Compare 529 To UTMA
Some of the legal considerations when you begin to compare 529 to UTMA is the nature of the gift. When funds are gifted to the minor in an UTMA account, these gifts are considered irrevocable; the funds are deposited in the minors name with the adult as custodian. This means that the funds must only be used for expenses that are directly related to the minor. In the event that the custodian prefers that the funds be used only for higher eduction, then an UTMA account may not be the best choice. The custodian cannot transfer these funds from one minor to another minor.
Most 529 plans allow the custdian to transfer the ownership from one minor to another. There are several reasons behind this, for example, one child may not be interested in furthering their education. Unlike the UTMA plan, the funds belong to the custodian and not to the minor, taking the decisions for this account way from the minor regardless of their age.
Compare 529 to UTMA Funds Control
When a minor reaches the age of majority (18 to 25 on an UTMA account, set by the state), they gain full control over all funds that are in an UTMA account. They are free to use it for any reason they elect to. 529 plans are controlled by the custodian at all times and may only be used for educational expenses. The difference in who controls UTMA and 529 plans will be a factor in deciding which account to open.
Compare 529 to UTMA for taxes
For those who are considering transfers from UTMA accounts to 529 plans, there may be some tax benefits. Capital gains and dividends that are earned in an UTMA account are taxable. 529 plans are considered by the Internal Revenue Service as a Qualified Tuition Program and therefore are not subject to federal taxes on earnings.
Compare 529 to UTMA for limits
UTMA accounts have no restrictions on how much money may be deposited to the account. However, 529 plans do have limitations as the funds may only be sufficient for the minor to attend school and pay for school related expenses.