by Melissa Brock

When you’re rushing kids to soccer practice, shoveling Easy Mac like it’s a lifeline (because it is!) and holding down your regular full-time job, who has time to research college plans?

Not you!   

And when you Google “UTMA” and “529 plans,” most information online makes you want to crack back the driver’s seat and sleep through soccer practice.

Let’s make this more entertaining, shall we? 

September is College Savings Month, and in the interest of education, UTMAs vs. 529 plans is a super-appropriate topic. Let’s dive in.

What’s a UTMA? 

UTMA: Sounds like a new government mandate or raging infection, doesn’t it? (Do you think if it was called the Unicorn Twinkle Marshmallow Act, it would get more attention — especially among kids?)

At any rate, the Uniform Transfers to Minors Act (UTMA) lets gift-givers transfer money to a minor child from a guardian or trustee. 

Let’s say you want to open a UTMA account for your five-year-old daughter, Kiki. You put $30,000 in a UTMA account for her. You continue to add money to the custodial account over time — and others can add, too. 

When Kiki reaches a specific age (determined by your state, usually between 18 and 25), the custodianship terminates and Kiki gets the money. 

Once Kiki owns the account, it’s no longer a UTMA — it becomes a taxable brokerage account. The rules for a taxable brokerage account automatically apply.

UTMAs are generally better savings options for lower balance accounts, and here’s why:

  • The first $1,050 of Kiki’s unearned income (interest, dividends or capital gains) is exempt from federal income tax because Kiki is under age 18 at the end of the tax year. 
  • The second $1,050 of unearned income is taxed at the child’s rate. 
  • Any unearned income over $2,100 is taxed at the higher of the child’s or parents’ marginal tax rates.
  • You can contribute as much as you want, but amounts above $15,000 per year ($30,000 for a married couple filing jointly) incur federal gift tax.

It’s important to note that all assets represent irrevocable transfers. This means that you, as a custodian, cannot take back the money if you later realize Kiki’s not a good money manager.

Pros: UTMAs offer flexibility because your child can use it for anything (but that can also be a con — your child can buy a Porsche with your savings!) However, it’s a good move if you don’t think little Kiki will go to college. UTMAs also offer tax advantages and there are no penalties for early withdrawal. They’re also easy to set up.

Cons: You don’t own the account — your beneficiary does. You can’t use the funds for anyone other than your initial beneficiary, and you can’t transfer the account to yourself or to another child.

How to Set Up a UTMA

Setting up a UTMA account doesn’t take a lot of time. Here’s what it could look like: 

  1. Log into a brokerage account or talk to a financial advisor. 
  2. Set up an account. You may need to fill out some forms, including a fiduciary account application, and show your photo identification, such as a driver’s license, state ID card or passport.
  3. Transfer funds. 
  4. Dust off your hands.

You, the donor, may be the custodian of the account, but the custodian can also be another adult or a financial institution.

What is a 529 Plan? 

A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs. You’ll find two types of 529 plans: prepaid tuition plans and education savings plans

  • Prepaid tuition plans let you purchase units or credits at participating colleges or universities to pay for tuition in the future. 
  • Education savings plans allow you to open an investment account to save for qualified higher education expenses. You can also use an education savings plan to save for tuition for elementary or secondary public, private or religious schools. UNest offers this type of plan. 

Investment Options

You get to choose which types of investments you want once you open your 529 account. How do you know which investment option to choose? Let’s take a look at the two primary investment options — age-based portfolios and static portfolios.

Age-based Portfolios

Age-based portfolios automatically move toward less risky investments as your child gets older. This is a great option if you don’t want to think about managing your child’s investments or if you prefer a set-it-and-forget-it approach. In other words, you leave the 529 plan manager in charge.

Static Portfolios

The investments in a static portfolio remain the same as your child gets older. This investment type is best if you’re a savvy investor or if you have a specific strategy in mind.  

You can invest in target risk portfolios and individual portfolios:

  • Target risk investments adjust regularly to meet a specific target. 
  • Individual portfolios mirror the underlying investments — usually either open-ended or exchange-traded mutual funds. This is a great option if you want to really customize your investments.

Pros: You’ll experience tax advantages — even for larger amounts. They can go to other family members (meaning they’re easily transferable) and choosing investments is easy. Finally, the money in the account won’t be lost if your child doesn’t attend college.

Cons: You’ll encounter somewhat less flexibility with a 529 plan, because it must be used for educational purposes.

How to Choose Between a UTMA or a 529 Plan?

How do you know whether a UTMA or a 529 plan is right for you? 

Like anything else, you weigh the pros and cons. Make a list of what works best for your needs. Think through questions like “Am I okay with my child not using the money for college?” and “Do I prefer to transfer money to a sibling if Kiki doesn’t go to college?” 

How to Plan for College Expenses

You’ll want to plan carefully for college expenses whether you opt for a 529 or a UTMA. Take action with just a few steps.

Step 1: Start as soon as you can. 

One of the greatest benefits of investing in either a 529 plan or UTMA is to start as early as possible. Investing early in either a 529 plan or UTMA means your money has more time to grow and compound. Simple interest refers to interest on principal only. Compound interest involves the interest on the principal as well as any other accrued interest. 

Here’s an example of simple interest: Let’s say you originally invest $10,000. The interest rate is 5%. Each year, your original investment will earn $500. Over five years, the account adds $2,500.  

Example of 5% compound interest on $10,000: 

  • First year: $500 in interest 
  • Second year starting amount (includes the interest from the first year added to the original contribution): $10,500. With 5% interest, the total interest in the second year would be $525. 
  • Third year starting amount: $11,025, which could grow an additional $551.25 assuming 5% interest. 
  • Fourth year starting amount: $11,576.25 — could grow by $578.81, assuming 5% interest. 
  • Fifth year starting amount: $12,155.06. Assuming 5% interest, the account could grow by $607.76 — totaling $12,762.82.

Isn’t that amazing?

Step 2: Get registered!

Get registered with a UTMA through an online brokerage account or a financial advisor.

On the other hand, It’s easy to register for a 529 plan with UNest. Download the UNest app on your phone. You can open your account in less than five minutes. The UNest app registration is simple and intuitive — even if you’ve never invested before.

Step 3: Learn about your investment options.

You can fund UTMAs with any combination of cash and investments. You can buy stocks, bonds, a savings account, mutual funds and real assets, like property, art, patents and cars — and put them into a UTMA account.

529 plans, on the other hand, only allow you to contribute cash. UNest offers a wide variety of investment options to meet your needs, whether you’re a risk-tolerant individual or aren’t super comfortable with market fluctuations.

Step 4: Establish a monthly contribution plan.

How much do you want to contribute? It’s always a great idea to contribute to your child’s college savings account early — and often. UNest’s simple college savings calculator can help you establish your future goal and choose a monthly amount that’s right for you. It’s easy to start with a lower amount, then increase over time. You can start with as little as $25/month with UNest.

Step 5: Keep track of your investments.

Don’t invest and then forget about it till your child’s buying stuff for her dorm. How are those investments growing? Are you putting enough money away? Not enough? 

Monitoring your investments can help you figure out whether you’re doing everything you need to do to save for college.

Get Started Now

Don’t agonize about which avenue to take. Ultimately, it’s best to just get started. You can always change your strategy down the road. For example, let’s say you choose a 529 plan but it becomes clear that Kiki’s sister will for sure go to college. You can always switch beneficiaries.

Bottom line: Don’t feel as if you’re locked into a specific investment — or even company. You’ll encounter more flexibility than you think!.

September is College Savings Month, so get caught up in the momentum and start saving!

Ksenia Yudina, CFA, MBA

Founder and CEO

Ksenia is the Founder and CEO of U-Nest, the first mobile app that makes it easy for families to save for college. As an entrepreneur and finance professional, Ksenia has focused on alleviating the impact of student debt on families across the economic spectrum. Previously, Ksenia was a Vice President atCapital Group/American Funds, the largest 529 provider in the U.S. In this role, she played a leadership role in helping parents plan and manage their finances, with a focus on the future well-being of their children. Prior to Capital Group/American Funds, she was founder of a residential real estate company. Ksenia earned her bachelor’s degree in finance from CaliforniaState University Northridge, and an MBA from UCLA’s Anderson School of Management.

Mike Van Kempen

Chief Operating Officer

Mike joined U-Nest in September 2019 as COO. He was previously at Acorns, a financial wellness platform, where he spearheaded the analytics and growth initiatives. Mike successfully expandedAcorns’ paid acquisition strategy, adding over 4.5 million investment accounts. Mike began his career in strategy & analytics at Belly, a Chicago-based loyalty startup in 2012. At Belly, Mike led projects that fueled growth across all aspects of the business, growing the customer base from1,000 to over 11,000 merchants, and accumulating a membership of over 2 million customers.Mike holds a B.B.A. in Finance from Loyola University of Chicago.

Steve Buchanan

Chief Technology Officer

Steve has over 20 years of experience in delivering digital innovations in the financial sector. Steve previously orchestrated product architecture and innovation as a Solutions Architect/ Fintech consultant at Union Bank. Prior to Union Bank, he was Chief Architect and Director of Engineering at Calypso, a Silicon Valley startup, where he architected and built multiple financial solutions. He was also Head of Global Integrations at Globe One in Vietnam where he integrated its Peer-to-Peer lending products into core banking solutions. Steve also built the first ever electronic Equities &Equity Options trading systems for Scottish stock brokers Wood Mackenzie (acquired by CountyNatWest). He is a graduate of Edinburgh University.

Peter Mansfield

Chief Marketing Officer

Peter has built an impressive track record in multiple financial industry segments including payments, credit/prepaid cards and lending. He has played an instrumental role at a succession of financial industry leaders, co-founding companies such as Brand3 (acquired by American Express) and PropertyBridge (acquired by Moneygram), and, as the early stage marketing lead at Marqeta (where he was team member number two), BillFloat and WallabyFinancial (acquired by Bankrate).He has helped fast-growth companies reach an aggregate market value of close to $8 billion. Peter holds a bachelor’s degree in economics from the University of Angila, UK.

Sonya Kidman

Client Relationship Manager

Sonya Kidman is a Customer Success professional with a decade of experience in advocating for consumer through user research and genuine empathy. Sonya specializes in user behavior and regularly attends national and global training sessions in wellness and people analytics tools. Sonya is a true global citizen was born in Russia, grew up in Israel, lived and worked in Canada and NewZealand. That global expertise along with an undergraduate degree in Sociology from Tel AvivUniversity have helped to shape a bullet-prof Sonya's framework to develop a winning customer strategy.

Frank Mastrangelo

Board Member

One part banker and one part technologist, Frank spent his early days with the Annenberg Foundation and PNC Bank. His career path led him to Jefferson Bank, where he led the build-out of its electronic banking platforms, and where he would forge a powerful alliance with The Bancorp co-founder Betsy Z. Cohen. As President and COO of The Bancorp from its inception in 1999 Frank played a critical role in helping the organization become an industry bellwether for branchless financial services and a global leader in payments. For this, he has become a widely respected fintech expert, and thought-leader. Frank was recognized in 2013 by Banking Innovation, a leading industry journal, as an “Innovator to Watch.” and as one of the innovators shaping the future of banking. Frank is a graduate of West Chester University of Pennsylvania.


College Savings Calculator is a hypothetical tool that demonstrates how monthly contributions, age-based asset rebalancing, and tax savings may impact the long-term value of your account, and do not take into account a portfolio’s underlying investment management fees. Calculations assume the private institution cost inflation is 2.8%, public out of state cost inflation is 3.9%, public in state cost inflation is 2.7%. Portfolio is assumed to have only stocks and bonds. Monthly equity returns are based on the historical data from the 10-year track record of the stock market (SPY). Monthly fixed income returns are based on the historical data from the 10-year track record of the bond market index (AGG). The current college expenses are provided by the Actual account performance may differ due to market fluctuations, changes in recurring investments, and asset allocation. The information provided here is for illustrative purposes only and does not represent actual or future performance of any investment option and is not intended to predict or project the investment performance of any security or index.