Profits made on the liquidation of investments in a child’s UGMA or UTMA account are generally reported on the child’s tax return, but some or all might be included on the parent’s tax return, at the parent’s tax rate, depending on how the family files its federal taxes.
On the other hand, UTMA account will be terminated when the minor attains age 18 and all will be transferred to the regular account.
Someone who has contributed to a Section 529 account can access the money at any time for any reason.
The contributor does not have to worry about explaining it to anyone, and the expense does not have to be for the benefit of the child.
The noncollege withdrawal rules on the Coverdell ESA fall somewhere between the Section 529 Plan rules and the UGMA/UTMA rules.
The money invested is considered a gift to the child, but it can be rolled over to another beneficiary if the first doesn’t have qualifying education expenses by age 30.