What a UTMA account is

A UTMA account is a bank or investment account opened in a child's name, but controlled by an adult (called a custodian) until the child reaches a set age. UTMA stands for Uniform Transfers to Minors Act, a law that all 50 states have adopted. The account holds money or investments that legally belong to the child, but the custodian—usually a parent, grandparent, or other relative—decides how the money is spent while the child is still a minor.

The key difference between a UTMA account and a regular joint account is that the money is irrevocably the child's property. Once you put money into a UTMA account, you cannot take it back or change your mind. The custodian manages it, but does not own it. When the child reaches the age set by state law (usually 18 to 25, depending on the state), control transfers to the child automatically, and they can do whatever they want with the balance.

UTMA accounts are often used for gifts from grandparents, inheritances, or money parents want to set aside for a child's future. They are also used to hold money earned by child actors or models. Banks offer UTMA accounts alongside regular savings accounts, and investment firms offer them for stocks and mutual funds.

Key Takeaways

  • A UTMA account is opened in a child's name but managed by an adult custodian until the child reaches the age of majority, which varies by state from 18 to 25.
  • Money deposited into a UTMA account is legally the child's property and cannot be withdrawn by the custodian for personal use, though it can be spent on the child's benefit.
  • When the child reaches the age set by state law, the account automatically transfers to their control with no further action required.
  • UTMA accounts are irrevocable—once money goes in, you cannot take it back or change the account terms, even if circumstances change.
  • The account may affect the child's financial aid may be able to access for college, because colleges count student-owned assets more heavily than parent-owned assets.

How the custodian can use the money

The custodian can spend money from a UTMA account on anything that benefits the child. This includes tuition, books, sports equipment, music lessons, medical bills, food, housing, and clothing. The law does not require the custodian to ask the child's permission or keep detailed records of how the money is spent, as long as it goes toward the child's support or education.

What the custodian cannot do is use the money for their own benefit. You cannot withdraw $5,000 to pay your own rent or car payment, even if you are the child's parent. If the IRS or a court later finds that the custodian misused the account, the custodian can be held personally liable. In practice, this is rare, but the legal line is clear: the money is for the child, not for the adult.

Some custodians use UTMA accounts to pay for college, and then the remaining balance transfers to the child when they turn 18 or 21. Others leave the money untouched and let it grow as a gift. There is no requirement to spend it by any important date.

When control transfers to the child

The age at which a child takes control of a UTMA account depends on your state. Most states set the age at 18 or 21. A few states allow the custodian to choose an age between 18 and 25 when the account is opened. Once the child reaches that age, the bank or investment firm automatically transfers the account into the child's sole name, and the custodian has no further authority over it.

This transfer happens without paperwork or court involvement. The bank sends notice to both the custodian and the child (usually around the child's birthday in the year they reach the age of majority), and the account is theirs. If the child is not ready to manage the money, that is their problem now—the law does not allow the custodian to keep control past the age of majority, even if they think the child is irresponsible.

Some custodians try to work around this by moving the money to a different account type before the transfer date, but this is legally complicated and may trigger tax consequences. The cleaner approach is to have a conversation with the child before the transfer date about how to manage the money responsibly.

Tax treatment and reporting

Income earned inside a UTMA account (interest, dividends, capital gains) is taxed to the child, not the custodian. For 2024, the first $1,450 of unearned income is tax-free for a dependent child, and the next $1,450 is taxed at the child's rate (usually lower than the parent's rate). Income above that is taxed at the parent's rate under the "kiddie tax" rule, which applies to children under 18 (or 24 if they are a full-time student with limited income).

The custodian does not report the account on their own tax return. Instead, if the account earns more than $600 in a year, the bank sends a Form 1099 in the child's name and Social Security number. The child (or the parent filing on their behalf) includes this on the child's tax return. This is one reason some parents prefer UTMA accounts to joint accounts—the income is taxed to the child at a lower rate.

When the child turns 18 and takes control of the account, they become responsible for reporting any income it generates. If they do not file a return and owe taxes, that is their responsibility.

UTMA accounts and financial aid

UTMA accounts can reduce the amount of financial aid a child receives for college. The Free process for Federal Student Aid (FAFSA) counts student-owned assets (including UTMA accounts) at a rate of up to 20 percent toward the expected family contribution. This means a $10,000 UTMA account could reduce aid by up to $2,000 per year. Parent-owned assets are counted at a lower rate, usually 5.64 percent.

Some families intentionally spend down UTMA accounts before filing the FAFSA to reduce the impact on aid. Others use UTMA accounts for younger children and regular savings for the oldest child, who will file the FAFSA first. There is no perfect strategy—it depends on whether you expect to need financial aid and how much the child will need the money after college.

If you are planning to use financial aid, talk to a financial aid officer or tax professional before opening a UTMA account. The rules are complex, and the timing of when you fund the account can matter.

UTMA vs. UGMA and other account types

A UGMA account (Uniform Gifts to Minors Act) is an older version of the same concept. UGMA accounts hold only cash, securities, and insurance contracts. UTMA accounts can hold real estate, artwork, patents, and other property. Most states have moved to UTMA, but some still allow UGMA. The rules for control, taxation, and transfer are nearly identical.

A 529 plan is a different tool, designed specifically for education savings. Money in a 529 plan must be used for college, graduate school, or certain K-12 expenses, or the earnings are taxed and penalized. A UTMA account has no restrictions—the money can be used for anything that benefits the child. A 529 plan also counts differently on the FAFSA and may have better tax treatment if you are a high-income parent.

A Coverdell Education Savings Account (ESA) is another education-specific account with similar restrictions and tax benefits to a 529. A regular joint account in the parent's name with the child as an authorized user gives the parent full control and avoids the irrevocability issue, but it does not offer the same tax advantages and may complicate estate planning.

Frequently Asked Questions

Can I change my mind and take the money back out of a UTMA account?

No. Once money is deposited into a UTMA account, it is irrevocably the child's property. You cannot withdraw it for yourself or change the account terms. You can spend it on the child's benefit (tuition, medical care, housing), but you cannot reclaim it as your own money. This is a permanent commitment.

What happens if the child dies before reaching the age of majority?

The money in the UTMA account becomes part of the child's estate and is distributed according to the child's will or, if there is no will, according to state law. It does not automatically go back to the custodian or the person who funded it. If you want the money to go to a specific person in case the child dies, you need to set up a will or trust for the child, not a UTMA account.

Can I open a UTMA account for an adult?

No. UTMA accounts are only for minors. Once someone turns 18 (or the age of majority in your state), they cannot have a new UTMA account opened in their name. If you want to gift money to an adult, you can give it to them directly, set up a trust, or open a regular account in their name.

Does the custodian need to report the account to the IRS?

The custodian does not report the account itself, but the bank reports any income the account generates on a Form 1099 in the child's name. If the account earns more than $600 in interest or dividends in a year, the bank sends this form, and the child's tax return must include it. The custodian should keep records of deposits and withdrawals for their own records.

Can I name someone other than a parent as the custodian?

Yes. A grandparent, aunt, uncle, older sibling, or trusted friend can be the custodian. The custodian does not have to be related to the child. However, if the custodian dies before the child reaches the age of majority, the account may go through probate or be frozen until a court appoints a new custodian, so choose someone reliable and younger than you if possible.