How Taxes Work With a UGMA Account

Disclaimer: Fabric by Gerber Life and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. This material does not constitute a recommendation to engage in or refrain from a particular course of action.  The information below is not tailored for any individual. You should consult your own tax, legal and accounting advisors before engaging in any transaction. 

A custodial account such as a UGMA (“Uniform Gifts to Minors Act”) or UTMA (“Uniform Transfers to Minors Act”) can make it easier to save and invest money on your child’s behalf. Even when your child is too young to understand allowance, never mind investments, you can set gifts aside for their future. (If you don't already have one, you can open a UGMA through Fabric by Gerber Life.)

Managing a UGMA or UTMA also means you’ll have to handle taxes on your child’s behalf until they’re old enough to take charge of the account. Fortunately, taxes on a UGMA don’t have to be complicated. A tax professional can help answer questions you may have about your child’s taxes. It can also help to get a general overview of what to look out for as you plan contributions to a UGMA account and what the IRS is likely to expect from you at tax time.

What Money in a UGMA Is Taxable?

UGMA accounts do not grow tax deferred. Interest, dividends or capital gains on funds in your child’s UGMA account may be subject to taxes.

Certain tax rules or taxable thresholds typically update every year, so it’s smart to keep an eye out for changes.

Your child can have two basic categories of income, earned and unearned. Earned income refers to money they make through work. Unearned income that they don’t work for includes interest and gains on investments, such as growth on funds in their UGMA account.

The amount of unearned income your child has each year can affect what their tax obligation will be. Your child’s unearned income between $1,350 and $2,700 is taxed at the child’s tax rate (i.e., the child’s marginal tax rate after any applicable deductions, which a tax professional can help you apply). Unearned income over $2,700 is taxed at the parent’s rate.

Do UGMA Taxes Go on My Tax Return or My Child’s?

As the parent, in many cases you’re the custodian of a UGMA or UTMA account. But the money belongs to your child, so whose tax return should you use to file any taxes?

A child’s earned income generally needs to go on the child’s own tax return. If your child only has unearned income, you can generally choose whether to include this on your tax return or fill out a separate return for your child.

You should talk with a tax professional to learn about the best way to file based on your particular situation. After your child is old enough to take control of the account, they’ll need to file their own taxes for unearned income.

What Do I Need in Order to File UGMA Taxes?

You should expect to receive a 1099 with information about interest, dividends or capital gains on the account, probably around late January or February. You should also collect any receipts or records you have if you made any withdrawals to pay for expenses on your child’s behalf. Ask your tax professional if you have questions concerning these accounts.

How Taxes Work for UGMA Account Contributions

There are no tax credits or deductions for contributions you make to a UGMA or UTMA account. The main advantages of a UGMA are that it’s much less expensive than setting up a trust, and it’s a convenient way to save and invest financial gifts for your child.

You can give up to $19,000 in 2026 ($38,000 for married couples making a joint gift or electing gift splitting) per recipient before facing gift taxes.

Are UGMA Withdrawals Taxed?

When your child comes of age, they’ll have to file and pay their own taxes. But contributions to a UGMA come from your after-tax dollars, and you or your child are paying taxes on income each year whenever you earn it. As a result, your child won’t have to pay additional taxes later when they withdraw from a UGMA or UTMA account. They also won’t face any penalties, because a UGMA doesn’t have the same restrictions a 529 account does to use funds on “qualified expenses” or incur a penalty.

A UGMA account or other custodial account can be a helpful way to grow and protect money for your child’s future. As your child grows, you may need to change how you file UGMA account taxes, especially if your child starts working or their income grows. Talk to a tax professional to set goals or answer questions about the best way to manage your child’s UGMA account.

Want to compare even more options? Here are the merits of UGMA accounts versus leaving money to your kids in a will.

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Information provided is general and educational in nature, is not financial advice, and all products or services discussed may not be offered by Fabric by Gerber Life  (“the Company”). The information is not intended to be, and should not be construed as, legal or tax advice. The Company does not provide legal or tax advice. Consult an attorney or tax advisor regarding your specific legal or tax situation. Laws of a specific state or laws relevant to a particular situation may affect the applicability, accuracy, or completeness of this information. Federal and state laws and regulations are complex and are subject to change. The Company makes no warranties with regard to the information or results obtained by its use. The Company disclaims any liability arising out of your use of, or reliance on, the information. The views and opinions of third-party content providers are solely those of the author and not Fabric by Gerber Life.