UTMA vs 529 State Comparison
UTMA: ownership transfers at 18/21, no tax advantages, kiddie tax. 529: education only, federal tax-free, state deduction, low aid impact.
| Annual contribution | — |
| Years | — |
| Total contributed | — |
| Future value | — |
| Investment gains | — |
| UTMA tax burden | — |
| 529 state deduction | — |
| UTMA net | — |
| 529 net | — |
| 529 advantage | — |
UTMA/UGMA custodial accounts and 529 plans both save for kids' future, but with very different tax treatments. UTMA: flexible use but kiddie tax + counts against financial aid. 529: education-only + tax-free growth + state deduction + low aid impact.
UTMA Account Mechanics
Custodial account in child's name. Parent manages until child reaches majority (18 or 21 by state). Ownership transfers — child can use however they wish. Kiddie tax applies: gains above $2,500 taxed at parent's rate (2024). Counts as student asset in FAFSA — major aid hit.
529 Plan Mechanics
Education-only use (qualified withdrawals tax-free, federal + state). Parent or grandparent owns; child is beneficiary. Beneficiary can be changed. Most states offer income tax deduction (NY, IL, MA $10K+ deduction). Counts as parental asset in FAFSA — only 5.64% reduces aid (vs 20% for student assets).
Recent Improvements
SECURE Act 2.0 (2022): unused 529 can roll to Roth IRA ($35K lifetime cap, 15-year minimum age of 529). K-12 private school: up to $10K/year qualified expenses. Student loan repayment: up to $10K lifetime per beneficiary. Removes downside of 529 if kid skips college.
Last updated May 2026. Sources: Saving For College.