An UTMA account is a way to hold money or investments in a child's name until they reach adulthood

UTMA stands for Uniform Transfers to Minors Act. It is a legal structure that lets you put money, stocks, bonds, or other property into an account owned by a minor. You (the parent, grandparent, or other adult) control the account and make decisions about the money until the child reaches a certain age — usually 18 or 21, depending on your state. At that age, the child takes full control of the account and the money becomes theirs to use however they want.

The main reason people open UTMA accounts is to save for a child's future while getting some tax advantages. Money in the account grows, and the child pays taxes on that growth at their own (usually lower) tax rate rather than yours. The account is simple to set up — you do not need a lawyer or a trust — and you can put in as much as you want, though there are annual gift tax limits if you are transferring large amounts.

UTMA accounts are different from regular savings accounts in your child's name because they have legal protections and tax treatment built in. They are also different from 529 college savings plans, which are restricted to education expenses. With an UTMA account, once the child reaches the age of majority, they can spend the money on anything.

Key Takeaways

  • An UTMA account holds money or investments in a child's name, with an adult managing it until the child reaches 18 or 21 depending on your state.
  • The child pays taxes on account earnings at their own tax rate, which is usually lower than the parent's rate.
  • Once the child reaches the age of majority, they gain full control of the account and can use the money for any purpose.
  • UTMA accounts are easier to set up than trusts and allow you to transfer property beyond just cash, including stocks and real estate.
  • Money in an UTMA account may affect the child's financial aid may be able to access for college because it counts as the child's asset.

How UTMA accounts differ from other ways to save for a child

A regular savings account in your child's name gives you no legal structure at all. You can close it, move the money, or spend it whenever you want — there is no protection for the child's interest. An UTMA account, by contrast, is legally binding. Once you transfer money into it, it belongs to the child, and you cannot take it back or use it for yourself.

A 529 college savings plan is restricted to education costs. If you withdraw money for something else, you pay taxes and a penalty on the earnings. An UTMA account has no such restriction. When the child turns 18 or 21, they can use the money for college, a car, a house down payment, or anything else.

A trust is more flexible and powerful than an UTMA account, but it costs money to set up and requires ongoing paperwork. An UTMA account is free or nearly free to open at a bank or brokerage and requires almost no maintenance. For most families saving moderate amounts, an UTMA account is simpler.

Who manages the account and when control transfers

You (or whoever opens the account) are the custodian. As custodian, you make all decisions about the money: whether to invest it, which investments to buy, when to sell, and when to withdraw funds for the child's benefit. The child's name is on the account, but they have no say in how it is managed while they are a minor.

The age at which control transfers to the child varies by state. Most states use 18, but some use 21. A few states let you choose between 18 and 21 when you open the account. Check your state's law or ask the bank or brokerage where you open the account — they will tell you the age for your state.

When the child reaches that age, the transfer is automatic and mandatory. You cannot keep control of the money or delay the transfer. The child becomes the owner and can withdraw everything and do whatever they want with it. This is why some parents choose a trust instead — a trust lets you set conditions on when the child can access the money.

Tax treatment and how it affects your taxes

Money in an UTMA account is taxed at the child's tax rate, not yours. This is the main tax advantage. If the child has little or no other income, the first portion of account earnings may not be taxed at all. In 2024, a child can earn up to about $1,500 in unearned income (like interest or dividends) before owing any federal tax. Above that, the child pays tax at their own rate, which is usually much lower than a parent's rate.

There is a catch called the kiddie tax. If the child is under 18 (or under 24 if they are a full-time student with limited income), earnings above a certain threshold are taxed at the parent's rate, not the child's rate. This rule prevents parents from shifting large amounts of income to children to avoid taxes. The threshold changes each year — in 2024 it is around $1,500. Ask a tax professional or check the IRS website for the current year's number.

Putting money into an UTMA account is considered a gift. If you transfer more than the annual gift tax limit (which is $18,000 per person in 2024, but varies by year), you may need to file a gift tax return. However, most families do not hit this limit. The limit resets each year, so you can give $18,000 per year without filing anything extra.

How UTMA accounts affect financial aid and other benefits

An UTMA account counts as the child's asset when calculating financial aid for college. Because of this, it can reduce the amount of aid the child receives. Schools expect students to use their own assets to pay for college before giving out aid. If your child has a large UTMA account, the school may reduce grants or loans accordingly.

Some families strategically spend down UTMA accounts before filing the Free Application for Federal Student Aid (FAFSA) to reduce the impact on aid. Others use the account to pay for college directly, which avoids the aid calculation altogether. Talk to a financial aid officer at the school your child plans to attend if you are concerned about this.

UTMA accounts do not affect means-tested government benefits like Supplemental Security Income (SSI) or Medicaid in the same way they affect college aid. However, if the child receives SSI, a large UTMA account could disqualify them or reduce their benefits. If your child receives any government benefits, check with the benefits program before opening an UTMA account or depositing large amounts.

What you can put into an UTMA account

You can transfer cash, stocks, bonds, mutual funds, real estate, life insurance policies, and other property into an UTMA account. This flexibility is one reason UTMA accounts are useful. If you own rental property or a valuable piece of art, you can transfer it to an UTMA account in the child's name.

You cannot transfer certain things. You cannot put a business interest into an UTMA account in most states (though some states have special rules). You also cannot transfer anything that requires a license or personal skill, like a professional practice or a copyright that depends on your work.

The most common use is to deposit cash or to buy stocks and mutual funds inside the account. Many brokerages make this easy — you can open an UTMA account online and fund it with a bank transfer in minutes.

How to open an UTMA account and what happens when the child turns 18 or 21

To open an UTMA account, go to a bank, credit union, or brokerage and ask to open a custodial account under your state's UTMA law. You will need your Social Security number, the child's Social Security number, and proof of your identity. The bank or brokerage will handle the paperwork — there is no court filing or lawyer needed.

Once the account is open, you can deposit money or transfer investments into it. The account will have the child's name on it, along with yours as custodian. You will receive statements showing the balance and any earnings or withdrawals.

When the child reaches the age of majority in your state (usually 18 or 21), the custodianship ends automatically. The account becomes the child's sole property. You should notify the bank or brokerage of the child's birthday so they can update the account. After that, the child can withdraw money, change investments, or close the account without your permission.

Some custodians choose to have a conversation with the child before the transfer date to explain what the money is for and to encourage responsible use. Others simply hand over the account. There is no legal requirement either way.

Frequently Asked Questions

Can I take money out of my child's UTMA account if I need it?

You can withdraw money from an UTMA account, but only for the child's benefit — education, medical care, housing, or other direct expenses. You cannot withdraw money for your own use. If you do, you may face legal consequences and the child could hold you accountable later. The money in the account belongs to the child, not to you.

What happens if I die before my child reaches 18?

If you are the custodian and you die, the account does not disappear. Your will or state law will name a successor custodian — usually the other parent or a family member you choose. That person takes over managing the account until the child reaches the age of majority. You can name a successor custodian when you open the account.

Can my child refuse to take control of the account at 18 or 21?

No. The transfer of control is automatic and mandatory by law. Your child cannot refuse it or ask you to keep managing it. If you want to delay when your child can access the money, you would need to use a trust instead of an UTMA account.

Is an UTMA account the same as a UGMA account?

UGMA (Uniform Gifts to Minors Act) is an older law that UTMA replaced. UTMA allows you to transfer more types of property and has some other advantages. Most states have switched to UTMA, but a few still use UGMA. Ask your bank which one your state uses — the process and tax treatment are nearly identical.

Will opening an UTMA account hurt my child's credit?

No. An UTMA account is not a loan or a credit product. It does not appear on your child's credit report and does not affect their credit score. It is simply an investment or savings account in the child's name.