Opening a UTMA Account for a Minor

Quick answer

• A UTMA (Uniform Transfers to Minors Act) account allows you to transfer assets to a minor that they will control upon reaching the age of majority.
• Opening one is generally straightforward, often possible online or through a financial institution.
• You’ll need to provide personal information for yourself and the minor, and decide on the assets to fund the account.
• Consider your financial goals for the child and the timeline for when they’ll need access to the funds.
• Understand that once assets are transferred, they are irrevocable gifts to the minor.
• Consult a financial advisor or tax professional to ensure it aligns with your overall financial and estate plan.

Who this is for

• Parents, grandparents, or other relatives who want to save and invest money for a child’s future.
• Individuals looking for a simple, flexible way to transfer assets to a minor without the complexity of a trust.
• Those who want to teach a young person about managing money and investing, with adult supervision until they are ready.

What to check first (before you act)

Goal and timeline

Before opening a UTMA account, clarify what the money is intended for and when the child will need access to it. Is it for college in 15 years, a down payment on a house in 25 years, or simply to provide a financial head start? Your goal will influence the types of investments you choose and how aggressively you invest. The age of majority, when the child gains full control of the account, varies by state but is typically 18 or 21.

Current cash flow

Assess your current financial situation to determine how much you can comfortably contribute to a UTMA account. Consider your income, expenses, and other financial obligations. Opening a UTMA is a commitment, and consistent contributions, even small ones, can make a significant difference over time. Ensure that funding this account doesn’t strain your immediate financial needs or other savings goals.

Emergency fund or safety buffer

Make sure you have a robust emergency fund in place before opening a UTMA account. This fund should cover 3-6 months of essential living expenses. A UTMA account is for long-term savings for the minor; it should not be treated as a source of funds for your own unexpected expenses. Prioritizing your own financial stability ensures you can consistently fund the UTMA without dipping into it.

Debt and interest rates

Review any outstanding debts you have, especially high-interest ones like credit cards. It often makes more financial sense to pay down high-interest debt before making long-term investments. The guaranteed return of eliminating high interest can outweigh potential investment gains, especially in the short to medium term.

Credit impact

Opening a UTMA account in your name as the custodian for the minor generally does not directly impact your credit score. However, if you were to take out a loan to fund the account or use a credit card for initial contributions, those actions could affect your credit. The UTMA itself is not a credit product.

Step-by-step (simple workflow)

1. Determine the Custodian

What to do: Decide who will be the custodian of the UTMA account. This is typically a parent or guardian, but can be another responsible adult. The custodian manages the account until the minor reaches the age of majority.
What “good” looks like: You’ve chosen a responsible adult who understands their fiduciary duty to act in the child’s best interest.
A common mistake and how to avoid it: Choosing someone who might not be financially savvy or who may have conflicting interests. Avoid this by discussing the role and responsibilities thoroughly with the chosen custodian.

2. Select a Financial Institution

What to do: Research and choose a bank, brokerage firm, or mutual fund company where you want to open the UTMA account.
What “good” looks like: You’ve found an institution with a good reputation, reasonable fees, and investment options that align with your goals.
A common mistake and how to avoid it: Not comparing fees or investment choices across different institutions. Avoid this by comparing account minimums, transaction fees, advisory fees, and the range of investment products available.

3. Gather Required Information

What to do: Collect necessary personal information for both yourself (the custodian) and the minor (the beneficiary). This typically includes names, addresses, Social Security numbers, and dates of birth.
What “good” looks like: You have all the documentation readily available to complete the application accurately.
A common mistake and how to avoid it: Missing or having incorrect information, which can delay the account opening process. Avoid this by double-checking all details before submitting the application.

4. Complete the Application

What to do: Fill out the UTMA account application form provided by your chosen financial institution. This form will ask for details about the custodian, beneficiary, and initial funding.
What “good” looks like: The application is completed accurately and thoroughly, with all required fields filled in.
A common mistake and how to avoid it: Making errors or leaving sections blank. Avoid this by reading the application carefully and asking the financial institution for clarification if needed.

5. Fund the Account

What to do: Make the initial deposit or transfer of assets into the UTMA account. This can be cash, stocks, bonds, or other financial assets.
What “good” looks like: The account is funded according to your plan, whether with a lump sum or by setting up recurring contributions.
A common mistake and how to avoid it: Not funding the account or underfunding it, which limits its growth potential. Avoid this by committing to a funding plan, even if it starts small.

6. Choose Investments

What to do: Select the investments within the UTMA account. This could range from conservative options like bonds to more aggressive choices like stocks or mutual funds, depending on your goals and the child’s age.
What “good” looks like: Investments are chosen based on your stated financial goals, risk tolerance, and the timeline for the child’s access to the funds.
A common mistake and how to avoid it: Investing too conservatively for a long-term goal or too aggressively for a short-term goal. Avoid this by understanding the relationship between risk, return, and time horizon.

7. Set Up Beneficiary Designations (if applicable)

What to do: While the UTMA itself names the minor as the beneficiary of the assets within it, some institutions may have forms for secondary beneficiaries or other related accounts.
What “good” looks like: You’ve confirmed the minor is the sole beneficiary of the UTMA assets.
A common mistake and how to avoid it: Confusing UTMA beneficiary designations with other account beneficiary forms. Avoid this by focusing on the UTMA as a direct transfer of assets to the minor.

8. Monitor and Rebalance

What to do: Periodically review the performance of the investments and rebalance the portfolio as needed to maintain your desired asset allocation.
What “good” looks like: The account is reviewed at least annually, and adjustments are made to keep investments aligned with the long-term goals.
A common mistake and how to avoid it: Forgetting about the account after opening it, leading to an investment mix that drifts far from the original plan. Avoid this by scheduling regular check-ins.

Common mistakes (and what happens if you ignore them)

| Mistake | What it causes