A UTMA account is a way for adults to hold money and investments in a child's name until the child reaches adulthood

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 owned by a child. The adult manages the account and makes investment decisions until the child turns 18 or 21 (depending on your state). At that age, the child takes full control of the money—no matter how much is in it.

The account is registered in the child's name and uses the child's Social Security number. This means the child owns the money from day one, even though an adult is running it. When the child reaches the age of majority in your state, the account transfers to them automatically. They can then spend it, invest it, or do whatever they want with it.

Key Takeaways

  • A UTMA account is owned by the child but managed by an adult until the child reaches 18 or 21, depending on your state.
  • Money in a UTMA account belongs to the child for tax purposes, which can mean lower taxes on earnings if the child has little other income.
  • Once the child reaches the age of majority, they gain full control of the account and can use the money however they choose.
  • UTMA accounts are irrevocable—once you transfer money into one, you cannot take it back or change your mind.
  • The account custodian (the adult managing it) has a legal duty to act in the child's best interest and cannot use the money for personal expenses.

How a UTMA account differs from a regular savings account

A regular savings account in a child's name is opened and managed by the parent, and the parent can close it or move the money whenever they want. A UTMA account is different: once you put money in, it legally belongs to the child. You cannot take it back, even if you change your mind. The child owns it from the moment you transfer it.

A regular account is also just a bank account. A UTMA account can hold almost anything—cash, stocks, bonds, mutual funds, real estate, or even artwork. This makes it more flexible for building wealth over time. The trade-off is that the money is locked in the child's name and will go to them when they turn 18 or 21.

Tax treatment of money in a UTMA account

Income earned inside a UTMA account is taxed at the child's tax rate, not the adult's. This can save money if the child has little or no other income. For example, if a UTMA account earns $500 in interest in a year and the child has no job, that $500 may not be taxed at all, depending on the year and the child's age.

However, there is a catch called the "kiddie tax." If the child is under 18 (or under 24 in some cases and still a full-time student), unearned income above a certain threshold is taxed at the parent's rate, not the child's rate. The threshold changes each year. For 2024, the first $1,450 of unearned income is tax-free, and the next $1,450 is taxed at the child's rate. Anything above that is taxed at the parent's rate. You will need to file a tax return for the child if income exceeds the threshold.

Who can open a UTMA account and what can go into it

Any adult can open a UTMA account for a minor. Parents, grandparents, aunts, uncles, or even family friends can be the custodian. You will need the child's Social Security number and permission from the child's parent or guardian if you are not the parent.

You can put almost any asset into a UTMA account: cash, stocks, bonds, mutual funds, real estate, life insurance policies, or collectibles. Some custodians (like banks or brokerages) have restrictions on what types of assets they will hold, so check with your financial institution before opening the account. Once the account is open, you can add money to it at any time, and there is no limit on how much you can contribute.

What happens when the child turns 18 or 21

The age at which the child takes control of the account depends on your 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 before opening a UTMA account so you know when the transfer will happen.

When the child reaches that age, the custodian must transfer the entire account to the child. The child then has full legal control and can do whatever they want with the money. There is no requirement that they use it for education, housing, or any particular purpose. If you were hoping the money would be used for college and the child decides to spend it on something else, you have no legal recourse.

Advantages and drawbacks of UTMA accounts

The main advantage is that money grows in the child's name and may be taxed at a lower rate. UTMA accounts also avoid probate—when you die, the account goes directly to the child without going through your will. They are also simple to set up and manage compared to trusts.

The biggest drawback is that you lose control of the money. Once you transfer it, it is the child's property and you cannot take it back. If your circumstances change or you need the money, you cannot access it. Another drawback is that the child gets full control at 18 or 21, regardless of maturity or judgment. A 21-year-old with $100,000 in a UTMA account can spend it all immediately if they choose. If you want more control over how the money is used, a trust might be a better option, though trusts are more expensive to set up and maintain.

UTMA accounts versus 529 education savings plans

A 529 plan is a tax-advantaged account designed specifically for education expenses. Money in a 529 grows tax-free and can be withdrawn tax-free if used for tuition, room and board, books, or other education costs. A UTMA account has no such restriction—the money can be used for anything.

The trade-off is that 529 plans offer better tax benefits if the money will be used for education. UTMA accounts are more flexible but do not have the same tax advantages. If education is the goal, a 529 plan is usually the better choice. If you want to give the child money for any purpose, a UTMA account is simpler and more flexible.

Frequently Asked Questions

Can I take money out of a UTMA account if I need it?

No. Once you transfer money into a UTMA account, it legally belongs to the child. The custodian can only use the money for the child's benefit—things like education, medical care, or living expenses. You cannot withdraw it for your own use. If you do, you may face legal liability.

What happens to a UTMA account if the custodian dies?

The account does not disappear. A successor custodian (named when the account was opened) takes over management. If no successor was named, the court may appoint one. The money stays in the account and continues to grow until the child reaches the age of majority.

Does a UTMA account affect financial aid for college?

Yes. Money in a UTMA account is counted as the child's asset when calculating financial aid. This can reduce the amount of aid the child receives, since the government assumes the child can use their own money first. A 529 plan is treated more favorably for financial aid purposes.

Can I change my mind and close a UTMA account?

No. UTMA accounts are irrevocable. Once opened and funded, you cannot close it or take the money back. The account must remain open until the child reaches the age of majority, at which point the child takes control.

What is the difference between a UTMA and a UGMA account?

UGMA stands for Uniform Gifts to Minors Act, an older law that UTMA replaced. UGMA accounts can only hold cash, securities, and insurance policies. UTMA accounts can hold almost any type of asset, including real estate and collectibles. Most states now use UTMA, but a few still allow UGMA accounts.