A UTMA account is a way to hold money and investments in a child's name while an adult manages it until the child reaches adulthood

UTMA stands for Uniform Transfers to Minors Act. It is a legal structure that lets you put money, stocks, bonds, real estate, or other property into an account owned by a minor. You (or another adult) act as the custodian—you control the account and make decisions about how the money is invested and spent—but the money legally belongs to the child. When the child reaches a certain age (usually 18 to 21, depending on your state), the account transfers to them and they take full control.

The main reason people open UTMA accounts is to set aside money for a child's future while getting some tax advantages. The first portion of the child's investment income each year is taxed at the child's rate (usually lower than the parent's rate) rather than the parent's rate. UTMA accounts are also simpler to set up and manage than trusts, and they work with most types of assets.

Key Takeaways

  • A UTMA account is owned by the child but controlled by an adult custodian until the child reaches the age of majority in your state, typically 18 to 21.
  • Investment income in the account is taxed at the child's rate for the first portion each year, which is often lower than the parent's tax rate.
  • The account can hold cash, stocks, bonds, mutual funds, real estate, and other property—not just savings.
  • Once the child reaches the age set by your state law, they gain full control of the account and the custodian's role ends.
  • Money in a UTMA account counts as the child's asset when determining financial aid for college, which may reduce the amount of aid they receive.

How a UTMA account works in practice

You open the account at a bank, brokerage, or investment firm in the child's name, with yourself listed as custodian. The account number and tax ID belong to the child, not you. You deposit money or transfer assets into it. As custodian, you decide how to invest the money—whether to keep it in savings, buy stocks, purchase mutual funds, or hold other property. You can also withdraw money from the account, but only for the child's benefit (education, medical care, living expenses, and so on).

The child does not have to do anything while the account is open. They do not sign documents or make investment choices. The custodian handles all of that. The child straightforward receives statements showing what is in the account and how much it has grown.

When the child reaches the age of majority in your state—18 in most states, 21 in a few—the account automatically transfers to them. They become the owner and can withdraw the money, spend it, or invest it however they choose. Your role as custodian ends. You have no say in what they do with it after that point.

UTMA accounts versus UGMA accounts and 529 plans

A UGMA account (Uniform Gifts to Minors Act) is an older version of the same idea. UGMA accounts can only hold cash, stocks, bonds, and mutual funds. UTMA accounts can hold those things plus real estate, artwork, patents, and other property. Both work the same way—an adult manages the account until the child reaches adulthood—but UTMA is more flexible. If you are opening a new account, UTMA is the standard choice.

A 529 plan is different. It is designed specifically for education savings and offers tax breaks on investment growth if the money is used for college or other may have access to education costs. If you withdraw money for non-education purposes, you pay taxes and a penalty on the earnings. A UTMA account has no such restrictions—you can use the money for anything that benefits the child, and there is no penalty for non-education withdrawals. The trade-off is that 529 plans often have better tax advantages if education is your goal.

Tax treatment of UTMA accounts

Income earned in a UTMA account is taxed at the child's tax rate, not the parent's. For 2024, the first $1,450 of investment income (interest, dividends, capital gains) is tax-free for a dependent child. The next $1,450 is taxed at the child's rate, which is usually 10 percent or lower. Income above that is taxed at the parent's rate under the "kiddie tax" rule. This structure can save money if the parent is in a higher tax bracket, but the benefit shrinks as the child's income grows.

The account itself is reported on the child's tax return, not the parent's. If the child has no other income and the account earns less than $1,450 in a year, no tax return is needed. If the account earns more, the child (or the parent on the child's behalf) must file a return.

How UTMA accounts affect financial aid

Money in a UTMA account is counted as an asset belonging to the child when you fill out the FAFSA (Free process for Federal Student Aid) for college. The formula assumes the child will contribute a larger percentage of their assets toward education costs than the parent will contribute from their assets. This means a UTMA account can reduce the amount of need-based financial aid the child receives.

If you are planning to pay for college with financial aid, a UTMA account may not be the best choice. A 529 plan, which is treated more favorably on the FAFSA, or a trust in the parent's name might reduce the impact on aid may be able to access. Talk to a financial planner or tax professional if education funding is a major goal.

When the child turns 18 or 21

The exact age at which the account transfers to the child depends on your state. Most states use 18; some use 21. You choose which age applies when you open the account, and that choice is locked in. Once the child reaches that age, the account is theirs. You cannot stop them from withdrawing the money, and you have no legal authority over it anymore.

This is one reason some parents hesitate to open UTMA accounts. If your child turns 18 and when ready wants to withdraw $50,000 to buy a car or travel, they can do it. You have no say. If you want more control over when and how the money is used, a trust (which you set up with a lawyer) gives you more options, though it is more expensive and complex to establish.

How to open a UTMA account

You can open a UTMA account at most banks, credit unions, and brokerages. Call or visit their website and ask for a custodial account under the Uniform Transfers to Minors Act. You will need the child's Social Security number, your own identification, and proof of your relationship to the child (birth certificate or adoption papers). Some institutions have minimum deposit requirements; others do not.

You do not need a lawyer or any special paperwork beyond what the financial institution provides. The account agreement itself serves as the legal document. Once the account is open, you can deposit money, make transfers, and manage investments the same way you would with any other account you own.

Frequently Asked Questions

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

No. Once money is transferred into a UTMA account, it legally belongs to the child. You cannot withdraw it for your own use. You can only withdraw it for expenses that directly benefit the child—school tuition, medical bills, living costs. If you withdraw money for your own purposes, you may face tax penalties and legal liability.

What happens if the child dies before reaching adulthood?

The money in the account becomes part of the child's estate and is distributed according to your will or your state's inheritance laws. If you have not written a will, the money goes to your next of kin as determined by state law. This is one reason to think carefully about how much to put into a UTMA account—consider what would happen to that money if something happened to the child.

Can I have more than one custodian on a UTMA account?

Most institutions allow only one custodian per account. If you want multiple adults to have authority, you would need to set up a trust instead, which is more formal and costly. Some parents open separate UTMA accounts with different custodians to spread responsibility, but each account is independent.

Does the child know about the UTMA account?

That is up to you. There is no legal requirement to tell the child about it. Some parents tell their children early so they understand the money is being saved for them. Others wait until the child is older or until the account transfers to them. The child will find out eventually when they reach the age of majority and the account becomes theirs.

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

Not directly. The money in a UTMA account belongs to the child, so transferring it would be a taxable event. However, you can withdraw money from the UTMA account (for the child's benefit) and then deposit it into a 529 plan in the child's name. This works, but it triggers taxes on any gains in the UTMA account at the time of withdrawal. Consult a tax professional before doing this.