Why set up a Uniform Transfer to Minor Account (UTMA)?

Tax Advantages 

• Income earned by the account is taxed at the minor's tax rate, which is often significantly lower than the adult's, leading to substantial tax savings. 
• The first portion of the unearned income is often tax-free, and subsequent portions are taxed at the child's lower rate, according to the "kiddie tax" rules. 
• Use of Funds - Unlike a 529 plan, funds in a UTMA account can be used for any purpose that benefits the child, including a first car, a down payment on a home, or even starting a retirement fund
• Contribution Limits -There are no limits on the amount of money you can contribute to a UTMA account. 
• Contributions - You can contribute a wide range of assets, such as stocks, bonds, real estate, and even fine art, to a UTMA account. 
• Once money is contributed to a UTMA account, it is considered an irrevocable gift to the child, meaning the donor cannot take it back.

Why Set up a ROTH IRA for Minors Account?

Before you can open a ROTH IRA for a Minor, the minor must have earned income, either through an employer's W-2 or through self-employment, such as babysitting, cutting grass, or dog walking for examples.

Benefits 

• Decades of tax-free investment growth
• Minor can withdraw the money they contributed at any time, for any reason, without paying taxes or penalties. This is useful for future expenses like college tuition, buying a car, or starting a business.
• Like a UTMA, the custodian, such as a parent or guardian manages the account, until the minor reaches the age of majority in their state, but a ROTH IRA for a Minor is a great way to get young adults educated about saving for retirement and managing their investment.

Requirements

• The minor must have earned income.
• Contribution Limits - $7000 for 2025

With both a UTMA and a ROTH IRA for a Minor an adult custodian manages the account and its investments until the child reaches the age of majority in their state, at which point the child gains full control. 

Both accounts can be a valuable tool for teaching children and young adults about the importance of saving for their future self and getting them interested in managing their investments.

The process of opening and contributing to a UTMA account is simple, similar to opening a regular brokerage account. If you need assistance opening a UTMA account, give Noble Street a call. We will assist you with opening the account, funding it, and investing the assets.