A UTMA account is a way for adults to hold money and investments for a child until the child reaches a certain age
UTMA stands for Uniform Transfers to Minors Act. It is a legal structure that lets a parent, grandparent, or other adult put money, stocks, bonds, or other property into an account that belongs to the child — but the adult controls it until the child turns 18 or 21, depending on your state.
The money is legally the child's from the moment it goes in. The adult (called the custodian) manages it, makes investment decisions, and decides when to spend it — but they cannot take it back or use it for themselves. When the child reaches the age of majority in your state, the account transfers to them completely, and they can do whatever they want with it.
UTMA accounts are different from a straightforward savings account in your child's name. In a regular account, you as the parent own the money. In a UTMA, the child owns it from day one, even though you control how it is used.
Key Takeaways
- A UTMA account holds money or investments that legally belong to your child, but you control it until they reach 18 or 21 depending on your state.
- You can put in money, stocks, real estate, or other property, and the child's name goes on the account as the owner.
- When the child reaches the age set by your state law, the account becomes theirs to control completely.
- UTMA accounts have tax consequences — money the child earns in the account may be taxed at the child's rate rather than yours, which can save money in some cases.
- Once money goes into a UTMA, you cannot take it back or use it for yourself, even if your situation changes.
How money gets into a UTMA account
You open a UTMA account at a bank, credit union, or brokerage firm. You will need the child's Social Security number and your own identification. The account is registered in the child's name, with you listed as the custodian.
You can then deposit money, transfer stocks or bonds, or even transfer real estate into the account. There is no legal limit on how much you can put in, though there are tax rules about how much you can give away each year without filing extra paperwork with the IRS. That limit changes each year — check with a tax professional or the IRS website for the current amount.
Money can come from you, grandparents, other relatives, or anyone else who wants to give the child a gift. Some UTMA accounts are also funded through inheritance — if a relative leaves money to a child in their will, it can go into a UTMA to be managed until the child is old enough.
What the custodian can and cannot do
As the custodian, you can spend the money on the child's needs: education, medical care, housing, food, and other reasonable expenses. You can also invest the money to make it grow — buy stocks, bonds, mutual funds, or other investments in the child's name.
What you cannot do is take the money back, spend it on yourself, or use it to pay for things that are your legal responsibility as a parent. For example, you cannot use UTMA money to pay your own rent or credit card bill. You also cannot move the money to your own account or borrow from it.
If you need to spend UTMA money on the child's care, you should keep records showing what it was used for. This protects you if questions come up later.
Tax treatment of UTMA accounts
Money in a UTMA account is taxed based on who earned it. If you deposit your own money, there is no tax on the deposit itself. If the money grows — through interest, dividends, or investment gains — that growth is taxed at the child's tax rate, not yours.
This can be a real advantage. A child with little or no income pays tax at a lower rate than most adults. So if you invest money in a UTMA and it earns interest or gains, the tax bill is smaller than it would be in your own account.
However, there is a limit. The IRS allows a certain amount of a child's unearned income (interest, dividends, capital gains) to be taxed at the child's rate each year. Above that amount, it gets taxed at the parent's rate. The threshold changes each year. A tax professional can help you understand how this works for your situation.
What happens when the child turns 18 or 21
The age when the child takes control of the account depends on your state and the type of account. Most states use 18 for UTMA accounts, though some use 21. A few states let you choose between the two when you open the account.
When that birthday arrives, the account becomes the child's property completely. You have no more control over it. The child can withdraw all the money, close the account, or keep it open and manage it themselves. You cannot stop them, even if you think they will spend it unwisely.
This is an important reason to think carefully before opening a UTMA. Once the child reaches the age of majority, the money is theirs to use however they want — for college, a car, travel, or anything else.
UTMA versus other ways to save for a child
A 529 plan is another common way to save for a child's education. Money in a 529 grows tax-free if used for school expenses, but it must be used for education or the earnings get taxed and penalized. A UTMA has no such restriction — the money can be used for anything once the child takes control.
A regular savings account in the child's name gives you less control but also less legal responsibility. A UTMA gives you more control but also more legal obligation to use the money only for the child's benefit.
A trust is another option that gives you more control over when and how the child gets the money — you can set it up so the money does not transfer until age 25 or 30, or until certain conditions are met. Trusts are more expensive to set up and maintain than UTMA accounts.
Potential drawbacks of UTMA accounts
Once money goes into a UTMA, you cannot get it back. If your financial situation changes and you need the money for yourself, you are out of luck. The money belongs to the child, not to you.
UTMA accounts can also affect the child's financial aid for college. Schools consider assets in the child's name when calculating how much aid the student should receive. Money in a UTMA may reduce the amount of grants or scholarships the child is offered.
Finally, when the child reaches the age of majority, they have complete control. If you were hoping the money would be used for college but the child decides to buy a car instead, there is nothing you can do about it.
Frequently Asked Questions
Can I change my mind and close a UTMA account?
You can close the account, but the money still belongs to the child. You cannot take it back or use it for yourself. The funds would need to go somewhere else that still belongs to the child — another account, an investment, or held in trust. Once a UTMA is opened, the gift is permanent.
What happens to a UTMA if the custodian dies?
The account does not disappear. A successor custodian (usually named when the account was opened) takes over managing it until the child reaches the age of majority. If no successor was named, the court may appoint one. The money stays in the account and continues to belong to the child.
Can a child have more than one UTMA account?
Yes. A child can have multiple UTMA accounts from different people — one from each parent, one from a grandparent, one from an aunt. Each account is separate, but they all transfer to the child at the same age of majority set by your state.
Does a UTMA account affect Social Security or other benefits?
It can. If a child receives means-tested benefits like SSI (Supplemental Security Income) or Medicaid, money in a UTMA counts as the child's asset and may reduce or eliminate those benefits. Talk to a benefits counselor before opening a UTMA if the child receives government support.
What is the difference between a UTMA and a UGMA?
UGMA (Uniform Gifts to Minors Act) is an older version of the same idea. UTMA is newer and allows more types of property to be transferred — including real estate and intellectual property. Most states have moved to UTMA, but some still offer both. The rules are similar; UTMA is straightforward more flexible.