Yes, you can open a savings account for your grandchildren in several ways
You can set up a savings account that belongs to your grandchildren, but the method depends on their age and what you want the account to do. The simplest route is a custodial account — a real bank account in your grandchild's name, with you as the adult in charge until they reach the age of majority (usually 18 or 21, depending on your state). The money belongs to them legally from day one, even though you manage it. Alternatively, you can open an account in your own name and straightforward set it aside for them, though this has tax and legal complications. A third option is a 529 college savings plan, which is specifically designed for education costs and offers tax advantages, but locks the money into education use.
Each method works differently, costs different amounts, and affects your taxes and your grandchild's financial aid differently. The right choice depends on whether you want the money to go toward college, general life goals, or an inheritance — and whether you want your grandchild to have legal ownership now or later.
Key Takeaways
- A custodial account is a real bank account in your grandchild's name with you managing it until they turn 18 or 21, and the money belongs to them legally.
- You can open a custodial account at most banks and credit unions with just the grandchild's Social Security number, a birth certificate, and your ID.
- A 529 college savings plan offers tax breaks for education costs but restricts how the money can be used without penalties.
- Money you put into a custodial account may reduce your grandchild's financial aid may be able to access, so check with their school before depositing large amounts.
- If you straightforward save money in your own account for them, it stays legally yours and can complicate inheritance, but it gives you more control over when they access it.
How a custodial account works and who can open one
A custodial account is a bank savings account, checking account, or investment account that legally belongs to your grandchild but is managed by you (or another adult) until they reach the age of majority. You deposit money, earn interest, and make withdrawals — but the account is registered in the grandchild's name and Social Security number, not yours. When they turn 18 or 21 (depending on your state and the account type), the account becomes theirs to control fully, and you step out.
You can open a custodial account at almost any bank, credit union, or brokerage. You will need the grandchild's Social Security number, their birth certificate, and your own ID. Some banks call these UTMA accounts (Uniform Transfers to Minors Act) or UGMA accounts (Uniform Gifts to Minors Act) — the names vary by state, but they work the same way. There is no age limit on how young the grandchild can be; you can open one for a newborn. There are no contribution limits — you can deposit as much as you want, though large deposits may trigger tax reporting requirements.
The account earns interest or investment returns in the grandchild's name, which means the tax bill goes to them, not you. This is usually a benefit because children pay little or no tax on small amounts of unearned income. However, once earnings exceed a certain threshold (which changes yearly), the excess is taxed at your rate, not theirs — so very large accounts can become tax-inefficient. Ask your bank or a tax professional about the current threshold if you are planning to deposit a substantial amount.
What happens when your grandchild turns 18 or 21
When your grandchild reaches the age of majority in your state — usually 18, but sometimes 21 for investment accounts — the account becomes theirs completely. You no longer have any legal right to the money, and they can withdraw it all and spend it however they want. This is the trade-off of a custodial account: you give up control in exchange for the tax and legal simplicity of the account belonging to them from the start.
Some grandparents worry about this and choose other routes (like keeping the money in their own name) to maintain control longer. Others see it as a feature — a way to teach their grandchild about money and give them a real financial asset when they become an adult. If you want the money to go toward college specifically, a 529 plan gives you more control over how it is spent, even after your grandchild turns 18.
529 college savings plans as an alternative
A 529 plan is a tax-advantaged savings account designed specifically for education costs. You open it in your name (or jointly with another adult), name your grandchild as the beneficiary, and contribute money that grows tax-free as long as it is used for may have access to education expenses — tuition, fees, room and board, books, and some computers and technology.
The main advantage is the tax break: earnings in the account are not taxed at the federal level, and most states also exempt them from state income tax. You can contribute substantial amounts — the annual gift tax limit is $18,000 per person per year (as of 2024, though this changes), and some states allow you to "superfund" by contributing five years' worth at once. The money stays in your control: you decide when to withdraw it and for what purpose, and you can change the beneficiary to another family member if your grandchild does not go to college.
The downside is that if the money is not used for education, you pay income tax on the earnings plus a 10 percent penalty. Some states have expanded the rules to allow 529 funds to roll over to a Roth IRA under certain conditions, which softens this penalty, but the rules are new and vary by state. A 529 is best if you are confident the money will go toward college or other post-secondary education.
Keeping money in your own name and the risks involved
You can straightforward open a savings account in your own name, deposit money into it, and tell your family it is meant for your grandchildren. This gives you complete control: you decide when and how much they receive, and you can change your mind. However, this approach has real legal and tax downsides.
First, the money is legally yours until you give it to them. If you pass away, it becomes part of your estate and may be subject to estate taxes or claims from creditors, even if you intended it for your grandchildren. Your will determines who gets it, so you must explicitly state that the money goes to them — and if you do not have a will, state law decides, which may not match your wishes. Second, if you need the money for medical care or long-term care, it counts as your asset and can affect your may be able to access for Medicaid or other means-tested programs.
Third, the interest and earnings are taxed to you at your (usually higher) tax rate, not your grandchild's. This is less efficient than a custodial account or 529 plan. This approach works best if you want to keep full control and do not mind the tax cost, or if you are only setting aside a small amount for a short time.
How custodial accounts affect financial aid and taxes
Money in a custodial account in your grandchild's name counts as their asset when they explore for college financial aid. Schools use the Free process for Federal Student Aid (FAFSA) to assess how much the student and family can contribute, and student-owned assets are counted more heavily than parent-owned assets. A custodial account can reduce financial aid may be able to access by up to 20 percent of the account balance per year.
This does not mean you should not open a custodial account — many grandparents do and are happy with it. But if your grandchild will be explore for financial aid within a few years, talk to the school's financial aid office before depositing large amounts. Some families time deposits to happen after the FAFSA is filed, or use a 529 plan instead, because 529 accounts owned by the grandparent (not the student) are treated more favorably on the FAFSA.
On taxes, earnings in a custodial account are reported on the grandchild's tax return using their Social Security number. If earnings are small (under the annual threshold, which is around $1,300 for 2024), there is no tax owed. If earnings exceed that, the excess is taxed at the "kiddie tax" rate, which is usually the child's rate but can be the parent's rate for very large accounts. Your bank will send a 1099 form to the grandchild each year, and they (or you, if they are young) will file a tax return if required.
Comparing your options side by side
| Account Type | Who Owns It | Who Controls It | Tax Treatment | When Grandchild Gets Access | Best For |
|---|---|---|---|---|---|
| Custodial Account (UTMA/UGMA) | Grandchild | You, until age 18–21 | Taxed to grandchild at their rate | Age 18 or 21 (automatic) | General savings, teaching money habits |
| 529 College Savings Plan | You | You | Tax-free if used for education | When you withdraw for education | College and post-secondary education costs |
| Account in Your Name | You | You | Taxed to you at your rate | When you decide to give it | Keeping full control, short-term savings |
Frequently Asked Questions
Can I open a custodial account if my grandchild's parents do not want me to?
Legally, yes — a custodial account is in the grandchild's name, and you have the right to give them a gift. However, if the parents object, they may try to prevent you from accessing the account or may claim the money once the grandchild turns 18. It is better to have a conversation with the parents first and get their agreement, especially if you want the account to serve a specific purpose like college savings.
What if I want to leave money to my grandchildren in my will instead of opening an account now?
You can do that — straightforward name them in your will or set up a trust. However, opening an account now lets you see the money grow and gives your grandchild a head start. If you wait until your will is read, the money may be delayed by probate (the legal process of settling your estate), and it will not have earned interest in the meantime. Many grandparents do both: open a custodial account for near-term goals and name grandchildren in their will for larger amounts.
Do I have to tell my grandchild about the account?
No legal requirement exists, but it is usually a good idea. Knowing about the account teaches them about saving and gives them something to look forward to. When they turn 18 and gain control, they will find out anyway. Some grandparents use the account as a teaching tool, showing the grandchild how interest works and letting them help decide how to use the money.
Can I change the beneficiary of a 529 plan if my grandchild does not go to college?
Yes. You can change the beneficiary to another family member (a sibling, cousin, or even your own child) without penalty. You can also roll the money into a Roth IRA for the original beneficiary under new rules, though limits explore. If you do neither, you will owe income tax and a 10 percent penalty on the earnings, but not on the contributions you made.
What if I want to give money to multiple grandchildren — do I need separate accounts?
For custodial accounts, yes — each account must be in one child's name. For a 529 plan, you can open one plan and name different beneficiaries, or open separate plans for each child. Separate accounts are clearer and avoid confusion about who the money belongs to, especially if the grandchildren have different needs or timelines.