529 vs UTMA/UGMA Calculator

Model how much your child could have in a 529 plan versus a UTMA/UGMA custodial account, after taxes and penalties, and see which option better fits your goals.

Compare 529 Plan vs UTMA/UGMA

Used to estimate years until college (default college age 18).

You can adjust if you expect a gap year or grad school focus.

Assumed at end of each year until college.

Approximate combined federal + state on interest/dividends/capital gains.

Federal penalty is typically 10% of earnings for non‑qualified withdrawals.

Used for 529 non‑qualified withdrawals (earnings taxed as income).

Used for estimating value of state tax deduction on 529 contributions.

Set to 0% if your state offers no 529 tax benefit.

How this 529 vs UTMA/UGMA calculator works

This tool compares how much money your child could have at college age if you save in a 529 college savings plan versus a UTMA/UGMA custodial account. It focuses on three big drivers:

  • Tax treatment of investment growth
  • Potential penalties if 529 money is not used for education
  • Impact on need-based financial aid (FAFSA-style assessment)

1. Growth model and tax drag

The calculator assumes the same pre-tax investment return for both accounts.

529 plan (tax-deferred growth):

Let \( C_0 \) be the initial contribution, \( C \) the annual contribution, \( r \) the annual return, and \( n \) the years until college.

Future value before any taxes/penalties: \[ FV_{529} = C_0 (1+r)^n + C \cdot \frac{(1+r)^n - 1}{r} \]

UTMA/UGMA (taxed annually):

We approximate annual taxation by reducing the effective growth rate: \[ r_{\text{after-tax}} = r \cdot (1 - t) \] where \( t \) is your estimated tax rate on investment gains.

Then: \[ FV_{\text{UTMA}} = C_0 (1+r_{\text{after-tax}})^n + C \cdot \frac{(1+r_{\text{after-tax}})^n - 1}{r_{\text{after-tax}}} \]

2. 529 qualified vs non-qualified withdrawals

If all 529 withdrawals are for qualified education expenses, growth is assumed to be tax-free and penalty-free.

If some or all withdrawals are non-qualified, the calculator:

  • Separates the 529 balance into contributions and earnings
  • Applies your ordinary income tax rate plus the 10% penalty (or your custom penalty input) to the non-qualified portion of earnings

Your original contributions are never taxed again; only the earnings portion of non-qualified withdrawals is taxed and penalized.

3. State tax benefits of 529 plans

Many states offer a deduction or credit for 529 contributions. Instead of modeling each state’s rules, the calculator lets you enter an effective percentage benefit (for example, 5% of contributions).

We then estimate:

  • Total state tax savings over the contribution period
  • Equivalent extra contributions those savings represent

4. Financial aid impact (FAFSA-style)

For need-based aid, the ownership of the account matters:

  • Parent-owned 529: treated as a parent asset, typically up to ~5.64% of its value is expected to be used each year.
  • UTMA/UGMA: treated as a student asset, often assessed at up to 20% per year.

The calculator multiplies the projected balances by these assessment rates to show the approximate annual Expected Family Contribution (EFC) impact from assets alone.

529 plan vs UTMA/UGMA: key differences

Purpose and flexibility

  • 529 plan: Designed primarily for education (college, K–12 tuition caps, some apprenticeships, and student loan repayment up to limits).
  • UTMA/UGMA: General-purpose custodial account for a minor; funds can be used for almost any expense that benefits the child.

Ownership and control

  • 529 plan: Owned by the account owner (usually a parent). The beneficiary can be changed to another qualifying family member. The child has no legal right to the funds at a specific age.
  • UTMA/UGMA: Irrevocable gift to the child. At the age of majority (varies by state), the child gains full control and can spend the money however they choose.

Tax treatment

  • 529 plan:
    • Contributions are made with after-tax dollars (no federal deduction).
    • Investment growth is tax-deferred and tax-free for qualified education expenses.
    • Non-qualified withdrawals: earnings taxed as ordinary income + 10% federal penalty on earnings (with some exceptions).
    • Many states offer a deduction or credit for contributions.
  • UTMA/UGMA:
    • Investment income is taxable each year (subject to “kiddie tax” rules).
    • Long-term capital gains may be taxed at favorable rates, but there is ongoing tax drag.
    • No special tax break for education use.

Financial aid considerations

  • 529 plan (parent-owned): Parent asset; modest impact on need-based aid.
  • UTMA/UGMA: Student asset; can significantly reduce eligibility for need-based aid.

When a 529 plan may be better

  • You are highly confident the child (or another family member) will pursue education that qualifies for 529 withdrawals.
  • You live in a state with strong 529 tax benefits.
  • You want to retain control of the account beyond the child’s age of majority.
  • Need-based financial aid is likely to matter for your family.

When a UTMA/UGMA may be better

  • You want the funds to be available for non-education goals (e.g., first car, travel, home down payment).
  • You are comfortable with the child gaining full control at 18–21 (depending on state).
  • Your family is unlikely to qualify for need-based aid, so FAFSA impact is less important.
  • You want to transfer wealth to the child with fewer restrictions on use.

Limitations and assumptions

  • The calculator uses simplified tax assumptions and does not model detailed kiddie tax brackets or every state’s 529 rules.
  • Investment returns are assumed to be constant and annual; real-world returns will vary.
  • Financial aid formulas can change and vary by school; results are for educational illustration only.

This tool is for educational purposes and is not tax, legal, or investment advice. Consider consulting a qualified financial planner or tax professional for personalized guidance.

Frequently asked questions

Can I have both a 529 and a UTMA/UGMA for the same child?

Yes. Many families use a 529 for core college costs and a UTMA/UGMA for flexible extras (travel, study abroad, a car, etc.). This calculator can help you see how much to tilt toward each option.

What if my child gets a scholarship?

For 529 plans, you can withdraw up to the amount of the scholarship without paying the 10% penalty on earnings (though income tax on earnings still applies). You can also change the beneficiary or keep the funds for graduate school. UTMA/UGMA accounts are unaffected by scholarships.

Can I change the beneficiary of a UTMA/UGMA?

No. UTMA/UGMA assets are an irrevocable gift to the named child. You cannot change the beneficiary or take the money back for yourself. You can, however, spend the funds for the child’s benefit before they reach the age of majority, subject to state rules.