What are UGMA Restrictions and Do They Impact Me?

What are UGMA Restrictions and Do They Impact Me?
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UTMA UGMA Restrictions Placed on Custodians

There may be an instance where a parent, grandparent, aunt or other family member decides to gift assets to a minor. In order for the minor to accept some of these gifts, the custodian (donor) may be required to set up an UGMA or an UTMA account. While most states (except South Carolina and Vermont) have adopted UTMA rules, the restrictions on both types of accounts as they apply to the custodian are the same.

Custodian as fiduciary - when an adult makes a financial gift to a minor using the a Uniform Gifts to Minors Account (UGMA) they are agreeing to act in a fiduciary capacity. This means that they are agreeing that the amount of funds that are deposited to the account are considered an irrevocable gift to the minor;

Account setup - the adult is responsible for setting up UGMA and UTMA accounts. However, these accounts are set up with the social security information for the minor. The reason behind this is that the minor owns the account and the earnings on these accounts are taxable at the child’s rate and not the custodian’s rate;

Custodian deceased - in the event that the custodian of a minor’s account dies, the account becomes part of their estate. However, this does not change the ownership of the funds in the account, it merely means the estate will be responsible for the taxes on the amount and for appointing a new custodian;

Use of funds - the custodian may be required to submit a letter of intended use along with a liquidation request for a minors account. This letter would typically state that the funds are being used for the minor to whom the account is registered. Once the minor reaches the age of distribution, the minor is free to liquidate the account and use it for any purpose they deem appropriate.

Important Restrictions on Transferring UGMA Accounts


There are certain UGMA restrictions that are critical for a custodian to understand. Some of these restrictions have to do with transferring funds to other types of accounts for the minor (Roth IRA or 529 Plans) and others have an impact on the taxation of the funds. Here are some critical UGMA restrictions that you need to be aware of:

Transfer to Roth IRA - in order to be eligible for a Roth IRA transfer, an UGMA account must be liquidated. A new account must be opened in the name of the minor. It is important that the custodian understand that the transfer cannot go from an UGMA directly to a Roth IRA. The minor must have earned income to qualify for a Roth IRA transfer;

Transfer to 529 plan - there are UGMA restrictions that apply to 529 College Savings Accounts because the minor no longer has sole control of the funds. 529 plans allow a custodian to transfer the funds from one beneficiary to another. Before opening a 529 plan that you are planning to fund with an UGMA or UTMA account, speak to a financial advisor.

Taxes on UGMA accounts - there are tax implications to UGMA accounts which can be very confusing. Before opening an UGMA account it is important to understand the tax consequences. There may also be capital gains taxes and gift taxes that may be required to be paid.


Disclaimer: Adults who wish to make financial gifts to minors should be aware of the restrictions that may be placed on them. Before opening an UGMA or UTMA custodial account, speak with a qualified financial advisor to make sure that you understand the restrictions on these accounts.


  1. Oppenheimer Funds: UTMA/UGMA Accounts https://www.oppenheimerfunds.com/articles/article_09-23-10-122137.jsp
  2. Kipplinger: UTMA/UGMA & 529 https://forums.kiplinger.com/showthread.php?2472-UGMA-UTMA-amp-529
  3. Author’s Personal Experience

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Restrictions/No Via Wikimedia Commons/Public Domain/House

Gift Box Icon via Wikimedia Commons/Zeus Box (Kuswanto)