How To Save For A Child's Education

UGMA and UTMA Accounts

If a parent is looking for a lower tax rate in addition to the investment into their child’s education, Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts are the answer. Minors are taxed at a lower rate than adults, which means the gifts given to them from adults are less expensive from a tax standpoint. This is not a savings plan per say, but it is a way for an adult to transfer their assets to a minor. Since minors are almost always in a lower tax bracket, the amount they receive is greater due to the lower tax liability. This is a transfer of an asset, which means it’s an asset to the child once received. The child is not required to use this money for their education, and there is nothing that says they are penalized if they do not. It’s simply a way for an adult to transfer some of their own assets from their estate to a child for educational purposes while avoiding the tax penalties that come with being in a higher tax bracket.

Continue reading to learn more about money as gifts when it comes to education.