A UGMA account lets an adult hold and manage money or investments for a minor until the child reaches a set age

UGMA stands for Uniform Gifts to Minors Act. It is a legal structure that lets a parent, grandparent, or other adult put money, stocks, bonds, or mutual funds into an account registered in a child's name. The adult—called the custodian—controls the account and makes all investment decisions while the child is young. When the child reaches a certain age (usually 18 or 21, depending on your state), the account transfers to the child's full control.

The account belongs to the child from day one, even though the adult runs it. This matters for taxes and for what happens if the adult dies or becomes unable to manage money. The child's Social Security number goes on the account, not the adult's.

UGMA accounts are common for money from grandparents, gifts, inheritance, or savings a parent wants to set aside for a child's future. They are simpler to open and maintain than trusts, and they work at most banks and investment firms.

Key Takeaways

  • A UGMA account is held in the child's name but controlled by an adult custodian until the child reaches the age set by your state law.
  • Money in a UGMA account belongs to the child for tax purposes, which can mean lower taxes on investment earnings depending on the child's age and income.
  • When the child reaches the transfer age, the account becomes theirs to control—the adult custodian has no say after that point.
  • UGMA accounts are easier and cheaper to set up than trusts, but they offer less control over how the money is used once the child takes over.

How a UGMA account works step by step

You open the account at a bank, brokerage, or investment firm by providing the child's Social Security number and naming yourself as custodian. The paperwork is straightforward—most institutions have a UGMA form ready. You fund the account with a gift of money, securities, or other assets.

Once the account is open, you manage it as the custodian. You can buy and sell investments, move money between accounts within the UGMA structure, and reinvest earnings. The child does not sign anything or make decisions—that is the custodian's job. You can also spend money from the account on the child's benefit, though the rules around this vary by state.

When the child reaches the transfer age (set by state law, usually 18 or 21), the account automatically becomes theirs. They can then do whatever they want with it—spend it, invest it, or save it. The custodian loses all control at that point. There is no way to extend the custodianship or prevent the transfer.

UGMA versus UTMA: what is the difference

UTMA stands for Uniform Transfers to Minors Act. It is a newer version of UGMA that works almost the same way, but UTMA allows you to transfer a wider range of assets—including real estate, artwork, and business interests—whereas UGMA is limited to cash, securities, and insurance policies.

Both accounts transfer to the child at the same ages, both use the child's Social Security number, and both are managed by a custodian until transfer. The main practical difference is what you can put into them. Most people use UTMA if their state offers it, because it is more flexible. Some states have both; some have only one or the other. When you open the account, the institution will tell you which one is available.

Tax treatment of UGMA accounts

The account is in the child's name, so investment earnings are taxed to the child, not the adult. This can be a tax advantage if the child has little or no other income. For 2024, a child can earn a small amount of investment income before owing any federal income tax—the exact threshold depends on the type of income and changes yearly.

If the child is very young and the account earns a lot of money, some of the earnings may be taxed at the parent's tax rate under the "kiddie tax" rule. This applies to children under 18 (or under 24 in some cases if they are a full-time student). Once the child is older, all earnings are taxed at the child's rate, which is usually lower than the parent's.

You will receive a tax form each year showing the earnings in the account. You report this on the child's tax return if one is required. The custodian does not report the account on their own tax return.

What happens when the child turns 18 or 21

The transfer happens automatically by law. You do not have to do anything, but you should notify the financial institution that the child has reached the transfer age so they can update the account registration. At that point, the child becomes the sole owner and can access all the money.

This is a hard deadline with no exceptions. You cannot keep control of the account, delay the transfer, or put conditions on how the child uses the money. If you want more control over how money is used after the child grows up, a trust is a better tool than a UGMA account.

Some custodians worry about handing a large sum to a young adult who may not be ready to manage it. That is a real concern, but a UGMA account does not solve it. If you want the money to stay invested or to be released in stages, you need a trust instead.

UGMA accounts and financial aid

Money in a UGMA account counts as the child's asset for purposes of the Free Application for Federal Student Aid (FAFSA). This means it can reduce the amount of financial aid the child is offered. The exact impact depends on how much is in the account and the family's total assets.

Because of this, some families avoid UGMA accounts or use them strategically—for example, spending down the account before filing the FAFSA, or opening the account after the child has already submitted aid forms. If college funding is a priority, talk to a financial planner or tax professional about whether a UGMA account makes sense for your situation.

When a UGMA account makes sense

A UGMA account works well for straightforward gifts—money from a grandparent, a monetary gift for a birthday or graduation, or savings you want to set aside for a child's future. It is inexpensive to open and maintain, and it keeps the money in the child's name without the complexity of a trust.

It is less useful if you want to control how the money is spent after the child turns 18, if you want the money to stay invested for decades, or if you are concerned about the impact on financial aid. In those cases, a trust gives you more options, though it costs more to set up and manage.

A UGMA account also may not be the right choice if the child has special needs and receives means-tested benefits like Supplemental Security Income (SSI). Money in the child's name can affect their benefit may be able to access. Families in this situation should speak with a special needs planner before opening any account in the child's name.

Frequently Asked Questions

Can I take money out of a UGMA account for myself?

No. The money belongs to the child, and you can only spend it on the child's benefit—things like education, medical care, or living expenses. Taking money for your own use is illegal and violates your duty as custodian. Some states are stricter about this than others, but the rule is universal.

What happens to a UGMA account if the custodian dies?

The account does not disappear. A successor custodian (usually named when you open the account) takes over management. If no successor is named, the court may appoint one. The account stays in the child's name and continues to grow until the child reaches the transfer age.

Can I change my mind and close a UGMA account?

Once you give money to a UGMA account, it is a completed gift—you cannot take it back. The account itself can be closed, but the money belongs to the child. If the child is old enough, they can consent to closing it. If not, you would need a court order, which is difficult to get.

Does a UGMA account affect the child's credit or borrowing?

No. A UGMA account is not a loan or credit product, so it does not appear on credit reports or affect the child's credit score. It is simply an investment account held in the child's name.

Can I name someone other than myself as custodian?

Yes. You can name a grandparent, aunt, uncle, or trusted friend as custodian when you open the account. That person then has full control over the account. Choose someone you trust completely, because they have broad power to manage the money.