A UTMA account is a bank or investment account held in a child's name, managed by an adult until the child reaches a set age
UTMA stands for Uniform Transfers to Minors Act. It is a legal framework that lets you open an account, invest money, or hold property in a child's name without creating a formal trust. An adult — usually a parent, grandparent, or other relative — acts as the custodian, meaning they control the account and make decisions about the money until the child reaches the age of majority (typically 18 or 21, depending on your state and what type of asset is in the account).
The money in the account belongs to the child from day one, not to the custodian. The custodian's job is to manage it for the child's benefit — paying for education, medical care, living expenses, or other needs — and then hand it over when the child comes of age. Unlike a regular savings account in the parent's name, a UTMA account has tax and legal consequences you need to understand before opening one.
Key Takeaways
- A UTMA account is opened in the child's name with an adult custodian managing it, and the money legally belongs to the child, not the custodian.
- The custodian must turn over the full account balance to the child when they reach the age of majority, which is 18 or 21 depending on your state and asset type.
- Income earned in a UTMA account may be taxed at the child's rate rather than the parent's rate, which can save money if the child has little other income.
- Money in a UTMA account counts as the child's asset when applying for financial aid, which can reduce the amount of aid they receive.
- Once you transfer money into a UTMA account, you cannot take it back — the transfer is permanent and irrevocable.
How a UTMA account differs from a regular savings account
A regular savings account in your name is yours to control and spend however you want. A UTMA account is different: the money is legally the child's property, even though you manage it. This distinction matters for taxes, financial aid, and what happens if you change your mind.
In a regular account, you can withdraw money for any reason. In a UTMA account, the custodian can only spend the money for the child's benefit — education, medical care, food, housing, or other needs. Spending it on yourself or on something unrelated to the child's welfare is a breach of your duty as custodian. Once the child reaches the age of majority, they own the account outright and can spend it however they choose, even if you disagree with how they use it.
When the child takes control and what age that is
The age at which the child takes control of a UTMA account depends on your state and the type of asset. For most bank accounts and investments, the age of majority is 18 or 21. Some states let you choose which age when you open the account; others set it by law. A few states allow you to delay transfer until age 25 if the account holds certain types of investments, but this is rare and requires specific language in the account setup.
Once the child reaches that age, the custodian has no more authority. The child becomes the sole owner and can withdraw the entire balance, close the account, or do whatever they want with the money. You cannot extend the custodianship or ask the child to leave the money in place. If you want to give money to an adult child with restrictions on how they use it, a UTMA account is not the right tool — you would need a trust instead.
Tax treatment of income in a UTMA account
Income earned inside a UTMA account — interest, dividends, or capital gains — is taxed at the child's tax rate, not yours. If the child has little or no other income, this can mean a lower tax bill overall. For 2024, a child can earn a certain amount of unearned income (interest and dividends) before owing any federal income tax; the exact threshold changes each year and depends on whether the child is claimed as a dependent on a parent's tax return.
However, there is a catch called the kiddie tax. If the child is under 18 (or under 24 in some cases and still a full-time student), unearned income above a certain threshold is taxed at the parent's rate, not the child's rate. This rule prevents parents from shifting large amounts of investment income to children to avoid taxes. You should consult a tax professional before opening a UTMA account if you plan to deposit a large sum or invest it in a way that generates significant income.
How UTMA accounts affect financial aid
Money in a UTMA account counts as an asset belonging to the child when you fill out the Free Application for Federal Student Aid (FAFSA). The FAFSA uses a formula to calculate how much of the student's assets should go toward college costs. Assets held in the child's name — including UTMA accounts — are assessed at a higher rate than parental assets, meaning they reduce financial aid may be able to access more.
If you are saving for college and think the child will need financial aid, a UTMA account may not be the best choice. Money in a parent's name, a 529 college savings plan, or a Coverdell Education Savings Account may have a smaller impact on aid. Talk to a financial advisor or the college's financial aid office before deciding where to hold college savings.
The permanent nature of UTMA transfers
Once you transfer money into a UTMA account, the transfer is permanent and irrevocable. You cannot change your mind and take the money back. This is different from a gift you might give to an adult, which you could theoretically ask for back. A UTMA transfer is a legal gift to the child, and the law protects it.
This means you should only deposit money you are truly willing to give away. If you think you might need the money for yourself later, or if you are unsure whether the child will use it wisely, a UTMA account is not the right choice. Consider keeping money in your own name and updating your will to leave it to the child instead, or explore other options like a revocable trust that gives you more control.
Who can be a custodian and how to open a UTMA account
A custodian can be a parent, grandparent, aunt, uncle, or any adult. Some states allow non-relatives to be custodians as well. The custodian must be at least 18 years old and have a valid Social Security number or tax ID. You do not need to be related to the child, but you do need to be an adult and willing to act in the child's best interest.
To open a UTMA account, contact a bank, credit union, or investment firm and ask to open a custodial account under your state's UTMA law. You will need the child's full name, date of birth, and Social Security number. The bank will set up the account in the child's name with you listed as custodian. You will provide your own identification and sign documents confirming you understand your duties. The process usually takes a few days to a week. Different banks and investment firms may have different minimum deposit amounts or account types, so shop around if you have specific needs.
Frequently Asked Questions
Can I use money from a UTMA account to pay for the child's private school?
Yes. Paying for education is a legitimate use of UTMA funds. However, the money must be spent for the child's benefit, not for your own purposes. Keep records of what you spend and why, in case questions arise later. If the child reaches the age of majority and asks why money is gone, you should be able to explain that it went to their education.
What happens if the custodian dies before the child reaches the age of majority?
The account does not disappear. Your will or the account documents should name a successor custodian — another adult who will take over managing the account. If no successor is named, a court may appoint one. Choose a successor custodian carefully and make sure they understand their responsibilities before you open the account.
Can the child access the money before reaching the age of majority?
Not on their own. The custodian controls the account until the child comes of age. However, the custodian can withdraw money and spend it on the child's needs — medical bills, school supplies, sports equipment, or other expenses. The custodian cannot withdraw money for their own use.
Is a UTMA account the same as a 529 college savings plan?
No. A 529 plan is specifically designed for education savings and has tax advantages for college costs. A UTMA account is more flexible — the money can be used for any purpose the custodian deems in the child's interest, not just education. However, 529 plans have less impact on financial aid than UTMA accounts, so they may be better if college aid is a concern.
Can I open a UTMA account for an adult?
No. UTMA accounts are only for minors. Once someone reaches the age of majority, they are an adult and cannot have a custodian. If you want to give money to an adult with conditions attached, you would need a trust or another legal arrangement.