How do I Transfer UTMA Mutual Funds Into a Roth IRA?

An UTMA account can save on taxes.

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The Uniform Transfers to Minors Act provides a convenient way for parents, relatives and friends to give money to children. The earnings in an UTMA account qualify for some tax breaks. An UTMA account can put money into different kinds of investments, including mutual funds. You can’t directly transfer UTMA mutual funds into a Roth individual retirement account, but you can achieve the same effect through contributions.

UTMA Accounts

You open an UTMA account in the child’s name, listing yourself as the custodian. The child can access UTMA funds once reaching the age of majority as defined by the state, normally either 18 or 21 years old. You fund an UTMA with gifts. As of 2013, the Internal Revenue Service allows annual gifts of up to $14,000 per recipient without triggering gift tax or a reduction in your lifetime gift and estate tax exemption. The first $1,000 of an UTMA account’s annual earnings are tax-free and the IRS taxes the next $1,000 at the child’s rate, which is normally low.

Roth IRA

A Roth IRA accepts after-tax money and allows it to grow tax-free. Withdrawals from a Roth IRA account are tax-free if you follow the rules. As of 2013, you can contribute your entire income or $5,500, whichever is less. If you’re age 50 or older, the limit is $6,500. You can transfer an unlimited amount of assets to a Roth IRA from a qualified account, such as a traditional IRA or employer plan. Any tax-deductible contributions and earnings from the old account create taxable income when you transfer them to a Roth IRA. An UTMA account does not qualify for transfer to a Roth IRA.

Converting an UTMA Account

You may be able to move money from an UTMA account to a Roth IRA by first selling your UTMA mutual fund, withdrawing the proceeds from the account, contributing it to the Roth account, and purchasing shares of a mutual fund. You can only do this to the extent that the child has taxable income. For example, if the child mows lawns, delivers papers, or assembles multi-processor computers for money, the amount earned can be contributed to a Roth IRA up to the annual contribution limits. The Roth contribution can be from any source, including UTMA account withdrawals, as long as the child has sufficient income. Selling the UTMA mutual fund might trigger capital gains taxes.


If the custodian of an UTMA account dies before the child reaches majority age, the account may incur estate tax. You avoid this by moving the funds to a Roth IRA registered in the child’s name. Whereas a child can’t cash out an UTMA until reaching majority age, a child can remove Roth IRA contributions tax-free at any time -- although removing earnings will incur a 10-percent penalty on early withdrawals. A child’s assets, including UTMA and Roth accounts, affect the amount of student financial aid the child will qualify for. Unlike the case for Section 529 education savings plans, distributions from UTMA and Roth accounts can be used for any purpose.