What a CAN bank account is

A CAN account is a bank account held in the name of a child, with an adult (usually a parent or guardian) named as the account holder responsible for managing it. The adult controls the account until the child reaches the age of majority — typically 18 or 21, depending on your state. At that point, the account transfers to the child's sole control, or the child and adult become joint owners.

CAN stands for "Custodial Account for Minors" or sometimes "Custodian Account for Minors." The exact structure and rules depend on which state you live in and which custodial law that state follows — either the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA). Both serve the same basic purpose: they let you set aside money for a child while keeping that money legally separate from your own accounts.

The account itself works like any other bank account. Money goes in, earns interest (usually very little at most banks), and can be withdrawn. The difference is who can withdraw it and when. Until the child reaches the age set by your state's law, only the custodian can access the funds.

Key Takeaways

  • A CAN account is a bank account owned by a child but controlled by an adult custodian until the child reaches the age of majority, which is 18 or 21 depending on your state.
  • The custodian can withdraw money for the child's benefit — education, medical care, living expenses — but the money belongs to the child, not the custodian.
  • When the child reaches the age set by state law, the account automatically transfers to their control; you cannot extend the custodianship or keep control after that date.
  • CAN accounts have tax implications: the child pays tax on earnings above a certain threshold, and the account counts as the child's asset when explore for financial aid.
  • You can name only one custodian per account, and that person must be at least 18 years old and a resident of your state (rules vary by state and bank).

How money moves in and out of a CAN account

Anyone can deposit money into a CAN account — grandparents, aunts, uncles, friends, or the child themselves. There is no limit on how much money can go in or how many people can contribute. The account number and routing number work the same way as any other bank account.

The custodian is the only person who can withdraw money or make transfers out. The bank will not honor a withdrawal request from the child, even if the child is present and has the account number. When the custodian withdraws money, they are legally required to use it for the child's benefit — education, medical care, food, housing, or other direct expenses. Withdrawing money for your own use is a violation of the custodial agreement and can have legal consequences.

Some banks allow the custodian to set up automatic transfers or recurring withdrawals. Others require the custodian to come in person or call to authorize each withdrawal. Check with your bank about what methods they support.

What happens when the child reaches the age of majority

On the date your state sets as the age of majority — usually the child's 18th or 21st birthday — the account automatically transfers to the child's sole control. The custodian's authority ends. You cannot extend it, delay it, or keep control of the money. The child can then withdraw all the money, close the account, or keep it open and manage it themselves.

This is one of the most important things to understand about CAN accounts: the transfer is automatic and mandatory. If you want to keep control of money for a child beyond the age of majority, a CAN account is not the right tool. You would need a trust instead, which requires a lawyer to set up and gives you more control over when and how the money is used.

Some banks send a notice to the custodian a few months before the transfer date, reminding them that the account will change hands. Others do not. It is your responsibility to track the date and prepare for the transition.

Tax treatment of CAN accounts

The child is the owner of the account for tax purposes, even though the custodian controls it. This means the child — not the custodian — pays tax on any interest or earnings the account generates. For 2024, the first $1,450 of unearned income (interest, dividends) is tax-free for a dependent child. Income above that is taxed at the child's rate, which is usually lower than an adult's rate. Above $2,900, the income may be taxed at the parent's rate instead.

The exact thresholds change each year, and they depend on whether the child is claimed as a dependent on a parent's tax return. Check the IRS website or speak with a tax professional for the current year's numbers.

When you file taxes, you will need the account's tax identification number (usually the child's Social Security number) and the amount of interest earned. The bank will send a 1099-INT form if interest exceeds $10 in a year.

CAN accounts and financial aid

Money in a CAN account counts as the child's asset when you complete the Free process for Federal Student Aid (FAFSA) for college. This means it reduces the amount of need-based financial aid the child may receive. The impact is significant: the formula expects the student to contribute a much higher percentage of their assets than parents are expected to contribute from theirs.

If you are planning to pay for college and want to minimize the reduction in financial aid, a CAN account may not be the best choice. A 529 college savings plan, by contrast, is usually treated more favorably on the FAFSA because it is owned by the parent, not the child. Speak with a financial aid advisor before opening a CAN account if college funding is a priority.

Choosing between UTMA and UGMA accounts

Most states allow you to choose between two types of custodial accounts: UTMA (Uniform Transfers to Minors Act) and UGMA (Uniform Gifts to Minors Act). The main difference is what types of assets can be held in the account. UGMA accounts can hold cash, stocks, and bonds. UTMA accounts can hold those things plus real estate, intellectual property, and other types of property.

For a straightforward bank account, the distinction usually does not matter — both allow cash deposits and withdrawals. The age of majority also differs slightly by state and by which law you choose. In some states, UTMA accounts transfer at 21, while UGMA accounts transfer at 18. In others, both transfer at the same age. Ask your bank which option they offer and what the transfer age is in your state.

Once you choose, you cannot change it. The choice is made when you open the account and is locked in for the life of the account.

Who can be a custodian

The custodian must be at least 18 years old and, in most states, a resident of that state. Some banks require the custodian to be a U.S. citizen or have a valid Social Security number. You can name only one custodian per account — there is no joint custodianship option.

The custodian does not have to be a parent. Grandparents, aunts, uncles, or other adults can serve as custodian. However, if the custodian dies before the child reaches the age of majority, the account does not automatically pass to a backup custodian. The account becomes part of the custodian's estate, and a court may need to appoint a new custodian or transfer the funds. To avoid this, some people name a successor custodian in their will, though not all banks recognize this.

If you are considering naming someone other than yourself as custodian, discuss the arrangement with that person first and make sure they understand their legal obligations.

Frequently Asked Questions

Can I withdraw money from my child's CAN account for my own expenses?

No. The money in the account belongs to the child, and you are legally required to use withdrawals only for the child's benefit. Withdrawing money for your own use violates the custodial agreement and can result in legal action or tax penalties. If you need access to your own money, keep it in a separate account.

What happens if the custodian dies before the child turns 18?

The account becomes part of the custodian's estate and may go through probate. A court can appoint a new custodian, or the funds may be transferred to the child's parent or guardian. To prevent confusion, name a successor custodian in your will and inform your bank of this arrangement, though not all banks honor it.

Can I move money from a CAN account to a 529 plan?

Not directly. The money belongs to the child in both cases, so transferring it would require the child's consent once they reach the age of majority. Before that, you would need to withdraw the money from the CAN account and deposit it into a 529 plan in the child's name, which may have tax consequences. Speak with a tax professional before doing this.

Does a CAN account affect Social Security or other government benefits?

Yes, for means-tested benefits like Supplemental Security Income (SSI) or Medicaid. Money in a CAN account counts as the child's resource and can reduce or eliminate their benefit. If the child receives or may receive these benefits, consult with a benefits counselor before opening a CAN account.

Can I name myself as custodian if I live in a different state than the child?

Most banks require the custodian to be a resident of the state where the account is opened. Some banks are stricter than others. Call your bank and ask about their residency requirements before opening an account.