What Happens to UTMA When Child Turns 21?
A Uniform Transfer to Minors Act (UTMA) is a custodial account created for the benefit of a minor child. The assets in the account are managed by a custodian, who is usually the child’s parent or guardian. When the child reaches the age of majority, which is typically 18 or 21, the assets in the UTMA are transferred to the child’s control.
Options for Distributing UTMA Assets
When a child turns 21, the custodian has several options for distributing the assets in the UTMA:
- Distribute the assets outright to the child. This is the simplest option, but it may not be the best if the child is not financially responsible.
- Roll the assets into a new custodial account. This option allows the custodian to continue managing the assets for the child, but it also gives the child more control over the account.
- Transfer the assets to a 529 plan. A 529 plan is a tax-advantaged savings account that can be used to pay for qualified education expenses.
- Distribute the assets to a trust. A trust can provide more flexibility and control over the assets, but it can also be more expensive to set up and manage.
Tax Considerations
The distribution of UTMA assets can have tax implications. If the assets are distributed outright to the child, the child will be responsible for paying taxes on any income or gains generated by the account. However, if the assets are rolled into a new custodial account or transferred to a 529 plan, the taxes can be deferred until the assets are withdrawn.
Choosing the Best Option
The best option for distributing UTMA assets will depend on the child’s individual circumstances. The custodian should consider the child’s financial maturity, the amount of assets in the account, and the child’s future financial goals.
It is important to consult with a financial advisor or tax professional before making any decisions about the distribution of UTMA assets.
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