Custodial accounts named for the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA) let investors take advantage of the lower tax rate for children while saving for education.

Anyone can contribute up to $15,000 per child each year free of gift tax consequences ($30,000 for married couples). This amount is indexed for inflation and may increase over time. Because contributions are made with after-tax dollars, a deduction cannot be made.