Uniform Gift to Minors Act (UGMA)

An UGMA (Uniform Gift to Minors Act) account is a custodial account that allows parents or guardians to make financial gifts to minors.

3 min read

An UGMA (Uniform Gift to Minors Act) account is a custodial account that allows parents or guardians to make financial gifts to minors. Here’s how it works.

What is an UGMA Account?

An UGMA account is a custodial account that stands for the Uniform Gifts to Minors Act. The Uniform Gifts to Minors Act (UGMA) is a law that provides a way for parents, relatives, or friends to set up and fund a financial account on behalf of a minor. The UGMA acts as a custodian of the account and allows the funds to be managed and used for the benefit of the minor. The UGMA account does not require a complex and expensive setup process, and it does not require an attorney!

What are the benefits of an UGMA Account?

The profits from an UGMA account are not limited to education. The funds can be used for anything that fulfills the “benefit of the minor,” such as personal expenses, tuition fees, and medical expenses. The account is considered a gift to the minor, meaning that all profits generated from the account are taxed under the minor’s personal income tax rate.

How are UGMA accounts taxed?


For tax purposes, the minor is the one who is liable for the taxes on the account’s income. Generally speaking, the minor is not taxed on the first $1,100 of income, then taxed at the parent’s marginal rate on income up to the next $1,100, and then taxed at the minor’s marginal rate (typically much lower) for any additional income.


Deposits up to $16,000/year for 2022 and $17,000/year for 2023 are tax-free! Gifts beyond that amount per year are taxed at a standard transaction rate.

What financial assets can be held in an UGMA account?

UGMA accounts can hold a variety of financial assets including stocks, bonds, mutual funds, exchange traded funds, and more.

The account can also hold real estate and other physical assets as long as they are held in the form of investments, such as stocks, bonds, and mutual funds.

How will money in an UGMA account affect financial aid eligibility?

UGMA accounts can affect financial aid eligibility but not in the same way as other asset accounts. UGMA accounts are considered a “custodial asset,” meaning the amount of the account is treated as the minor’s asset even though it is still technically managed by the custodian.

So, if you have significant funds in the UGMA account this can reduce the amount of financial aid the minor is eligible for, but it is still less than if the funds were held in an asset account under the parents.

What happens when the minor reaches the age of majority?

When the minor reaches the legal age of majority (18 to 25, depending on the state) the minor will assume full control of the account. The minor is then allowed to make any decisions they want with the funds in the account, even ones that would not fulfill the “benefit of the minor” as set by the custodian. 


  1. Social Security Administration. "Program Operations Manual System (POMS)."
  2. Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2023."
  3. Internal Revenue Service. "Topic No. 553 Tax on a Child's Investment and Other Unearned Income (Kiddie Tax)."

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