What is a UGMA/UTMA Custodial Account?

A UGMA or UTMA account is one of the most common ways to invest for a child. The acronyms stand for Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA), and both describe a type of custodial investment account an adult can open on behalf of a minor. The funds belong to the child the moment they're contributed, and when the child reaches the age of transfer in their state (typically 18 or 21), they take over full control of the account.

Custodial accounts are a flexible way to build wealth for a child over time. This guide walks through what UGMA and UTMA accounts are, how they differ, how they're taxed, when the child takes control, and how they compare to other options like 529 plans. If you're trying to decide between a custodial account and other ways to invest for your kids, start with our guide on investing for kids.

What is a UGMA account?

A UGMA account is a custodial investment account that holds financial assets for a minor. Established in 1956, it was the original custodial account framework in the United States and is still available in every state today.

A UGMA account can hold:

• Stocks
• Bonds
• Mutual funds
• ETFs (exchange-traded funds)
• Cash and CDs
• Insurance products
   

An adult (called the custodian) opens the account on behalf of the child (the beneficiary) and manages the investments until the child reaches the age of transfer. Parents, grandparents, friends, and other family members can all contribute to a UGMA account, though only the custodian makes the investment decisions.

What is a UTMA account?

A UTMA account is similar to a UGMA account but allows a broader range of assets. Established in 1986 as an update to UGMA, the UTMA reflects a more modern view of what counts as property worth transferring to a child.

In addition to everything a UGMA can hold, a UTMA account can hold:

• Real estate
• Fine art
• Patents and royalties
• Other forms of tangible and intangible property
   

UTMA has been adopted by every state except South Carolina, which still operates under UGMA. For practical purposes, UTMA is the standard custodial account type in most of the country today. If you open a custodial account at a major brokerage or robo-advisor, it's almost certainly a UTMA account unless you live in South Carolina.

UGMA vs UTMA: the key differences

For most families, UGMA and UTMA accounts work the same way: an adult manages investments for a child, the child gets the money at the age of transfer, and the same tax rules apply. The differences come down to what each account can hold and where each is available.

In practice, if your state offers both, UTMA is typically a better choice. It's more flexible about what you can contribute, and the option to hold a broader range of assets can matter if a grandparent wants to gift real estate or other property down the line.

How UGMA and UTMA accounts work

UGMA and UTMA accounts work by letting an adult (the custodian) open and manage an investment account for a minor (the beneficiary). The custodian controls the investments until the minor reaches the age of transfer in their state. At that point, the account gets transferred over to them. Contributions are irrevocable and there are no federal contribution limits (though gift tax rules apply). Anyone can contribute (parents, grandparents, or family friends), but only the custodian makes investment decisions.

Who can open and contribute

Any adult can open a custodial account for a minor. The custodian is typically a parent or grandparent, but it doesn't have to be. An aunt, uncle, family friend, or any other adult willing to manage the account can also open one.

The contributions are irrevocable

Once money or property goes into a UGMA or UTMA account, it legally belongs to the child. You can't take it back or move it to a sibling. You can withdraw funds before the child reaches the age of transfer, but only for expenses that directly benefit the child (more on that below).

The custodian manages the account until the age of transfer

As the custodian, you choose investments, set up contributions, and make withdrawals on the child's behalf. You have a legal duty to manage the money in the child's best interest. Withdrawals are allowed as long as they're used for the child's benefit. That can include things like private school tuition, music lessons, summer camps, or a car when they start driving. It doesn't extend to your own expenses, even if the child lives in your household.

No contribution limits, but gift tax rules apply

Unlike retirement accounts or 529 plans, UGMA and UTMA accounts have no annual or lifetime contribution limits. But contributions are considered gifts to the child, which means federal gift tax rules apply. For 2026, you can give up to $19,000 per child without filing a gift tax return, or $38,000 if you're married and you and your spouse elect to split gifts. Contributions above those limits may require a gift tax return (IRS Form 709) but generally don't result in tax owed unless you've used up your lifetime gift and estate tax exemption.

How UGMA and UTMA accounts are taxed

Because the assets in a custodial account legally belong to the child, any investment income they generate is the child's income for tax purposes. That sounds like a tax benefit, and it can be, but the IRS set up rules to keep parents from shifting big amounts of investment income to their kids just to take advantage of the lower bracket. Those rules are known as the kiddie tax.

The 2026 kiddie tax thresholds

For 2026, here's how unearned income (interest, dividends, and capital gains) inside a custodial account is taxed:

• First $1,350: Tax-free.
• Next $1,350 (up to $2,700 total): Taxed at the child's own rate, which is usually 10%.
• Above $2,700: Taxed at the parent's marginal rate.
   

Here’s a quick example:

Let’s say your 10-year-old's UTMA account increases by $3,000 from dividends and capital gains in 2026. The first $1,350 is tax-free. The next $1,350 is taxed at 10% (the child's rate), or $135 in tax. The remaining $300 is taxed at the parent's marginal rate. If the parent is in the 24% bracket, that's about $72. The total tax on $3,000 of investment income: $207.

Filing the taxes

If the child's unearned income is above $2,700 for the year, the parent or custodian typically files an IRS Form 8615 with the child's tax return to calculate the kiddie tax. If the child's total income is below $13,500 for the year and consists only of interest, dividends, and capital gains, parents can elect to report the income on their own return using Form 8814 instead of filing a separate return for the child.

Taxes are only owed on realized gains

One thing worth noting: capital gains taxes only apply when investments are sold. If you're investing for a child's long-term future and holding positions through their childhood, most of the account's potential growth will likely be unrealized and not subject to annual tax. The kiddie tax primarily applies to dividends and interest, plus any capital gains from investments that are actually sold during the year.

Age of transfer by state

The age of transfer for custodial accounts varies by state, and it's usually not the same as the general age of adulthood. In most states, the custodial account age of transfer is 21, but there’s some that set it at 18. Some states allow the custodian, at the time the account is set up, to specify a later age — sometimes up to 25.

Here's a reference table as of 2026. The “Default age” column shows when control transfers automatically if no other age is specified. The “Can extend to” column shows the limit if the custodian chooses to specify a different age when opening the account.

State laws can change, and some states have nuanced rules that depend on whether the transfer is a direct gift, made through a will, or made through a trust. Before you open a custodial account, especially if you want to extend the age, confirm the current rules with your state's statute or a qualified tax professional. California and Virginia, for example, treat the extension age differently depending on the type of transfer.

How custodial accounts affect financial aid

If your child plans to apply for need-based college financial aid, a UGMA or UTMA account has one significant trade-off worth knowing. For FAFSA, UGMA and UTMA assets count as the child’s, which the formula assesses at up to 20% in the Student Aid Index (SAI) calculation. Parent-owned assets, including 529 plans in a parent's name, are assessed at a maximum of 5.64%.

Here’s what the math for that can look like: $10,000 in a UGMA/UTMA could reduce aid eligibility by up to $2,000. That same $10,000 in a parent-owned 529 would reduce it by about $564. For families expecting to qualify for need-based aid, that difference can shape the choice between a custodial account and a 529 plan.

Some families convert a UGMA/UTMA to a custodial 529 plan before filing the FAFSA. This changes the asset from a student asset to a parent asset on the formula, though it does require selling the investments and may trigger capital gains tax.

UGMA/UTMA vs 529 plan

The most common alternative to a UGMA/UTMA is a 529 college savings plan. In short: a 529 is usually stronger for educational expenses, thanks to no taxes on qualified expenses and a lighter FAFSA treatment when it is parent-owned. Thanks to a SECURE 2.0 Act provision, up to $35,000 of unused 529 funds can now be rolled into a Roth IRA in the beneficiary's name, which reduces former concerns about overfunding. For a full comparison, including detailed tax treatment, contribution rules, and how to decide between the two, see our dedicated guide to custodial account vs. 529 plan.

How to open a UGMA or UTMA account

Opening a custodial account is straightforward. You can open one at most online brokerages, banks, and robo-advisors. You'll typically need the custodian's personal information, the child's information (full name, Social Security number, date of birth), and a funding source. Many platforms let you start with $5 or less.

At Acorns, we offer an Acorns Early Invest, a UTMA custodial investment account for kids, available on the Acorns Gold plan. You can open one for each of your kids, set up Recurring Investments, and invest in expert-built ETF portfolios, all in the same app you use for your own investing. Family and friends can chip in too.

Starting your child's custodial account

UGMA and UTMA accounts are one of the most flexible ways to invest for a child's future. The rules are clear, the setup is fast, and the potential for compounding can stack monthly contributions into something mighty in the long term. If you want to see what regular contributions could grow into, our compound interest calculator puts numbers behind the plan.

Investing involves risk, including loss of principal. Past performance does not guarantee future results. No level of diversification or asset allocation can ensure profits or guarantee against losses.

Start investing for your kids with Acorns Early Invest.

Frequently asked questions

What is the difference between a UGMA and UTMA account?

Both are custodial investment accounts opened by an adult for a minor, and both transfer ownership to the child at the age of transfer. The main difference is what each can hold. A UGMA (Uniform Gifts to Minors Act) account holds financial assets like stocks, bonds, mutual funds, and ETFs. A UTMA (Uniform Transfers to Minors Act) account holds those same assets plus additional ones like real estate, fine art, royalties, and patents.

Can a UGMA or UTMA account be used for college expenses?

Yes. Custodial account funds can be used for college tuition, fees, room and board, books, and any other expense that benefits the kid, including non-education expenses. Unlike a 529 plan, there’s no requirement that the money be used for qualified education expenses, and no tax penalty for using it on anything else. The trade-off is that custodial accounts are treated as the student’s asset on the FAFSA, which can reduce need-based financial aid eligibility more than a parent-owned 529 plan would. For families specifically saving for education, a 529 is often a better fit; for families saving for a broader set of goals, a custodial account’s flexibility wins.

How is a UGMA/UTMA custodial account taxed?

Investment income in a custodial account is taxed under the kiddie tax rules. For 2026, the first $1,350 of a child's unearned income (dividends, interest, capital gains) is tax-free, the next $1,350 is taxed at the child's rate (usually 10%), and anything above $2,700 is taxed at the parent's marginal rate. Capital gains only apply when investments are sold, so long-term holding strategies keep most of the account's growth untaxed until the child takes control. If the child's unearned income exceeds $2,700, the parent or custodian can file an IRS Form 8615 to calculate the tax.

What happens to a custodial account when the child turns 18?

When the child reaches the age of transfer in their state (typically 18 or 21, depending on where they live), full legal control of the account transfers to them. They become the account owner and can withdraw, invest, or spend the money however they choose. Parents can talk through the transition with their kids well before it happens so the handoff is less abrupt.

Can I take money out of my child's custodial account?

As the custodian, you can withdraw funds before the child reaches the age of transfer, but only for expenses that directly benefit the child. That can be things like private school tuition, tutoring, music lessons, summer camps, or a first car. It doesn't include your own household expenses or anything primarily benefiting someone other than the child. Withdrawals from a taxable custodial account may also create capital gains for the child's return.

Does a UGMA/UTMA account affect financial aid?

Yes. UGMA and UTMA accounts are reported as the student's asset on the FAFSA, which is assessed at up to 20% in the Student Aid Index calculation. Parent-owned assets, including parent-owned 529 plans, are assessed at a maximum of 5.64%. That means a custodial account can reduce need-based financial aid eligibility more than a parent-owned account of the same value would. Families expecting to qualify for need-based aid sometimes convert a UGMA/UTMA into a custodial 529 plan before filing the FAFSA to reduce the impact, though this requires selling the investments and may trigger capital gains tax.