What UGMA and UTMA accounts are
A UGMA account (Uniform Gifts to Minors Act) and a UTMA account (Uniform Transfers to Minors Act) are custodial accounts that let an adult hold money, investments, or property in the child's name until they reach the age of majority. The adult — usually a parent, grandparent, or other relative — acts as the custodian and manages the account. The money belongs to the child legally, but the custodian controls it and decides how it is spent until the child turns 18 or 21, depending on your state and which account type you use.
The main difference between them is what can go into the account. UGMA accounts hold cash, stocks, bonds, and mutual funds. UTMA accounts hold those things plus real estate, artwork, patents, and other property. UTMA is the newer law and has replaced UGMA in most states, but some states still allow both. If you are opening a new account, your bank or brokerage will likely offer UTMA.
These accounts are not the same as 529 college savings plans or Coverdell education savings accounts. Those are tax-advantaged accounts designed specifically for education costs. UGMA and UTMA accounts have no restriction on how the money is spent — it can go toward education, but also toward anything else the custodian decides is in the child's best interest.
Key Takeaways
- UGMA and UTMA accounts let an adult hold money or property for a minor, with the child as the legal owner and the adult as the manager.
- UTMA accounts can hold real estate and other property in addition to cash and investments, while UGMA accounts hold only cash and securities.
- The child gains control of the account when they reach the age of majority, which is 18 in most states but can be 21 depending on state law and account type.
- Money in these accounts counts as the child's income for tax purposes, and earnings above a certain threshold are taxed at the child's rate, not the parent's rate.
- Once money is deposited into a UGMA or UTMA account, it cannot be taken back — it belongs to the child, even if the custodian changes their mind.
How UGMA and UTMA accounts work
When you open a UGMA or UTMA account, you name yourself as the custodian and the child as the account owner. You deposit money or transfer property into the account in the child's name. The account has its own tax identification number (the child's Social Security number), and the child receives a statement showing the balance and any earnings.
As custodian, you have full control over the account while the child is a minor. You can buy and sell investments, withdraw money to pay for the child's needs, and reinvest earnings. You cannot use the money for your own benefit — it must be spent on something that benefits the child, such as education, medical care, housing, or other living expenses. Some states allow you to use the money for anything that is "in the best interest" of the child, which gives you more flexibility.
When the child reaches the age of majority (18 or 21, depending on your state and the account type), the account automatically transfers to them. They now have full control and can do whatever they want with the money. You have no say in how they spend it after that point.
Tax treatment of UGMA and UTMA accounts
Money in a UGMA or UTMA account is considered the child's income for tax purposes. If the account earns interest, dividends, or capital gains, those earnings are taxed. The tax rate depends on how much the child earned that year.
For 2024, the first $1,450 of a child's unearned income (such as interest or dividends) is not taxed. The next $1,450 is taxed at the child's rate, which is usually lower than the parent's rate. Earnings above $2,900 are taxed at the parent's rate (called the "kiddie tax"). These thresholds change each year. If the child has earned income from a job, the rules are different — earned income is taxed only at the child's rate, no matter how much it is.
You will receive a Form 1099 or other tax document showing the earnings in the account. You must report this on the child's tax return if they are required to file one. Some families find that opening a UGMA or UTMA account with a low-earning investment (such as a savings account or bond fund) keeps the tax burden small.
When UGMA and UTMA accounts make sense
These accounts work well if you want to save money for a child without the restrictions of a 529 plan. Because there is no limit on how the money can be spent, you can use it for education, a car, a down payment on a house, or anything else. There is also no annual contribution limit — you can deposit as much as you want, though gifts over a certain amount may have gift tax consequences for the giver.
UGMA and UTMA accounts are also straightforward to open and manage. Most banks and brokerages offer them, and the paperwork is simple. You do not need a lawyer or a complex trust document.
However, these accounts have a major drawback: the money counts as the child's asset when they turn 18 or 21, which can reduce their may be able to access for financial aid in college. Schools look at the student's assets first when calculating how much aid they can receive. A large UGMA or UTMA account can significantly lower the amount of aid the student gets. If college financial aid is a concern, a 529 plan or Coverdell account may be a better choice, because those accounts are treated more favorably in the financial aid calculation.
Age of majority and control transfer
The age at which the child takes control of the account varies by state. In most states, it is 18 for UGMA accounts and 21 for UTMA accounts, but some states set both at 18, and a few allow the custodian to choose an age between 18 and 25 when opening the account. Check your state's law before opening the account if the age of transfer matters to you.
Once the child reaches that age, the transfer of control is automatic. You cannot delay it or keep control of the account. The child can then withdraw all the money and spend it however they want. If you are concerned about a young adult making poor financial decisions, a UGMA or UTMA account is not the right tool — a trust with a trustee who has discretion over distributions would be better, but that requires a lawyer to set up.
UGMA and UTMA accounts versus other savings options
Choosing between UGMA, UTMA, and other savings accounts depends on what you plan to use the money for and whether college financial aid matters. The table below shows how these accounts differ in what they hold, when the child gains control, and how they affect financial aid and taxes.
| Account Type | What You Can Hold | Age of Control Transfer | Financial Aid Impact | Tax Treatment |
|---|---|---|---|---|
| UGMA | Cash, stocks, bonds, mutual funds | 18 (most states) | Counts as student asset; reduces aid | Earnings taxed at child's rate above $1,450 |
| UTMA | Cash, securities, real estate, property | 21 (most states) | Counts as student asset; reduces aid | Earnings taxed at child's rate above $1,450 |
| 529 Plan | Investments only | Parent retains control | Treated more favorably; less impact on aid | Earnings tax-free if used for education |
| Coverdell Account | Investments only | Parent retains control | Treated more favorably; less impact on aid | Earnings tax-free if used for education |
| Regular Savings Account | Cash only | Parent retains control | Counts as parent asset (usually) | Interest taxed at parent's rate |
If you want the child to have access to the money for any purpose and do not plan to seek financial aid, UGMA or UTMA works well. If college is the main goal and you want to protect financial aid may be able to access, a 529 plan is usually the better choice. A regular savings account in your name keeps the money under your control but does not give the child any ownership stake.
Irrevocable nature of UGMA and UTMA deposits
Once you deposit money into a UGMA or UTMA account, it belongs to the child. You cannot take it back or change your mind. This is a legal requirement — the account is irrevocable. If you need the money for yourself later, you cannot withdraw it. If you lose your job or face a financial emergency, the account is off-limits.
This also means that if you and the child's other parent separate or divorce, the account cannot be divided as marital property. It belongs to the child, not to either parent. Some custodians do not realize this when they open the account, so it is important to understand the commitment before you deposit money. Think of a UGMA or UTMA deposit as a permanent gift to the child, not as money you are temporarily holding.
Frequently Asked Questions
Can I change who the custodian is?
Yes, you can name a successor custodian in the account paperwork, or you can ask the bank or brokerage to transfer custodianship to someone else. However, the account still belongs to the child — changing the custodian just changes who manages it. The new custodian has the same duties and restrictions as you do.
What happens if the custodian dies?
If you named a successor custodian when you opened the account, that person takes over automatically. If you did not name one, the account may go through probate, or the court may appoint a guardian to manage it. It is a good idea to name a successor custodian when you open the account to avoid this problem.
Can the child refuse to take control of the account at age 18 or 21?
No, the transfer is automatic by law. The child cannot refuse it. However, once they have control, they can choose not to touch the money and let it sit in the account. They can also move it to a different account if they want.
Do I have to report the account to the IRS?
You do not have to report the account itself, but you must report any earnings (interest, dividends, capital gains) on the child's tax return if they are required to file one. The bank or brokerage will send you a Form 1099 or similar document showing the earnings.
Can I use UGMA or UTMA money to pay for private school or tutoring?
Yes, as long as it is for the child's benefit. Most custodians can use the money for education expenses, including private school, tutoring, books, and supplies. However, check your state's law to see if there are any restrictions on what counts as a permissible use of the money.