How to Open a Custodial Brokerage Account: UTMA vs UGMA

You can open a custodial brokerage account online in about fifteen minutes at a major brokerage such as Fidelity or Schwab, with no minimum deposit and no account fees.¹² The account is set up under either the Uniform Transfers to Minors Act (UTMA) or the Uniform Gifts to Minors Act (UGMA), and you manage the investments for the child until they reach the age your state’s law sets for handover. Before you start the application, understand this: every dollar you deposit is an irrevocable gift, and the child gets full control at the termination age with no strings attached.

Pick UTMA or UGMA First

The application will ask you to choose one, so decide before you sit down. UGMA accepts cash and securities only. UTMA is broader and accepts almost any kind of property, though in a brokerage account you’ll be holding the same investments either way: stocks, bonds, mutual funds, ETFs, and similar.³

Nearly every state has adopted the UTMA, and most brokerages default to it. The difference that matters most for your choice is the age at which the account transfers to the child. UGMA accounts almost always transfer at 18. UTMA transfers at 18 or 21 depending on the state, and some states let you set the termination age as far out as 25 or 30 when you open the account.² If your state offers UTMA, that’s usually the better pick because of that flexibility. The extended age has to be set at account creation; you can’t change it later.⁴

What to Have Ready Before You Start

Federal rules require brokerages to collect specific identifying information on every account holder. Under the Customer Identification Program rule, a broker-dealer must obtain, at minimum, each customer’s name, date of birth, residential address, and taxpayer identification number.⁵ For a custodial account, that means both you and the child.

Gather these before you begin:

Your full legal name, date of birth, Social Security number, residential address, and employment details.
The child’s full legal name, date of birth, and Social Security number. If the child doesn’t have an SSN yet, apply for one through the Social Security Administration before you try to open the account.
A routing number and account number from the bank account you’ll use to fund the brokerage account.
Contact information for a successor custodian, if you plan to name one. This is the person who takes over if you die or become incapacitated. Naming one during the application is far simpler than having a court appoint one later.

The Online Application Step by Step

Go to the brokerage’s website, click “Open an Account,” and pick the custodial account option from the account type menu. The form moves through a few stages:

Choose UTMA or UGMA. If your state offers both, the brokerage may default to UTMA.
Enter your information as custodian: name, address, SSN, date of birth, and employment. Double-check every digit of the SSN. A typo stalls identity verification.
Enter the child’s name, SSN, and date of birth.
Link the bank account you’ll use for funding by providing the routing and account numbers.
Optionally, add a successor custodian.

After you submit, the brokerage verifies your identity by matching your information against public records. You may be asked to upload a photo of a government ID, or to answer knowledge-based questions drawn from your credit history.⁶ Approval usually comes within one to three business days, and a confirmation email arrives with the new account number.

Funding the Account and Gift Tax Limits

Once the account is open, you can transfer cash from the linked bank account or move existing shares of stock in. Most major brokerages let you hold stocks, bonds, mutual funds, ETFs, CDs, options, and fractional shares inside the account.¹

Every deposit is a completed, irrevocable gift. Once money or securities land in the account, they belong to the child, and you cannot pull them back for your own use even while serving as custodian.³ If you deposit $10,000 and later regret it, the law does not offer an undo.

For 2026, you can give up to $19,000 per recipient per year without triggering any gift tax reporting requirement. Married couples who agree to split gifts can contribute up to $38,000 per child per year.⁷ Contributions above that threshold aren’t automatically taxed, but you’d file a gift tax return on Form 709 and the excess would count against your lifetime estate and gift tax exemption. Staying under $19,000 per year keeps the paperwork simple.

How Earnings Are Taxed

The child owns the assets, so the child owes tax on the investment income. For small balances the bill is zero or very low, but once unearned income clears a threshold it gets taxed at the parent’s rate. The IRS calls this the “kiddie tax.”⁸

For 2026, the tiers work this way:

The first $1,350 of unearned income is covered by the child’s standard deduction and taxed at zero.
The next $1,350 is taxed at the child’s own rate, which is typically very low.
Anything above $2,700 is taxed at the parent’s marginal rate, which can reach 37% on ordinary income or 20% on long-term capital gains and qualified dividends.

The kiddie tax applies to children under 18, to 18-year-olds who don’t earn more than half their own support, and to full-time students aged 19 through 23 who also don’t earn more than half their support. If the account generates more than $2,700 in dividends, interest, or capital gains, the child must file Form 8615 with their return.⁹ There is a shortcut for smaller amounts: if the child’s only income is interest and dividends totaling less than $13,500, you can elect to report it on your own return using Form 8814 instead of filing separately for the child.⁸

Financial Aid Warning Before You Fund

If you expect the child to apply for need-based college aid, know that custodial accounts are one of the worst places to hold the money. On the FAFSA, a UTMA or UGMA account counts as the student’s asset, and student-owned assets are assessed at up to 20% when calculating the Student Aid Index. Parent-owned assets are assessed at roughly 5.64%. Schools that use the CSS Profile also require reporting UTMA and UGMA balances as part of the student’s investments. Families concerned about aid sometimes convert custodial assets into a custodial 529 plan, which the FAFSA treats as a parent asset for dependent students. The money still belongs irrevocably to the child, but the aid treatment improves.

Your Duties as Custodian and What Happens at the Handover Age

As custodian, you are a fiduciary. Every investment decision, withdrawal, and transaction must be made in the child’s interest, judged by what a reasonable person would do managing someone else’s property.³ You have discretion to spend account funds for the child’s benefit, but custodial money should not replace the basic support (food, clothing, shelter) you’re already legally obligated to provide. You also cannot change the beneficiary. The money belongs to the child you named, not to a sibling or anyone else.¹

At the termination age set by your state’s law, the custodial relationship ends and the child gets full, unrestricted access to the entire balance. There is no approval process and no way to hold the money back. The brokerage retitles the account in the child’s name, and the former custodian has no authority over it after that. The default is 18 in many states and 21 in others, with extended options in a few states (up to 25 in Florida, Nevada, and Virginia, and up to 30 in Wyoming), but only if you set the extended age when you opened the account.⁴ Delaying or refusing to transfer the assets at the required age exposes the custodian to legal liability.

1
Fidelity Investments. Custodial Account
2
Charles Schwab. Schwab One Custodial Account
3
Social Security Administration. Uniform Transfers to Minors Act
4
HelpWithMyBank.gov. Uniform Gifts to Minors Account (UGMA)
5
eCFR. 31 CFR 1023.220 – Customer Identification Programs for Broker-Dealers
6
Securities and Exchange Commission. Customer Identification Programs for Broker-Dealers
7
Internal Revenue Service. Revenue Procedure 2025-32
8
Internal Revenue Service. Topic No. 553, Tax on a Childs Investment and Other Unearned Income
9
Internal Revenue Service. Instructions for Form 8615 (2025)