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What are Custodial Accounts?

Custodial accounts, known as UGMAs (Uniform Gifts to Minors Act) and UTMAs (Uniform Transfers to Minors Act), allow parents to put money or other assets in trust for a minor child and, as trustee, manage the account until the child reaches 18 or 21, depending on the state of residency. At that age, the child owns the account and can use the money for tuition, or other purposes. 
family with two young children running outdoors

Why consider a Custodial Account?

There’s no limit on how much a parent can put in a custodial account. (However, annual contributions exceeding $14,000 will trigger the gift tax.)  Investment choices in custodial accounts aren’t restricted, as they are with 529 plans.

Full-time students under age 24 pay no tax on the first $950 of unearned income and the child’s rate on the next $950. Earnings above $1,900 are taxed at the parents’ marginal rate. 

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Neither Foresters Financial nor its affiliates provide legal, tax or estate planning services. Should you require such services, you should consult a legal, tax or estate planning professional.

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