Yes, you can open a bank account for your grandchild, but the rules depend on their age and your relationship to them

If your grandchild is under 18, you can open a custodial account (also called a minor account or UTMA/UGMA account, depending on your state) in their name with you as the custodian. You control the account until they reach the age of majority—usually 18 or 21, depending on your state and the account type. If your grandchild is 18 or older, they can open their own account without you, though some banks allow you to be a co-owner if both of you are present.

The main difference between account types matters for taxes and control. A custodial account belongs legally to your grandchild from day one, but you manage it. A joint account belongs to both of you equally, and either person can withdraw all the money. A savings account opened by the grandchild alone (if they are old enough) gives them full control immediately. Each has different rules about who can withdraw money, how the account transfers when you die, and how it affects financial aid if your grandchild goes to college.

Key Takeaways

  • Custodial accounts let you open and manage an account for a grandchild under 18, and the account transfers to them automatically when they reach the age of majority in your state.
  • You will need the grandchild's Social Security number, a birth certificate or ID, and proof of your own identity and address to open any account.
  • Custodial accounts count as the grandchild's asset for college financial aid purposes, which can reduce the amount of aid they receive.
  • Joint accounts give both owners equal access to all the money, so your grandchild can withdraw everything without your permission once they are added.
  • The account transfers differently depending on type: custodial accounts go to the grandchild automatically, but joint accounts may go to the surviving owner or into your estate.

Custodial accounts: how they work and when they end

A custodial account is opened in your grandchild's name with you listed as custodian. You deposit money, manage investments if it is a brokerage account, and make decisions about the account. Your grandchild's Social Security number is used, not yours. The money belongs to them legally from the moment you open it, even though you control it.

When your grandchild reaches the age of majority—18 in most states, 21 in a few—the account automatically transfers to them. You lose all control at that point. They can withdraw everything, close the account, or change how it is invested. There is no way to extend your control past that age, and you cannot set conditions like "only if they go to college." If you want that kind of control, you need a trust, which is a different legal document and requires a lawyer.

Custodial accounts come in two types: UTMA (Uniform Transfers to Minors Act) and UGMA (Uniform Gifts to Minors Act). UTMA is newer and available in all 50 states; UGMA is older and not available everywhere. Most banks and brokerages now use UTMA. The difference matters mainly for what kinds of assets can go in the account—UTMA allows real estate and intellectual property, UGMA does not—but for a simple savings account, either works the same way.

What documents you need to open the account

To open a custodial account, bring the grandchild's Social Security number and a copy of their birth certificate or state ID. You will also need your own government-issued ID (driver's license or passport) and proof of your current address (a recent utility bill, lease, or bank statement). Some banks also ask for the grandchild's address, which is usually the same as yours if they live with you.

If the grandchild does not have a Social Security number yet, you can apply for one at your local Social Security office or online at ssa.gov. The process takes about two weeks. Some banks will let you open the account and add the number later, but most require it upfront.

If you are opening the account in person, bring originals or certified copies. If you are opening it online or by mail, the bank will tell you which documents they accept as scans or photos. Do not send originals through the mail; banks do not need them and they can get lost.

How custodial accounts affect college financial aid

Money in a custodial account counts as the grandchild's asset when they or their parents fill out the FAFSA (Free Application for Federal Student Aid). The formula assumes the student will contribute a larger percentage of their own assets to college costs than their parents will. This can reduce the amount of need-based financial aid they receive.

The impact varies depending on how much is in the account and the grandchild's family income. A $5,000 custodial account might reduce aid by $500 to $1,000 per year; a $50,000 account could reduce it by much more. If college financial aid is a concern and you have a large amount to save, talk to a financial advisor or tax professional about whether a custodial account or a different savings method makes sense for your situation.

The account does not affect aid if the grandchild is not going to college, and it does not affect other types of aid like merit scholarships or grants that are not based on financial need.

Joint accounts versus custodial accounts

A joint account is simpler to open: you and your grandchild both own it equally, and either of you can withdraw money without permission. You do not need special paperwork or to name yourself as custodian. Once your grandchild is old enough to be added to the account (usually 13 or 14, depending on the bank), you can walk in together and add them.

The downside is loss of control. Once your grandchild is on the account, they can take all the money out. If you are saving for their college fund and they decide to buy a car instead at age 17, there is nothing you can do. A joint account works well for a spending account your grandchild uses regularly, but not for money you want to protect until they are older.

Joint accounts also create complications if you die. The money usually goes to the surviving account owner (your grandchild) automatically, which might be what you want. But if you have other heirs or debts, this can create problems. A custodial account, by contrast, goes to the grandchild as part of your estate and may be subject to your will or state law.

Tax consequences of custodial accounts

Income earned in a custodial account—interest, dividends, or capital gains—is taxed to your grandchild, not to you. This is usually a benefit because your grandchild likely has little or no other income and may owe no tax at all. For 2024, the first $1,450 of unearned income (interest and dividends) is tax-free for a dependent; income above that is taxed at the child's rate, which is usually lower than yours.

You do not report the account on your tax return. Your grandchild (or their parent, if they are very young) reports it on theirs. If the account earns more than $1,450 in a year, you may need to file a tax return for your grandchild even if they have no other income. A tax professional can tell you whether a return is required in your specific situation.

If you contribute money to the account, that is not a taxable gift to you or your grandchild. However, there are annual gift tax limits—currently $18,000 per person per year—if you are giving very large amounts. Most grandparents never hit this limit, but if you are transferring a house or a large investment account, talk to a tax professional first.

What happens when your grandchild turns 18 or 21

The account automatically transfers to your grandchild on the date they reach the age of majority in your state. You receive no notice, and there is nothing you have to do. Your name comes off the account, and your grandchild becomes the sole owner. They can then withdraw all the money, close the account, or change how it is invested.

Some banks send a letter to the grandchild notifying them of the transfer, but not all do. If you want to make sure your grandchild knows the account exists and how to access it, tell them yourself before they turn 18. If you do not tell them and the account sits dormant, the state may eventually claim it under unclaimed property laws (though the money is still theirs and can be recovered).

If you want your grandchild to have access to the money but with some guidance or restrictions, you cannot use a custodial account. You would need to set up a trust with a lawyer, which costs more but gives you control over when and how the money is used after they turn 18.

Frequently Asked Questions

Can I open a custodial account if my grandchild does not live with me?

Yes. The grandchild's address on the account can be anywhere. You do not have to be their guardian or have custody to open a custodial account. However, you will still need their Social Security number and birth certificate, and you may need to provide documentation that you have permission from their parent or guardian to open the account. Call the bank first to ask what they require.

What if I die before my grandchild turns 18?

The account belongs to your grandchild, not to your estate. It passes directly to them and is not subject to your will or probate. If your grandchild is very young, the court may appoint a guardian to manage the account until they reach the age of majority, or your will can name a successor custodian to take over. Talk to a lawyer about naming a backup custodian if this is a concern.

Can I withdraw money from a custodial account for my own use?

Legally, no. The money belongs to your grandchild, and you are managing it on their behalf. Withdrawing it for yourself is considered a breach of your duty as custodian and can have tax and legal consequences. The only exception is if you use the money to pay for the grandchild's food, housing, or education—expenses you would have to pay anyway. Talk to a tax professional if you are unsure whether a withdrawal is allowed.

Can I change my mind and close a custodial account?

You can close the account, but the money still belongs to your grandchild. You would have to transfer it to another account in their name or give it to their parent to hold. You cannot take the money for yourself or put it in your own account. If you want to move the money to a different bank or investment type, you can do that as custodian.

Do I need a lawyer to open a custodial account?

No. Banks and brokerages handle all the paperwork. You just need to bring the documents and sign the forms. A lawyer is only necessary if you want to set up a trust or name a backup custodian in your will, which gives you more control over how the money is used after your grandchild turns 18.