What a custodial account is and who can open one

A custodial account is a savings or investment account held in a minor's name but managed by an adult — usually a parent, grandparent, or guardian — until the child reaches the age of majority (18 or 21, depending on your state and the account type). The adult, called the custodian, makes all decisions about deposits, withdrawals, and investments. The money belongs to the child legally, but the custodian controls it.

You can open a custodial account at a bank, credit union, or brokerage firm. The most common types are UGMA accounts (Uniform Gifts to Minors Act) and UTMA accounts (Uniform Transfers to Minors Act). UTMA accounts are available in all 50 states and allow transfers of more types of property — not just money and securities, but also real estate and artwork. UGMA accounts exist in most states but are more limited. Both work the same way from the custodian's perspective: you control the account until the child turns 18 or 21.

Any adult can open a custodial account for a minor, not just parents. Grandparents, aunts, uncles, and other relatives often do this to save for a child's education or future. You do not need to be related to the child, though most financial institutions require proof of a legitimate relationship.

Key Takeaways

  • A custodial account is opened in the child's name but controlled by an adult custodian until the child reaches 18 or 21.
  • You will need the child's Social Security number, proof of your identity, and proof of your relationship to the child to open the account.
  • UTMA accounts are available in all states and allow more types of transfers than UGMA accounts, though both serve the same basic purpose.
  • When the child reaches the age of majority, the account automatically transfers to their control — you cannot prevent this or extend your authority.
  • Money in a custodial account counts as the child's asset on financial aid forms, which may reduce the amount of aid they receive in college.

Documents and information you need to bring

Before you visit a bank or brokerage, gather the child's Social Security number. If the child does not have one, you will need to request it from the Social Security Administration first — this takes about two weeks by mail or can be done in person at a local Social Security office. The financial institution will not open the account without it.

Bring a government-issued photo ID for yourself — a driver's license, passport, or state ID card. The institution needs to verify your identity before allowing you to control an account in someone else's name. Some institutions also ask for a second form of ID, such as a utility bill or bank statement showing your current address.

You will need to prove your relationship to the child. If you are a parent or legal guardian, bring a birth certificate or custody documents. If you are a grandparent or other relative, bring a birth certificate showing the relationship. If you are not related to the child, you may need a letter from a parent or guardian authorizing you to open the account, though policies vary by institution.

Have the child's date of birth and current address ready. Some institutions ask whether the child has a Social Security number already or whether you are requesting one for the first time — this affects how quickly the account can be opened.

Steps to open the account at a bank or brokerage

Contact the bank or brokerage where you want to open the account and ask whether they offer custodial accounts. Not all institutions do, and those that do may have different minimum deposit amounts — some require $25 to start, others $500 or more. Ask about fees: some charge an annual maintenance fee for custodial accounts, while others do not.

Visit the institution in person or apply online, depending on what they offer. If you apply online, you will enter your information and the child's information into their system, upload photos of your ID and the child's birth certificate, and provide the child's Social Security number. The institution will verify your identity and the child's information, which usually takes one to three business days.

If you visit in person, bring all the documents listed above. A representative will fill out the custodial account application with you, verify your identity by scanning your ID, and ask you to sign the paperwork. They will explain the account type (UGMA or UTMA), the age at which the child takes control (usually 18 or 21), and any fees. This process takes 15 to 30 minutes.

Make your initial deposit. Most institutions require a minimum deposit to open the account — this might be $25, $100, or $500 depending on the bank or brokerage. You can deposit by check, transfer from another account, or cash if you are opening in person. The account is then active and ready to use.

Choosing between a bank account and an investment account

A custodial savings account at a bank holds money in a regular savings account or money market account. The money earns interest, but the rate is usually low — often less than 1 percent per year. This option is safest and simplest if you want to save money without risk. The account is insured by the FDIC up to $250,000, so your money is protected if the bank fails.

A custodial investment account at a brokerage holds stocks, bonds, mutual funds, or exchange-traded funds (ETFs). The money can grow faster than in a savings account, but it can also lose value if the investments perform poorly. This option requires more knowledge and active management on your part. You decide what to invest in, and you are responsible for the results.

For long-term savings — such as money for college 10 or more years away — many parents and grandparents choose a custodial investment account because the potential for growth is higher. For money you may need to spend sooner, or if you are uncomfortable with investment risk, a custodial savings account is a better fit.

Some families open both: a savings account for emergency money and an investment account for long-term goals. There is no limit to how many custodial accounts you can open for the same child, though each one requires a separate application.

Tax consequences and financial aid impact

Money in a custodial account belongs to the child for tax purposes. Any interest or investment gains are taxed at the child's tax rate, which is usually lower than yours. However, if the child is under 18 and the account earns more than a certain amount per year (this threshold changes annually), the earnings above that amount are taxed at the parent's rate — a rule called the kiddie tax. For 2024, the threshold is around $1,300, but check the IRS website for the current year's amount.

The financial institution will send you a 1099 form each year if the account earns interest or investment income. You will report this on the child's tax return if they file one, or on your return if you claim them as a dependent.

Custodial accounts count as the child's asset on the Free Application for Federal Student Aid (FAFSA), the form used to determine college financial aid. Assets in the child's name reduce the amount of aid they may receive — the formula assumes the child will contribute a larger percentage of their assets to college costs than parents will. If you are saving for college, this is an important trade-off to understand. Some families use 529 college savings plans instead, which have different tax and financial aid treatment.

What happens when the child turns 18 or 21

When the child reaches the age of majority — 18 in most states, 21 in a few — the custodial account automatically converts to a regular account in their name. You lose all authority to manage it. The child can then withdraw the money, change investments, or close the account without your permission.

This transfer is automatic; you do not need to do anything. The financial institution will notify you and the child when it is about to happen, usually a few weeks before the birthday. Some institutions allow you to request an extension of your authority if the child is not ready to manage money, but this requires the child's consent and is not may provide.

If you are concerned about the child's readiness to manage a large sum, you have options before opening the account. Some parents and grandparents choose a 529 college savings plan instead, which keeps the money in the account longer and restricts how it can be spent. Others open the custodial account but deposit money gradually rather than all at once, so the child is not faced with a large lump sum at 18.

Frequently Asked Questions

Can I open a custodial account online, or do I have to go to a bank in person?

Many banks and brokerages allow you to open a custodial account online. You will upload photos of your ID and the child's birth certificate, enter information about both of you, and provide the child's Social Security number. The process usually takes one to three business days. Some institutions still require an in-person visit, so ask before you start.

What is the difference between a UGMA and UTMA account?

UTMA accounts are available in all 50 states and allow you to transfer more types of property — money, securities, real estate, artwork, and more. UGMA accounts are more limited and exist in most but not all states. For most people saving money or investing in stocks and funds, the difference does not matter. UTMA is slightly more flexible if you think you might transfer property other than cash or securities.

Can I withdraw money from the account for my own use?

No. The money in a custodial account belongs to the child, not to you. You can withdraw it only for expenses that directly benefit the child — education, medical care, housing, and similar costs. Withdrawing money for your own use is illegal and can result in tax penalties and legal consequences. If you need to save money for yourself, open a separate account in your own name.

Does opening a custodial account affect the child's credit score?

No. A custodial account is not a loan or credit product, so it does not appear on a credit report and does not affect credit score. The child's credit history begins when they open their first credit card or take out their first loan, usually as a teenager or young adult.

Can I change who the custodian is if I need to step down?

This depends on the financial institution and the account type. Some allow you to name a successor custodian before you open the account, so if something happens to you, another adult automatically takes over. Others require the child's consent to change custodians, or require a court order. Ask the institution about this before you open the account if you think you might need to transfer control to someone else.