A custodial account can be an excellent way to make a financial gift to a child—whether your own, a relative’s, or a friend’s. This type of account, established under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA), is set up by an adult for the benefit of a minor.

What is the custodian in a custodial account?

A custodial account is a financial account (such as a bank account, a trust fund or a brokerage account) set up for the benefit of a beneficiary, and administered by a responsible person, known as a legal guardian or custodian, who has a fiduciary obligation to the beneficiary.

Can the custodian withdraw money from an UTMA account?

As the custodian of a UTMA/UGMA account, a parent can withdraw money whenever needed to benefit the child.

Do UTMA accounts have to be used for education?

You can use the money in an UGMA or UTMA account for any purpose, not just to pay for college. 529 plan distributions are subject to a 10% tax penalty if you don’t use the money to pay for qualified expenses.

Who is the custodian of UGMA and UTMA accounts?

UGMA and UTMA Custodial Accounts allow adults to make financial gifts to a beneficiary while naming someone else (including themselves) as the custodian of the account. The crucial word for these accounts is “gift.”

How old do you have to be to open a UTMA account?

The account itself must establish the necessary standards according to the Uniform Gifts to Minors Act in the corresponding state or the Uniform Transfers to Minors Act. With these steps in place, the applicable state laws will protect the child legally until he or she is no longer a minor. This usually occurs between the ages of eighteen and 21.

Can a minor withdraw money from an UGMA account?

UTMA and UGMA Withdrawal Rules. UGMA and UTMA custodial accounts allow adults to make a financial gift to a minor, and also name someone (including themselves) as the custodian of the account. The important word here is “gift.” The money in these accounts, once given, is the legal property of the minor.

Do you need a UTMA account to transfer money?

UTMA’s can be useful. If you are transferring a relatively small amount of money to a minor who seems reasonably well adjusted, a UTMA account may make sense. Typically, you do not need to set up an irrevocable trust for a small amount of money.