Saving for College: UTMA Accounts vs 529 Plans

By Last Updated: July 6, 2024
Saving for College: UTMA Accounts vs 529 Plans

When it comes to saving for college, there are different vehicles to use. Let’s compare UTMAs (Uniform Transfers to Minor Accounts) and 529 plans to see the best option. UTMAs are taxable investment accounts owned by an adult for the benefit of a minor and may be used for any purpose. 529s are tax-advantaged savings plans designated for qualified education expenses.



  • Provides the most flexibility in terms of what the account may be used for. Instead of just qualified education expenses, the funds could be used for travel to and from school, a car, house down payment, clothing, spring break expenses, concert tickets, or anything else the child wants.
  • These accounts can be opened at most retail custodians and have access to a myriad of low-cost investment options.
  • There are no contribution limits.


  • There is no tax benefit. Earnings are taxed every year and withdrawals are taxed if capital gains are recognized.
  • The account must pass to a child once they attain the age of majority in your state. There’s no “keeping the account a secret.” The newly minted “adult” can then use the funds however he or she wishes.
  • If you’re trying to qualify for financial aid, a UTMA account is considered an asset of the student and assessed at a higher rate than 529 assets.
  • The account is not transferrable to another child.

529 Plans


  • The tax advantages of the 529 plan stand out as the earnings grow tax-free and withdrawals are also tax-free if they are used for qualified education expenses (tuition, room, board, books, and some fees).
  • 529 plans are counted as parent assets for financial aid eligibility and therefore applied at a lower rate than UTMAs.
  • The account owner may change the beneficiary on the account as needed so more flexibility is provided.
  • Some unused funds may be rolled over to a Roth IRA for the beneficiary if specific guidelines are met.


  • Funds may only be used for qualified education expenses otherwise a 10% penalty plus income taxes on the earnings will apply.
  • 529 providers may charge administrative fees.

Saving for College

When selecting an account type, it’s important to understand the unique circumstances of the family. There’s no one-size-fits-all answer and sometimes a blend of UTMA and 529 assets might be appropriate given specific goals.

Have questions? Feel free to contact us.

Missie Beach, CFP®, CDFA®
Senior Financial Advisor, Wiser Wealth Management

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