When saving for a child's future, whether for college, a first car, or a financial head start, two commonly used accounts are 529 plans and UTMA/UGMA custodial accounts. Each has unique features, benefits, and trade-offs, and choosing the right one depends on your goals and values. Let’s break down what each account is, how they work, and how to decide which is right for your family.

What is a 529 Plan?

A 529 plan is a tax-advantaged investment account specifically designed to encourage saving for qualified education expenses. These can include tuition, fees, books, and room and board at eligible institutions, and even K-12 tuition or student loan repayment, depending on the state.

Key Features:

• Ownership: The account is owned by an adult (often a parent or grandparent) who names a beneficiary (often a child).
• Tax Treatment: Contributions grow tax-free. While contributions are made after-tax at the federal level, some states offer state income tax deductions or credits on contributions. Withdrawals for qualified education expenses are not taxed federally (and often not taxed at the state level either).
• Control: The account owner retains full control over the funds even after the beneficiary turns 18.
• Flexibility: Beneficiaries can be updated to another qualifying family member if the original beneficiary doesn’t use the money.

What Are UTMA and UGMA Accounts?

UTMA (Uniform Transfers to Minors Act) and UGMA (Uniform Gifts to Minors Act) accounts are custodial accounts that allow adults to gift money or assets to a minor. These are more flexible than 529 plans because they’re not limited to educational use. UTMA and UGMA accounts are very similar, with the main difference being that UTMA accounts have more options than UGMA accounts in terms of the type of assets that can be held.

Key Features:

• Ownership: An adult (the custodian) manages the account on behalf of the child (the beneficiary) until the child reaches the age of majority which is typically 18 or 21, depending on the state.
• Tax Treatment: The first portion (an amount set by the IRS) of earnings is tax-free with the next portion of earnings taxed at the child’s rate. Earnings above a certain threshold are taxed at the parent’s rate.
• Control: Once the child reaches the age of majority, they gain full control of the account and can use the funds however they wish.
• Flexibility: Can hold a wider range of assets and be used for anything that benefits the child (not just education).

Which Account Should You Choose?

You might consider using a 529 Plan if:

• Your primary goal is to save for college or other education costs.
• You want tax-free growth and withdrawals.
• You want to retain control of the funds beyond the beneficiary’s 18th birthday.

You might consider using a UTMA/UGMA Account if:

• You want the child to have flexibility in how they use the funds (education, home, business, etc.).
• You're okay with the child taking full control of the account at age 18 or 21.
• You want to gift assets beyond cash or standard investments.

Many families use both. A 529 plan for structured education savings, and a UTMA/UGMA for broader financial support or gifts. Both 529 plans and custodial accounts are powerful tools to invest in a child's future but they come with different expectations, control structures, and tax implications. Knowing the differences can help you make informed, values-aligned choices for your family.

This material is being provided for informational or educational purposes only. Those seeking information regarding their particular investment needs should contact a financial professional. The opinions expressed were current as of the date of posting but are subject to change without notice due to market, political, or economic conditions.

Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.