529 vs utma

529 vs UTMA: Which Plan Should I Choose In 2024?


When saving for your child’s future, there are a few options to consider. Many people are not sure how to determine whether a 529 or UTMA account is better. Knowing the differences between these two accounts can help you decide which one fits better into your specific goals. Before we get into the differences, let’s discuss the basics of what each of these accounts is.

What is a 529 plan?

A 529 Plan is a college savings plan that allows an owner to set aside funds for future education expenses. Oftentimes, these are opened by parents for their children’s future education. Funds added to the plan can be invested during the growth phase of the account, and then when used for qualified education expenses, the growth in the account comes out tax-free.

The taxation of this account is very similar to a Roth IRA in that you pay normal income taxes on your income (i.e. you don’t get a federal tax deduction) when you put the money into the 529, but you can take the growth of this account tax free when used for qualified expenses. Some states offer a state tax deduction in the years that you save into this account, which adds to the taxable benefits of a 529 plan.


What is a UTMA?

An UTMA, which stands for Uniform Transfer to Minor Act, is a way for a minor child to receive gifts directly. The gift can be cash or another asset and is controlled either by the gift giver, or a custodian to the account while the child is a minor. Once the child reaches the age of majority for their state, usually age 18 or 21, the funds in the account become the child’s assets. The child then has all control over the assets in this account, and can choose to do with the money whatever they see fit. UTMA accounts are not specifically meant for college education, but can be used for that purpose as long as the child uses it for that purpose when they reach ownership age.

What are the key differences between a 529 vs UTMA? 

1. Account Ownership

With a UTMA account, the account is owned by the recipient as soon as they reach the age of majority. At that time, account assets become legally in the name of the recipient of the UTMA. They can then ultimately decide what to do with those funds. The custodian of the account no longer has any say in what is done with these funds.

In addition, while the recipient is still a minor, the funds must be used to benefit the minor. Gifts and transfers to minors are irrevocable, meaning you can’t take it back to use it for any other benefit than the person it was meant for.

529 Plan
In a 529 plan, the owner is not the same as the beneficiary. The plan remains in the name of the owner regardless of the age of the beneficiary. In addition, the owner can change the beneficiary of the 529 plan. So the beneficiary has no say in how 529 plan assets are invested or spent.

2. Financial Aid

When applying for financial aid via the FAFSA, money in an UTMA account is counted as an asset of the student. The calculation used to determine financial aid is much less favorable when assets are in the name of the student applying for aid. Therefore, an UTMA account is not as favorable as a 529 in this instance.

529 Plan
529 plans are not owned by the student. This makes it much more favorable on the FAFSA calculation because these are funds that are considered the parent’s assets and not the student’s.

 3. Qualified Expenses 

In an UTMA account, there are no qualified or disqualified expenses. These assets are able to be used for whatever the custodian, or the recipient if they are an adult, would like to spend them on. As long as the assets are in cash, or able to be transferred to cash, they can be spent.

529 Plans
In a 529 plan, qualified expenses are those that are used for higher education. They can be used for private high school, trade school, college or university. They can also be used for other expenses that come with attending these education facilities such as laptops, certain room and board expenses, and other costs of attending a college or trade school. If 529 funds are withdrawn for a non-qualified expense, capital gains taxes on the growth plus a 10% penalty may have to be paid. There are certain exemptions to the tax penalty. Examples are if the child becomes disabled, joins the military, or receives a full scholarship.


In an UTMA account, any growth of the account if it is held in cash, such as a savings account, will be taxed in the year it is earned. The first $1,050 of earnings in an UTMA are tax-free, the next $1,050 will be taxed at the child’s tax rate (often 0%), and anything past that is taxed at the rate of estates and trusts, which can be as high as 37%. Once the child reaches the age of majority, all income is taxed at his or her rate.

529 Plans
In a 529 account, the beneficiary never owns the account, and therefore never pays taxes themselves. In addition, as long as the growth in the account is used for qualified education expenses, the growth comes out completely tax-free. This could be a significant tax saving for families who would like to save on taxes and pay for their child’s higher education expenses.

 5. Gift Tax

UTMA and 529

For both 529 plans and UTMA accounts, the first $18,000 per person added to these accounts is free from filing a gift tax return. The federal gift tax exclusion yearly is $18,000 in 2024. For example, if you and your spouse both want to add to a 529 account and maximize your annual gift tax exclusion, each of you can put in $18,000 for a total of $36,000 each year into each child’s 529 plan and not worry about any gift tax filing.

In addition, grandparents or anyone else can also add $18,000 each into the child’s 529 account to take care of their own annual gift tax exclusion. The same goes for an UTMA account. Keep in mind, the $18,000 annual gift tax exclusion is per person, not per account. If a single taxpayer added $18,000 to an UTMA and also to a 529 with the same beneficiary, they would have to file a gift tax return for $18,000 because they gifted above the annual exclusion to the same person.

If you do gift over $18,000 in one tax year to one person, then the funds will start counting against the federal estate and gift tax exclusion. This exclusion is currently $13.61 million that can be gifted over a lifetime and at death combined. If you aren’t going to gift this amount over your lifetime and at death, you won’t need to pay gift taxes on money put into either of these accounts, but you will need to file a gift tax return each year that your contributions exceed the annual gift tax exclusion.

 6. Investment Options and Contribution Limits

For an UTMA account, the investment options and contribution limits are unlimited. Aside from keeping in mind the $18,000 annual gift tax exclusion and a lifetime estate and gift tax exclusion tax implications, you can put as much money or other assets into an UTMA as you would like. You can also gift things like stocks, artwork, other assets, and even real estate. Keep in mind, this account is legally the child’s asset and cannot be used for any other benefit than the child.

 529 Plan
529 plans do not have annual contribution limits. However, each state may have a maximum amount that can be in a 529 plan. Usually this ranges from $300,000-$500,000. In addition, investment options in a 529 plan are limited to investment options available within that plan. Contributions to a 529 plan must also be made in cash. For example, you cannot gift stocks into a 529 plan. You would have to sell the stocks, and then transfer those funds into the 529 plan.

If you don’t already have one, it may be a good idea to hire a fee-only financial planner who can help you look at your finances in a holistic way to determine how saving for your child’s future fits into your family’s financial plan.

Can I have both a UTMA and 529? 

You can have both a UTMA and 529 plan. 529 plans are meant specifically for higher education expenses while UTMA account uses are much broader. You could put money into a 529 plan that you want specifically used for future education and you could start a UTMA account for money that you want to become your child’s when they become a legal adult. Or maybe you want to be able to purchase a car for your child when they get their driver’s license, an UTMA account may be a great use for that goal. 

Both methods can help with lowering taxes in different ways. Make sure you work with your tax professional and your financial planner to determine the best way to use both of these accounts.

Choosing the right education savings plan for your children

529 and UTMA accounts are great savings options for families to choose from to plan for their children’s future. Investing in their future today will make a big difference further down the track. If you want to discuss 529 vs UTMA, or other college savings strategies, book a complimentary discovery call with one of our fee-only financial planners today. 

Shanna Due, AFC financial planner

Shanna Due, AFC® is a fee-only financial planner based in Williamsburg, Virginia.  She uses her Master’s degree from the University of Northern Colorado, her certifications, and two decades of experience to help professionals in their 30s and 40s achieve their financial goals.  She does this through goal-oriented savings and investing, reducing taxes, planning for retirement, and mitigating risk.  To find out how she and the team of District Capital Management can help you schedule a free discovery call.


District Capital is an independent, fee-only financial planning firm. We help professionals and entrepreneurs in their 30s and 40s elevate their finances and maximize their money. We are based in Washington, D.C and we work with people virtually nationwide.

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