Any adult in the United States can open a custodial account for a child at a major brokerage in under 30 minutes online. You’ll choose between a UGMA or UTMA designation, provide identifying information for yourself as custodian and for the child as beneficiary, name a successor custodian, and link a bank account to fund the initial deposit. Before you start, understand the one rule that governs everything else: every dollar you put in is an irrevocable gift to the child, and the child gains full control of the account at the termination age set by your state’s law.
Who Can Open the Account
You don’t have to be the child’s parent. Any adult U.S. resident can contribute, and any adult family member, court-appointed guardian, or qualifying organization can serve as the custodian who manages the investments. The person making the gift and the person serving as custodian can be the same, but they don’t have to be. Grandparents, aunts, uncles, and family friends open these accounts routinely as a way to build assets for a child without setting up a formal trust.
Choose Between UGMA and UTMA
The two statutes that govern custodial accounts differ mainly in what the account can hold. A UGMA account is limited to financial assets: cash, stocks, bonds, and mutual funds. A UTMA account also accepts real estate, fine art, patents, royalties, and other tangible or intangible property.1Finaid. UGMA and UTMA Custodial Accounts Most states have adopted the UTMA, and brokerages typically default to it because of that broader flexibility.
For most families funding the account with cash or stock contributions, either type works. The practical difference shows up only if you ever want to contribute non-financial property, which requires a UTMA. The choice is permanent for that particular account, so pick with future contributions in mind.
Information and Documents You’ll Need
Federal anti-money laundering and tax reporting rules drive what the application asks for.2Federal Reserve. Bank Secrecy Act Manual Section 601.0 – Know Your Customer For yourself as custodian, gather your full legal name, residential address, Social Security number, date of birth, and employment information. For the child, you’ll need their full name, date of birth, and Social Security number. If the child doesn’t have a Social Security number yet, apply for one through the Social Security Administration first; the account can’t be opened without it.
Have a government-issued photo ID on hand, either a driver’s license or a passport, because most institutions verify the custodian’s identity during setup. You’ll also need bank routing and account numbers if you plan to fund the account by electronic transfer.
The Application and Funding Steps
Most major brokerages let you complete the entire application online. You’ll enter the custodian and minor information, choose UGMA or UTMA, and sign electronically. Paper applications still exist at some firms and generally take longer to process. Notarization for paper applications is not a universal requirement; some firms ask for it only in narrow situations, such as when the funding bank account doesn’t share an owner with the custodial account.
After submission, the firm verifies the Social Security numbers and identity information you provided, which typically takes a few business days. Once the account is approved, you’ll receive an account number and can fund it by linking a personal checking or savings account for an electronic transfer. Some institutions also accept check deposits or transfers of existing securities. Funding a UTMA with non-financial property like real estate is more involved and usually requires working directly with the institution’s back office and providing an independent appraisal.
Name a Successor Custodian
The application will ask you to name a successor custodian, a person who would step in to manage the account if you die or become unable to serve.3Federal Deposit Insurance Corporation. Recordkeeping for Custodial Accounts Fill this in. If you leave it blank and something happens to you, appointing a replacement can involve the minor (once they reach 14 in many states), the minor’s guardian, or a court petition. Each option adds delay, cost, and uncertainty that a name on the original form would have prevented.
When the Child Gets Control
The termination age is the point when the child gains full, unrestricted access to every dollar in the account. It’s not always the same as the state’s general age of majority. In most states the default UTMA termination age is 21, though several states set it at 18, and a handful allow the custodian to specify an age as late as 25 when the account is created.4Finaid. Age of Majority and Trust Termination
Once the child reaches that age, you’re legally required to hand over the assets. There are no strings, no conditions, and no way to restrict how the money gets spent, even if the original intent was college tuition. An 18- or 21-year-old with unrestricted access to a large account may not make the spending decisions you had in mind, and once the account terminates, the former custodian has no authority to intervene.
Taxes on Custodial Accounts
Custodial accounts don’t offer the tax shelter of a 529 plan. Investment gains, dividends, and interest earned inside the account are taxable each year, and the IRS applies a tiered system commonly called the kiddie tax.
For 2026, the tiers work like this:
- The first $1,350 of unearned income is tax-free, offset by the child’s standard deduction.
- The next $1,350 is taxed at the child’s own rate, which is usually low.
- Anything above $2,700 is taxed at the parent’s marginal rate.
If a child’s unearned income exceeds $2,700, you’ll need to file Form 8615 with the child’s tax return. This applies to children under 18, children who are 18 and don’t earn more than half their own support, and full-time students aged 19 through 23 in the same situation. For smaller accounts where the child’s only income is interest and dividends totaling less than $13,500, parents can elect to report that income on their own return using Form 8814 instead of filing a separate return for the child.5Internal Revenue Service. Topic No. 553, Tax on a Childs Investment and Other Unearned Income (Kiddie Tax)
Gift Tax
Every contribution counts as a completed gift for federal tax purposes. In 2026, an individual can give up to $19,000 per recipient per year without triggering a gift tax filing requirement.6Internal Revenue Service. Whats New — Estate and Gift Tax Married couples can each give $19,000, effectively doubling the threshold to $38,000 per child per year. Gifts above the annual exclusion require filing Form 709, though they usually just reduce your lifetime estate and gift tax exemption rather than generating an immediate tax bill. If multiple family members contribute to the same child’s account, each donor’s gifts count separately against their own annual exclusion.
How the Account Affects Financial Aid
Under the FAFSA formula, a custodial account is treated as the student’s asset, not the parent’s. The federal Student Aid Index calculation assesses student-owned assets at a flat 20% rate.7Federal Student Aid. Student Aid Index (SAI) and Pell Grant Eligibility A $50,000 custodial account reduces the child’s aid eligibility by roughly $10,000 per year. Parent-owned assets, by contrast, are assessed at rates that max out around 5.64%. A 529 plan owned by a parent is treated as a parent asset even when the student is the beneficiary.
The CSS Profile used by many private colleges also requires reporting custodial accounts, and some schools weigh student assets more heavily than the FAFSA does. If your child is likely to apply for need-based aid, factor this in before choosing a custodial account over other savings vehicles.
What You Can and Can’t Spend the Money On
As custodian, you’re a fiduciary. Every investment decision and every withdrawal must serve the child’s interests, not yours. You can spend custodial funds on things that benefit the child, such as tutoring, summer programs, medical expenses not covered by insurance, or a computer for school. You cannot use the money for your own bills, and you shouldn’t use it for expenses that fall under a parent’s basic support obligation, like food, clothing, and shelter. Courts have drawn this line specifically to prevent parents from substituting custodial funds for their own support duties.
Misusing the funds can lead to removal as custodian through a court petition and, in serious cases, civil liability for the misappropriated amount. And because every deposit is an irrevocable gift, you as the donor have no legal right to pull money back out for personal use. Once it’s in the account, it belongs to the child. There’s no hardship exception.
Custodial Account or 529 Plan
The most common alternative is a 529 college savings plan, and the right choice depends on whether flexibility or tax efficiency matters more. A 529 grows tax-free, and withdrawals are tax-free when used for qualified education expenses like tuition, books, and room and board. Non-education withdrawals trigger income tax plus a 10% penalty on the earnings.
A custodial account has no spending restrictions once the child reaches the termination age, but investment gains are taxable every year under the kiddie tax rules. The financial aid math favors the 529 as well, since a parent-owned 529 is assessed at the lower parent-asset rate while a custodial account gets hit at 20%.7Federal Student Aid. Student Aid Index (SAI) and Pell Grant Eligibility For families confident the money will go toward education, a 529 is usually the stronger vehicle. A custodial account fits better when you want the child to have flexibility for a first car, a business startup, a gap year, or anything else outside a 529’s education-only rules.