What is an UTMA account?

Cheat Sheet:

  • Owned by a minor but managed by an adult called the “custodian”
  •  The custodian does not have to be a parent
  • You can’t take back the gift after you give it to the minor

Have you ever seen a 10-year-old boy telling his financial advisor to buy 10 shares of Apple? Or a 13-year-old girl placing an order to sell half her Tesla stock? Of course not, but that doesn’t mean kids and teens can’t own stock. They can – thanks to a special account known as an UTMA or custodial account.

The UTMA, also known as the Uniform Transfer to Minors Act, allows an adult to transfer assets to a minor – we’re talking stocks, bonds, ETFs, mutual funds, even cash. The custodian is in charge of managing the assets until the minor reaches the age of majority, which differs from state to state. The UGMA (Uniform Gift to Minor’s Act) is very similar, the most notable difference being that an UGMA is more restrictive about what can be gifted to the minor.

Fun Fact #1: If you want to give stock to your niece or nephew but don’t want your sister in charge of the money, don’t stress! Mom or Dad doesn’t have to be the custodian on the account. You can be the custodian and make sure your gift is invested the way you want.

Fun Fact #2: No take-backs after you give your gift to the minor. If your kid has been a brat lately, you can’t pull the gift out of their UTMA. You’ll have to punish them the old fashioned way – with a timeout. The fancy term for this is that it’s an irrevocable gift.

Fun Fact #3: There are major tax advantages to an UTMA account, since the earnings are taxed at the child’s – usually lower – tax rate. For a lot of families, this can mean significant savings during tax time.

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