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UGMA Rules And Regulations
An UGMA account allows an adult (usually a parent or guardian) to make an irrevocable gift to a minor. An UGMA account is set up by an adult for the benefit of a child with the child being the beneficiary of the account and the adult being the custodian. The control of an UGMA account passes on to the child after he reaches 18 or 21, depending on the state law. |
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An adult or a donor can gift up to $11,000 each year to an UGMA account. This amount does not attract an annual gift tax.
In order to open an UGMA account you first have get the social security number of the child. Then fill out the application form and submit it with the initial funding amount. Usually you receive the account number that you can use to access the account and invest in it a few days after the submission of your application.
The custodian of the account can make withdrawals from the UGMA account for any purpose and there is no limit to the use of the money. However, the custodian of the account has fiduciary responsibility of managing the account in the most prudent manner so as to benefit the minor child.
Family members and other adults can contribute to the UGMA account and each adult can contribute up to $11,000 annual without attracting gift tax. Investment earnings from an UGMA account is taxed in the child’s tax bracket and it is reported under the child’s social security number.
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