Direct Answer
A UGMA account (Uniform Gifts to Minors Act) is a custodial account holding irrevocable gifts of financial assets (securities, cash) to a minor. The custodian manages the account until the minor reaches majority (typically 18 or 21, depending on state). No contribution limits; gift tax annual exclusion is $19,000/donor (2026). Earnings subject to kiddie tax (parent's rate above $2,700). FAFSA treats as student asset at 20%. UGMA is largely superseded by the broader UTMA in most states.
UGMA Account Profile: Uniform Gifts to Minors Act Rules and Tax
What is a UGMA Account?
A UGMA account (Uniform Gifts to Minors Act) is a custodial account that allows adults to make irrevocable gifts of financial securities and cash to minors. The UGMA was developed in the 1950s-1960s as a simple way to transfer investment assets to children without establishing a formal trust. It is the predecessor to the Uniform Transfers to Minors Act (UTMA), which expanded allowable asset types.
Most states have replaced their UGMA statutes with the UTMA, but many brokerage firms still label custodial accounts as "UGMA/UTMA" regardless of which law applies. In practice, a minor's custodial brokerage account for holding securities and cash functions identically under either law.
UGMA asset types: Securities (stocks, bonds, mutual funds, ETFs), cash, and in some states life insurance and annuity contracts. Real estate and other property require a UTMA.
UGMA vs. UTMA
| Feature | UGMA | UTMA |
|---|---|---|
| Eligible assets | Securities, cash, some insurance/annuities | Any property (securities, real estate, IP, etc.) |
| State availability | Vermont, South Carolina; others as legacy statutes | 48 states + D.C. |
| Majority age | Typically 18 or 21 | 18 to 25 (state-specific; often 21) |
| Tax treatment | Identical (kiddie tax, capital gains) | Identical |
| FAFSA impact | Student asset at 20% | Student asset at 20% |
Frequently Asked Questions
- What is a UGMA account?
- A UGMA account (Uniform Gifts to Minors Act) holds irrevocable gifts of financial assets (securities, cash) to a minor. The custodian manages until the minor reaches majority (typically 18 or 21 per state law). No contribution limits; gift tax annual exclusion is $19,000/donor (2026). The UGMA is largely superseded by the broader UTMA in most states; many brokerage accounts label both as "UGMA/UTMA."
- What is the difference between a UGMA and a UTMA account?
- UGMA allows only financial assets (securities, cash, some insurance). UTMA allows virtually any property (real estate, intellectual property, etc.). UTMA is available in 48 states and D.C.; UGMA remains in Vermont, South Carolina, and some legacy statutes. For holding securities and cash, UGMA and UTMA function identically in terms of tax treatment and FAFSA impact.
- How are UGMA account earnings taxed?
- UGMA earnings are taxed to the minor. The kiddie tax (IRC Section 1(g)) taxes net unearned income above $2,700 at the parent's marginal rate until age 19 (or 24 for full-time students). First $1,350 is tax-free; next $1,350 is at the child's rate; above $2,700 uses the parent's ordinary income rate (but capital gains rates still apply to capital gains and qualified dividends).