Custodial Account

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A custodial account refers to a savings account at a financial institution, mutual fund company, or brokerage firm that an adult controls for a minor. A minor is a person under the age of 18 or 21 years depending on the laws of the state of residence.

With a custodial account, transactions are completed by the custodian on behalf of the minor. Transactions can include deposits and withdrawals, and buying and selling of securities.

There are two types of custodial accounts: Uniform Transfers to Minors Act (UTMA) accounts and the older Uniform Gift to Minors Act (UGMA) accounts. All states allow UGMA accounts, except for South Carolina that does not allow UTMA accounts.

UTMA accounts can hold many kinds of assets including real estate, intellectual property, and works of art. UGMA accounts are limited to financial assets of cash, securities such as stocks, bonds, or mutual funds, along with annuities, and insurance policies.

Both accounts are set up in the minor’s name, with a designated custodian that is usually the child’s parent or guardian. Account requirements vary based on the company that is housing the UTMA or UGMA such as initial deposit, minimum account balances, and any interest rates earned.

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