Three Things to Know Before Using a UTMA Account for College

Many families use a Uniform Transfers to Minors Act (UTMA) account to set money aside for a child’s future, including college costs. It’s worth understanding how these accounts work before relying on one for that purpose.

A UTMA account holds assets in a child’s name under an adult custodian’s management. Unlike accounts built specifically for education, a UTMA account doesn’t limit spending to school costs, as long as the money benefits the child. It can cover a car, a gap year, books, or tuition. That flexibility is a real feature for some families and a drawback for others.

Three things to weigh if college costs are the goal:

• Financial aid treatment. On the FAFSA, a UTMA account counts as the student’s asset and is assessed at 20 percent of its value toward the Student Aid Index. Parent-owned assets are assessed at a much lower rate, at most about 5.64 percent. A $20,000 UTMA balance, for example, can reduce aid eligibility by roughly $4,000.¹
• Tax treatment each year. A child’s unearned income from the account (interest, dividends, capital gains) gets some relief under the kiddie tax rules. For 2026, the first $1,350 is untaxed, the next $1,350 is taxed at the child’s rate, and anything above $2,700 is taxed at the parent’s marginal rate.²
• The transfer age. When the child reaches the age set by state law, the custodianship ends and the child takes full control. That age is usually 18 or 21 depending on where you live, and some states allow up to 25. If college bills are still being paid at that point, the family no longer has authority over that money. The now-adult child decides how it gets spent.³

These factors don’t make a UTMA account a poor choice. They just change how it fits into a broader approach to paying for college. Consider scheduling a conversation to compare the account you have (or one you’re considering) with your timeline for college costs.

How close is your child to the age your state sets for account transfer, and does that timeline line up with when college bills will arrive?

<sup>1. Chase.com, 2026
2. IRS.gov, 2026
3. FinAid.org, 2026</sup>