A UTMA account is a custodial bank or investment account held in a child's name, managed by an adult until the child reaches the age of majority

UTMA stands for Uniform Transfers to Minors Act. It is a legal framework that lets you put money, stocks, bonds, or other assets into an account registered to your child, with you (or another adult) acting as custodian. You control the account and make all decisions about how the money is invested or spent until your child turns 18, 21, or 25—depending on your state and what you choose when you open it.

The account belongs to your child from day one, not to you. That matters for taxes and for what happens if you die. When your child reaches the age you set, they take full control of whatever is in the account. You cannot take the money back or redirect it to yourself.

UTMA accounts are different from trusts, 529 college savings plans, and custodial savings accounts. They are simpler to open and cheaper to maintain, but they come with fewer restrictions on how your child can use the money once they take control.

Key Takeaways

  • A UTMA account is registered in your child's name with you as custodian, and the money belongs to your child from the moment you deposit it.
  • You decide when your child takes control—usually at 18, 21, or 25—and that age varies by state and account type.
  • Your child pays income tax on earnings in the account each year, though the first $1,300 or so of earnings per year is typically taxed at their rate, not yours (rates vary by year and tax law).
  • Once your child takes control, they can spend the money on anything—college, a car, travel—with no restrictions.
  • If you die, the account passes directly to your child and does not go through your will or probate.

How a UTMA account differs from other ways to save for a child

A 529 college savings plan is restricted to education expenses. Money in a 529 grows tax-free if used for tuition, room and board, books, or approved education costs. If your child does not go to college or uses the money for something else, you pay taxes and a penalty on the earnings. A UTMA has no such restriction—your child can use it for anything.

A trust gives you much more control. You can write rules into a trust that say the money can only be spent on education, or that your child does not get it all at once but receives it in chunks at ages 25, 30, and 35. A UTMA has no such options. Once your child reaches the age of majority, the money is theirs to do with as they wish.

A regular savings account in your name is simpler to open but creates tax and legal problems. Money you earn in that account is taxed to you, not your child. If you die, the account is part of your estate and may go through probate instead of passing directly to your child. A UTMA avoids both of these issues.

Who can open a UTMA account and what you need

You can open a UTMA account at most banks, credit unions, and investment firms. You will need your child's Social Security number, your own identification, and proof of your relationship to the child (usually a birth certificate). Some institutions require a minimum deposit, often $25 to $100, though some have no minimum.

You do not have to be the child's parent. Grandparents, aunts, uncles, and other adults can open a UTMA account for a child. Only one custodian can be named on the account at a time, though you can name a successor custodian who takes over if you die or become unable to manage the account.

UTMA rules vary slightly by state. Most states allow you to choose whether your child takes control at 18, 21, or 25. Some states set a single age. Before you open an account, check your state's rules or ask the bank what ages are available.

How taxes work on a UTMA account

The account is in your child's name, so your child pays the income tax on any earnings—interest, dividends, or capital gains. This is usually better than you paying the tax, because your child's tax rate is lower than yours.

For 2024, the first roughly $1,300 of earnings in a UTMA account is taxed at your child's rate (usually 0% if they have no other income). Earnings above that are taxed at your rate until your child turns 24 (this rule, called the "kiddie tax," varies by year). Once your child is 24 or older, all earnings are taxed at their rate. These dollar amounts change each year with inflation.

You do not file a separate tax return for the UTMA account. Your child's earnings are reported on their own tax return, or on your return if they are too young to file. The bank will send a 1099 form showing the earnings.

What happens when your child takes control

On the date your child reaches the age you set—18, 21, or 25—the account is transferred into their name alone. You no longer have any legal right to the money. Your child can then withdraw it, spend it, invest it, or leave it where it is.

There is no approval process or waiting period. The transfer happens automatically based on the age you chose when you opened the account. If you want your child to have the money but worry they will spend it unwisely, a UTMA is not the right tool. A trust with restrictions, or a 529 plan, would give you more control.

If you die before your child reaches the age of majority, the account passes to the successor custodian you named (or to your child's other parent, depending on your state's rules). The account does not go through probate.

Contribution limits and what you can put in a UTMA account

There is no annual limit on how much you can contribute to a UTMA account. You can deposit $100 or $100,000 in a single year. However, large gifts may trigger federal gift tax rules. For 2024, you can give up to $18,000 per person per year without filing a gift tax return (this amount changes yearly). Gifts above that do not necessarily mean you owe tax, but you must report them.

You can fund a UTMA with cash, stocks, bonds, mutual funds, real estate, or life insurance proceeds. Not all institutions accept all types of assets. A bank UTMA account typically holds only cash and CDs. An investment firm UTMA account can hold stocks and mutual funds. Ask your institution what assets they accept.

Risks and drawbacks of a UTMA account

The biggest drawback is loss of control. Once your child reaches the age of majority, the money is theirs. If you give a 16-year-old $50,000 in a UTMA and set the age of majority at 18, they will have full access to that money at 18 with no restrictions. You cannot tell them how to spend it or take it back.

A UTMA can also affect your child's financial aid for college. Money in a UTMA is counted as your child's asset, which reduces the amount of need-based aid they may receive. A 529 plan, by contrast, is counted as a parent asset and has less impact on aid may be able to access.

If you are the custodian and you die, the account passes to your named successor or to your child's other parent. If no successor is named and you have no co-parent, the account may end up in probate or require court involvement to transfer it.

Frequently Asked Questions

Can I take money out of my child's UTMA account for my own use?

Legally, no. The money in the account belongs to your child, not to you. You can spend UTMA money only on things that benefit your child—education, medical care, housing, food. Spending it on yourself is a breach of your duty as custodian and can have legal consequences. If you need money, do not use a UTMA account.

What happens if I die before my child turns 18?

The account passes to the successor custodian you named when you opened it. If you named no successor, your state's law determines who takes over—usually the child's other parent, or a court-appointed guardian. The account does not go through your will or probate.

Does a UTMA account hurt my child's chances of getting college financial aid?

Yes, it can. Money in a UTMA is counted as your child's asset on the FAFSA, which reduces need-based aid. A 529 plan is counted as a parent asset and has less impact. If college aid is your main goal, a 529 may be better than a UTMA.

Can I change my mind and move the money to a different account?

You can move the money to another UTMA account at a different institution, but you cannot move it to a regular account in your name or into a trust. Once money is in a UTMA, it must stay in a UTMA until your child takes control.

What if my child is irresponsible with money once they take control?

Once your child reaches the age of majority, you have no legal say in how they spend the money. If you are concerned about this, consider a trust instead of a UTMA. A trust lets you set rules about when and how your child receives the money, even after they turn 18.