I think you should go for your option 2(since you mentioned you have only geographical grids in toposheets). UTM is a projectd coordinates system(2d plane) which comes into effective when geographic coordinate system(3d space) is defined beforehand.
IMHO,Almost all works(e.g. reading from GPS etc) direction is firstly project in geographic then onto projected if needed. So the notion of distortion due to back and forth transformation is not that much of to be considerable.
See features(point) with same Projected Coordinate Systems Reading reside in different Geographic Location
Just to visualize(roughly) above two points on WGS Datum--
N.B. In fact there are same projected coordinate reading for different UTM (geographic) zones. for example if i take toposheets' geographic (as OP says with a geographic grid. ) coordinate system and get projected one for this geographic (say X,Y=1034973.46806954, 2458590.2185667) and georeference against this reading it will not be correct because, for a single projected coordinate system (say my 1034973.46806954, 2458590.2185667) there are different geographic coordinate systems (e.g. UTM Zone 23,24,25,26,27,28 etc) then if you go with projected coordinate system firstly then how it will be correctedly georeferenced (in a shortcut it will give incorrect degrees-minute-second, i mean real USA is in ASIA in map).