*Note: States have adopted either the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act.
An UGMA/UTMA* and a Coverdell Education Savings Account (ESA) are easy and great ways to assist with a child’s expenses down the road.
Here is a brief summary of how these accounts work:
| UGMA/UTMA* | Coverdell ESA | |
| Who controls the account? | The custodian (usually a parent), but only until the child reaches the state's age of majority (18 or 21). | The "Responsible Individual" (usually a parent), but only until the child reaches the state's age of majority (18 or 21) |
| Is there a contribution limit? | No. | Yes. $2,000 per year until the minor turns 18. |
| Are there any restrictions? | No. | Yes. If your income is between $95,000-$110,000 ($190,000-$220,000 if filing a joint tax return), the $2,000 limit is reduced. If your income is more than $110,000 ($220,000 if filing a joint tax return), you cannot contribute to an ESA. |
| Do the earnings grow tax-deferred? | No. Earnings are taxable above a certain level. | Yes. |
| Are withdrawals tax-free? | No. Withdrawals are taxable. | Yes, if withdrawals are used for certain educational expenses. |
| Can the minor on the account be changed? | No. | Yes. |
| How does the account impact the ability to receive federal financial aid? | Usually considered an asset of the student and therefore, has a high impact on financial aid eligibility. | Usually considered an asset of the parent and therefore, a low impact on financial aid eligility. |
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