College Savings UTMA

What Happens To an UTMA Account When a Child Plans To Skip College

By Aimee O'Grady, Child Savings Specialist


Not all beneficiaries will attend college, but they will still have access to the funds in their UGMA/UTMA account.   

Key Takeaways
  • Beneficiaries have unrestricted access to the funds in UGMA/UTMA Accounts.            
  • Custodians can withdraw funds if they are used to benefit the beneficiary, including converting into an irrevocable education trust for the sole use of the beneficiary.
  • Withdrawal of funds by the parent or custodian after the minor is of legal age is not allowed.

A Parent’s Worst Nightmare

An UGMA/UTMA account is an easy savings tool for parents to open for their children. The beneficiaries own the assets the moment the account is created and can access the money as soon as they are of legal age, often 18 or 21. Most UTMA and UGMAs, or custodial accounts, are opened as a way to save for higher education anticipating that the beneficiary will attend college. But what happens if they choose not to?


It's Their Assets… It's Their Choice

Simply put, the beneficiary of an UGMA and UTMA account can use the funds at their discretion, making them quite unpractical as a college-savings plan. These are custodial accounts for minors, which means the custodian manages the money until the minor attains the age of majority. Once they reach the age of majority, beneficiaries have unrestricted access to the assets in the accounts to do whatever they want. They can register for higher education courses, buy a car or go on vacation, since there are no restrictions on how the money can be used.

One of the benefits of these custodial accounts, however, is that they can be converted into irrevocable trusts. Prior to the age of 18, assets in UGMA/UTMA accounts may be withdrawn by the custodian and used for circumstances that benefit the beneficiary. Therefore, it is allowable for the funds to be converted into an irrevocable education savings trust.


UTMA Conversions Are Allowable, Easy, and Affordable

Prior to the UTMA or UGMA beneficiary reaching the age of majority, the custodian of the account (usually the parent or grandparent) has the ability to transfer the custodian account assets into an irrevocable savings trust for the sole use of the beneficiary.  This is often done by parents when they suspect assets put aside for education-related expenses could be frittered away by young beneficiaries who currently have no intention to currently attend school or have money management problems.

The advantage of converting UGMA and UTMA accounts into an education savings trust are:

  1. Defer access to assets until future date(s) or event(s) if beneficiary does not attend school
  2. Education Distributions can be made directly to the University
  3. GPA performance incentives are available
  4. Graduation incentives available
  5. Prevent use of funds for unrelated activities
  6. Preserve or maximize FAFSA considerations
  7. Ability to issue distributions as loans
  8. Minimum GPA requirement can be elected
Best of Intentions

Custodians be cautioned:  It is not allowable for custodians to withdraw assets from a UGMA/UTMA account for purposes other than those benefiting the beneficiary. Liability issues could result, regardless of how the custodian feels about the beneficiary’s decision to not attend college.

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by Aimee O'Grady, Child Savings Specialist

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