UGMA/UTMA or Coverdell ESA?

An UGMA/UTMA* and a Coverdell Education Savings Account (ESA) are easy and great ways to assist with a child’s expenses down the road.

Here’s a brief summary of how these accounts work.

	UGMA/UTMA*	Coverdell ESA
Who controls the account?	The custodian (usually a parent), but only until the child reaches the state's age of majority (18 or 21).	The "Responsible Individual" (usually a parent), but only until the child reaches the state's age of majority (18 or 21)
Is there a contribution limit?	No.	Yes. $2,000 per year until the minor turns 18.
Are there any restrictions?	No.	Yes. If your income is between $95,000-$110,000 ($190,000-$220,000 if filing a joint tax return), the $2,000 limit is reduced. If your income is more than $110,000 ($220,000 if filing a joint tax return), you cannot contribute to an ESA.
Do the earnings grow tax-deferred?	No. Earnings are taxable above a certain level.	Yes.
Are withdrawals tax-free?	No. Withdrawals are taxable.	Yes, if withdrawals are used for certain educational expenses.
Can the minor on the account be changed?	No.	Yes.
How does the account impact the ability to receive federal financial aid?	Usually considered an asset of the student and therefore, has a high impact on financial aid eligibility.	Usually considered an asset of the parent and therefore, a low impact on financial aid eligility.

* States have adopted either the Uniform Gifts to Minors Act or Uniform Transfers to Minors Act.