Yes, you can open a savings account for your nephew, but the rules depend on his age and your relationship to him

If your nephew is under 18, you have two main paths: open a custodial account in his name with you as the custodian, or open a joint account where both of you own the money. If he is 18 or older, he can open his own account and you can be added as an authorized user or co-owner if the bank allows it. The account type you choose affects who controls the money, what happens when he turns 18, and how the account is taxed.

Most banks and credit unions offer accounts for minors, but the specific rules, fees, and features vary by institution. Some banks require a parent or legal guardian to open the account; others let any adult with a relationship to the child do it. Before you start, call the bank where you want to open the account and ask what documents you will need and whether they have a specific product for minors.

Key Takeaways

  • A custodial account is held in your nephew's name with you as the custodian, and the money belongs to him from day one, but you control it until he reaches the age of majority (usually 18 or 21).
  • A joint account is owned by both of you, and either of you can withdraw money at any time without the other's permission.
  • If your nephew is 18 or older, he can open his own account, and you can ask to be added as a co-owner or authorized user depending on what the bank offers.
  • You will need your nephew's Social Security number, proof of his identity, and proof of your identity; if he is a minor, you may also need proof of your relationship to him.
  • Custodial accounts have tax consequences: earnings above a certain amount are taxed at your nephew's rate, which is usually lower than yours, but the money is legally his and becomes fully his when he reaches adulthood.

Custodial accounts: the money is his, you control it

A custodial account is opened in your nephew's name with you as the custodian. The money in the account belongs to your nephew, not to you, even though you manage it. This is the most common way relatives open accounts for minors because it is clear that the money is a gift or savings for the child.

You control the account and make all decisions about deposits and withdrawals until your nephew reaches the age of majority. In most states, that age is 18; in a few states it is 21. When he reaches that age, the account becomes fully his, and you lose all control over it. He can withdraw the entire balance if he wants to, and you have no say in how he spends it.

Custodial accounts are governed by either the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA), depending on your state. UTMA accounts are slightly broader and allow you to transfer more types of property, but for a simple savings account, the difference does not matter. Ask the bank which one they use.

Joint accounts: both of you own the money

A joint account is owned by both you and your nephew. Either of you can deposit or withdraw money without asking the other. If your nephew is a minor, you will still need to open the account, but legally you both own what is in it.

Joint accounts are simpler to set up than custodial accounts because there is no special legal framework—the bank just adds both names to the account. However, they create complications. If you die, the money in a joint account typically passes to your nephew automatically, which may or may not be what you want. If your nephew is sued or has debts, creditors may be able to reach the money in the joint account. And if your nephew is a minor and you withdraw money for your own use, you are technically taking his money.

Joint accounts make sense if you want your nephew to have access to the money while he is still a minor, or if you want the money to pass to him automatically if something happens to you. They are less clear about ownership and control than custodial accounts.

What documents and information you will need

To open any account for your nephew, you will need his Social Security number and proof of his identity. Proof of identity for a minor is usually a birth certificate or passport. You will also need your own Social Security number and a government-issued photo ID.

Some banks ask for proof of your relationship to your nephew—a birth certificate showing you are related, or a document showing you are his legal guardian. If you are not his parent or legal guardian, call ahead and ask whether the bank requires this. A few banks will only let a parent or legal guardian open an account for a minor, so it is worth confirming before you go in.

You will also need to choose which type of account you want (savings, money market, or checking), decide on the account type (custodial or joint), and bring a small initial deposit if the bank requires one. Most banks have no minimum deposit for minor accounts, but some do.

Tax consequences of custodial accounts

Money in a custodial account earns interest or dividends. That income is taxed, but usually at your nephew's tax rate, not yours. For 2024, the first $1,450 of unearned income (interest, dividends) is not taxed if your nephew has no other income. Income between $1,450 and $2,900 is taxed at his rate. Income above $2,900 is taxed at your rate (the "kiddie tax").

These thresholds change each year, so check the IRS website or ask a tax professional for the current year's numbers. The key point is that a custodial account is usually more tax-efficient than keeping the money in your own account, because your nephew's tax rate is lower than yours.

You do not have to file a tax return for your nephew unless his income exceeds the threshold. However, if the account earns more than $600 in a year, the bank will send a 1099-INT or 1099-DIV form, and you may need to file a return anyway. Keep records of all deposits and earnings.

What happens when your nephew turns 18

When your nephew reaches the age of majority (18 in most states, 21 in a few), a custodial account becomes his to control. You no longer have any authority over it. He can withdraw all the money, close the account, or leave it open. You cannot stop him, and you have no legal claim to the money.

Some banks automatically convert the account to a regular account in his name when he reaches adulthood. Others send him a notice and ask him to confirm his information. Either way, the transition is usually automatic and does not require you to do anything.

If you are concerned about how your nephew will handle a large sum of money when he turns 18, a custodial account may not be the right choice. You might instead consider a trust, which allows you to set conditions on when and how he can access the money. A trust is more complex and may require a lawyer, but it gives you more control over the long term.

Alternatives if your nephew is already 18

If your nephew is 18 or older, he can open his own savings account. You cannot open an account in his name without his permission, and you cannot be a custodian because he is an adult. However, you can ask the bank whether you can be added as a co-owner or authorized user.

A co-owner has the same rights as your nephew: you can deposit, withdraw, and manage the account. An authorized user can usually only withdraw money and cannot close the account or change its terms. Ask your nephew which role he is comfortable with, and ask the bank what they offer. Not all banks have both options.

If your nephew wants to build credit or does not have a bank account yet, you can also offer to help him open one in his own name and then add yourself as a co-owner if he wants your help managing it.

Frequently Asked Questions

Do I need to be his parent or legal guardian to open a custodial account?

No. Most banks let any adult open a custodial account for a minor, as long as you have the child's Social Security number and proof of identity. However, some banks have their own policies and may require you to be a parent or guardian. Call the bank first to confirm.

What if I want to withdraw money from the account for my own use?

In a custodial account, the money belongs to your nephew, not to you. Withdrawing it for your own use is legally taking his money and can have tax consequences. In a joint account, you both own the money, so you can withdraw it, but this blurs the line between your money and his. If you need to use the money yourself, a custodial account is not the right choice.

Can I change my mind and close the account if my nephew is still a minor?

You can close a custodial account, but the money still belongs to your nephew. You cannot keep it for yourself. The bank will give you the balance, and you are responsible for managing it on his behalf. If you close the account, consider moving the money to a different account in his name or giving it to his parent to hold.

What if my nephew's parents do not want me to open an account for him?

If your nephew is a minor and his parents object, you should respect their wishes. They have legal authority over him, and opening an account without their knowledge or consent can create family conflict and legal complications. Talk to them first and explain why you want to open the account.

Is there a limit to how much money I can put in a custodial account?

There is no legal limit to how much you can deposit into a custodial account. However, there are federal gift tax rules: if you give more than $18,000 per year (in 2024) to one person, you may have to file a gift tax return. These rules are complex, so if you are planning to deposit a large sum, talk to a tax professional first.