provide tax advantages and are an excellent tool for covering education expenses. The right choice depends on your family’s priorities and financial goals.

Additional Considerations 

While UTMA accounts are a powerful tool, they’re not the only option for families looking to build a child’s financial future. Here are a few things to keep in mind:

• Financial Aid Impact: UTMA accounts are considered the child’s assets for financial aid purposes. This can reduce eligibility for need-based financial aid, compared to assets owned by the parents.
• Control of Assets: Once the child reaches the age of majority, you no longer have control over how the funds are used. If you’d prefer to maintain more oversight, alternatives like 529 plans or certain types of trusts might be worth exploring.
• State-Specific Rules: Massachusetts follows the Uniform Transfers to Minors Act, but it’s always wise to confirm the current age of majority and rules with a trusted financial professional.

Working with Sherr Financial Associates (SFA)

We understand that building a child’s financial future is more than just saving; it’s about creating opportunities and laying the groundwork for financial independence. We help Boston families understand the options available, from UTMA accounts to other investments, so you can make informed decisions that fit your goals.

UTMA accounts are a smart way to give your child a head start, and it’s never too early to start planning. If you’re ready to explore how a UTMA account might fit into your family’s financial picture, we suggest scheduling a call with one of our Boston financial advisors, who can guide you through the details and help you weigh the pros and cons of alternative strategies.

Want to learn more? Contact Sherr Financial Associates (SFA) to see how UTMA accounts might fit into your family’s financial plans.

The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that an education-funding goal will be met. In order to be federally tax free, earnings must be used to pay for qualified education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10 percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses.