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The proper use of UTMA funds

Print Posted by Cheryl Costa March 23, 2009 09:52 AM

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I have UTMAs for both of my two children. Can I use the money in these accounts to pay for camps and visits to colleges?

Great question. Let's start with a little background information on UTMAs and UGMAs. In most states, minors are not permitted to directly own stocks, bonds and mutual funds so parents have generally established UTMA and UGMA accounts to hold these assets for their children. Any money contributed to the account is considered and irrevocable gift and once the contribution is made, the child is the legal owner of the assets in the UTMAs. The child can withdraw all of the money in the account once they reach legal age (which varies from state to state -- in Massachusetts, UTMA assets belong to the child without restriction at age 21.)

If a parent makes a withdrawal from the UTMA, it must be for the benefit of the child. Everyday expenses like food, clothing and shelter would not count because a parent is expected to provide those things but "extras" like summer camp, a new computer, a car to get to a job, and expenses related to college visits would certainly be acceptable.

There are no forms to fill out when you make a withdrawal from a UTMA but I urge you to keep a record of any withdrawals you make and save the camp and computer invoices so you can "prove" that the withdrawal was for a legitimate expense.

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About the contributors

Andrew Chan is the founder of Integrative Financial Advisors in Framingham. He provides comprehensive financial planning advice and investment management services. He has been an adviser for over 12 years and works with clients to integrate all aspects of their finances including investments, retirement, education funding, and tax planning.

Cheryl Costa is a principal at Forteris Wealth Management which is an independent, fee-only firm with offices in Framingham and Purchase, NY. She advises clients on investing, education funding, taxes and retirement planning. She has a BS from Worcester Polytechnic Institute and an MBA from Boston University and she is a Certified Financial Planner.

Jamie Downey has been an accountant for more than 14 years. He's a partner at Downey & Co. in Braintree. Prior to joining the firm, he served as a manager in the audit department of accounting firm KPMG.