Why open a custodial account (Uniform Transfer to Minors Account)

A custodial account can be a great way to save on a child's behalf, or to give a financial gift. For both of my children, we established UTMA accounts. Otherwise known as an UGMA/UTMA account, there are no income or contribution limits—and no early-withdrawal penalties or restrictions on how the funds are used for the child. Basically, these are easy-to-open accounts used to invest in stocks, bonds, mutual funds, and more—all to give a child a better future.

Things to consider

  • Great way to directly transfer wealth
  • Transferred to the minor at a certain age (between 18 and 25, depending on the state)
  • When my son turned 18 in Massachusetts, the custodial account ended and he gained legal control of all assets as we established a new individual account for him
  • Friends and family can contribute
  • Grandparents of my clients often gift shares of stock to their grandchildren
  • A portion of earnings may be exempt from federal taxes
  • Factored into financial aid eligibility

UGMA & UTMA accounts | Tips for custodial accounts | Fidelity