Custodial account

What It Means

A custodial account is a bank or investment accountBrokerage accountAn account at a brokerage firm that holds your cash and the stocks, bonds, funds and ETFs you buy and sell through that firm. See more held for a minor, with an adult, the custodian, making the decisions until the child comes of age. Most are set up under a state's Uniform Gifts to Minors ActUGMA accountA custodial account under a state's Uniform Gifts to Minors Act, holding cash, securities or insurance policies for a child until they come of age. See more (UGMA) or Uniform Transfers to Minors ActUTMA accountA custodial account set up under a state's Uniform Transfers to Minors Act, which can hold almost any kind of asset for a child, including real estate. See more (UTMA). FINRA explains that a gift into the account is irrevocable: the money belongs to the child, the custodian must manage it for the child's benefit, and control passes to the child at an age set by state law.

How People Say It

• "The stock Grandpa gave her is in a custodial account."
• "It's his money, I just manage it until he's grown."
• "When does she get control of the account?"

The Breakdown

Worked example. Relatives have given a 1010,000 stepsA popular daily step goal that began as the name of a 1960s Japanese pedometer; later studies find health benefits begin well below it. See more-year-old $40,000 over the years, held in a custodial brokerage account that yields about 4% a year in interestInterest rateThe yearly percentage a lender charges for borrowing money, not counting fees; the APR adds certain fees to show a fuller cost. See more and dividends, an example figure.

At $1,600 the account sits under the 2025 line. If the balance or yield doubled, it would pass $2,700, and IRS Topic 553 says the income over that amount can be taxed at the parent's rate when that's higher than the child's.

What the result means. A custodial account has no tax shelter of its own: its income is the child's, and a big enough account brings the kiddie tax into play. Unlike a 529 plan529 planA state-sponsored, tax-advantaged account for education costs, where growth is free of federal income tax when spent on qualified expenses. See more, the money isn't limited to education, and at the transfer age it becomes the young adult's to use however they choose.

Before you open one, know that

• The gift can't be taken back; the money is the child's (FINRA)
• The custodian must use it for the child's benefit
• The transfer age comes from your state's law
• Bank deposits in a custodial account are insured as the child's single account up to $250,000 (FDIC)

Good to Know

On the FAFSAFAFSAThe Free Application for Federal Student Aid, the U.S. Department of Education form a student files each year to apply for federal aid for college or career school. See more, the 2026-2027 Federal Student Aid Handbook says UGMA and UTMA accounts owned by the student count as the student's assetAssetsThings you own that are worth money, such as cash, investments, a home or a car. Your assets minus your debts is your net worth. See more, whatever the student's dependency status, which is a different treatment from a parent-owned 529. For gifts, the IRS annual exclusion for 2026 is $19,000 per recipient. The kiddie tax line on this page, $2,700, is the 2025 figure from IRS Topic 553; the IRS adjusts it, so check the current year before relying on it, and ask a tax professional about Form 8615.

Related Terms and Categories

• UTMA account

  A custodial account set up under a state's Uniform Transfers to Minors Act, which can hold almost any kind of asset for a child, including real estate.

• UGMA account

  A custodial account under a state's Uniform Gifts to Minors Act, holding cash, securities or insurance policies for a child until they come of age.

• 529 plan

  A state-sponsored, tax-advantaged account for education costs, where growth is free of federal income tax when spent on qualified expenses.

• Custodial Roth IRA

  A Roth IRA opened by a parent or other adult for a minor who has earned income, managed by the adult until the child comes of age.

• Kids savings account

  A bank or credit union savings account opened for a child, usually jointly with a parent or as a custodial account, where the child's money earns interest.

• Brokerage account

  An account at a brokerage firm that holds your cash and the stocks, bonds, funds and ETFs you buy and sell through that firm.

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