However, disadvantages to this approach are that you will be taxed on income earned in the plan at your tax rate. Funds in the account are in the minor's name and social security number and are considered to be owned by the minor. Dividends paid on the account are taxable, most likely at a preferred tax rate. The adult custodian is responsible for the account until the minor reaches the age of majority. Any withdrawals from the account are payable to the custodian on the minor's behalf until that time.
Parental control is lost at the age of majority.
Hopefully, by the time a child reaches 18, the principles of investing are so ingrained that he or she would be reluctant to squander funds that took so long to accumulate. Nevertheless, it is important to understand the pluses and minuses of UGMAs before registering the shares in that form. Many companies which may be familiar to youngsters offer DRIPs. The following table highlights a number of quality companies offering DRIPs which should be appealing to a child or grandchild. This aspect of DRIP investing for children is especially important.