UTMA and UGMA accounts are custodial investment accounts that let adults invest and save money on behalf of a minor child. These accounts offer a straightforward way to build wealth for a child’s future while potentially reducing your tax burden, and they can be opened at major brokerages like Fidelity with just a few pieces of information.

What You Will Learn

This guide explains what UTMA (Uniform Transfers to Minors Act) and UGMA (Uniform Gifts to Minors Act) accounts are, the key differences between them, and walks you through opening one at Fidelity. You’ll also learn the tax implications, when the minor gains control, and common mistakes to avoid.

What Are UTMA and UGMA Custodial Accounts?

UTMA and UGMA accounts are investment accounts created under state law that allow an adult (the custodian) to manage assets for a minor until that minor reaches the age of majority, which is typically 18 or 21 depending on your state. According to the U.S. Securities and Exchange Commission, these accounts provide a flexible way to transfer wealth to minors without the complexity of setting up a trust (SEC, 2026).

The custodian makes all investment decisions and manages the account, but the assets legally belong to the minor. Once the child reaches the age of majority in their state, they gain full control of the account and can use the money however they choose.

Key Differences Between UTMA and UGMA

While both account types serve the same basic purpose, UTMA accounts are more flexible in what they can hold:

UGMA accounts can hold financial assets like stocks, bonds, mutual funds, ETFs, and cash.

UTMA accounts can hold everything a UGMA can, plus real estate, royalties, patents, fine art, and other tangible property.

UTMA accounts also typically allow the custodian to delay transfer of control until age 21 or even 25 in some states, whereas UGMA accounts usually transfer at 18 or 21. Not all states have adopted UTMA, though most have. Fidelity offers both types where state law permits, and the application process is nearly identical.

Tax Benefits and Considerations

Custodial accounts offer a modest tax advantage through what’s known as the “kiddie tax” rules. For 2026, the first $1,300 of unearned income (dividends, interest, capital gains) in a child’s account is generally tax-free or taxed at the child’s lower rate. The next $1,300 is taxed at the child’s rate, and any unearned income above $2,600 is taxed at the parents’ marginal rate if the child is under 19 (or under 24 if a full-time student).

According to the IRS, this structure encourages modest savings for minors while preventing wealthy families from shifting large amounts of income to children purely for tax avoidance (IRS, 2026). For most families saving a few thousand dollars per year, the tax treatment is favorable.

Keep in mind that assets in a custodial account are considered the child’s assets for financial aid purposes, which can reduce need-based aid eligibility by up to 20% of the account value annually. This is a more significant penalty than assets held in a parent’s name or in a 529 college savings plan.

How to Open a UTMA or UGMA Account at Fidelity

Opening a custodial account at Fidelity takes about 15 to 20 minutes if you have the required information ready. Here’s the step-by-step process.

Step 1: Gather Required Information

Before you start, collect the following for both the custodian (you) and the minor:

  • Full legal name
  • Date of birth
  • Social Security number
  • Current residential address
  • Citizenship status

You’ll also need to decide on your initial funding method (bank transfer, check, or wire) and the amount. Fidelity does not require a minimum opening deposit for custodial accounts, but you’ll need to fund it to start investing.

Step 2: Go to Fidelity’s Account Opening Page

Visit Fidelity.com and navigate to “Open an Account.” Look for the option labeled “Custodial Account” or “Account for a Minor” under the account type selection. If you already have a Fidelity account, log in first, which will streamline the process by pre-filling some of your information.

Step 3: Choose UTMA or UGMA

Fidelity will ask you to select either UTMA or UGMA. If your state offers both, UTMA is typically the better choice due to its broader asset eligibility and flexibility with the transfer age. The application will show which options are available based on your state of residence.

Step 4: Enter Custodian Information

Provide your information as the custodian. This includes your name, date of birth, Social Security number, address, employment information, and financial profile. You’ll also answer questions about your investment experience and risk tolerance, similar to opening a standard brokerage account.

As the custodian, you have a fiduciary duty to manage the account in the minor’s best interest. FINRA emphasizes that custodians should avoid using account funds for personal benefit or making speculative investments inappropriate for a minor’s time horizon (FINRA, 2026).

Step 5: Enter Minor’s Information

Next, provide the minor’s details. You’ll need their full legal name exactly as it appears on their Social Security card, their date of birth, Social Security number, and residential address (typically the same as the custodian’s).

Step 6: Select Account Features

Fidelity will ask if you want to enable certain features:

  • Automatic investments: Set up recurring transfers from your bank account to the custodial account.
  • Dividend reinvestment: Automatically reinvest dividends and capital gains distributions.
  • Electronic statements: Opt for paperless delivery.

For a long-term savings account for a minor, enabling automatic investments and dividend reinvestment are both smart defaults.

Step 7: Fund the Account

Choose how you’ll make your initial deposit. Options include:

  • Electronic Funds Transfer (EFT): Link your bank account and transfer funds (takes 1 to 3 business days).
  • Wire transfer: Faster but may incur a fee from your bank.
  • Mail a check: Slowest option but no electronic setup required.

Enter the amount you want to deposit. Remember, once money goes into a custodial account, it irrevocably belongs to the minor and cannot be transferred back to the custodian.

Step 8: Review and Submit

Carefully review all information for accuracy, especially Social Security numbers and dates of birth. Errors can delay account opening or create tax reporting issues later. Agree to Fidelity’s terms and conditions, then submit the application.

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You’ll receive a confirmation email with your new account number, typically within one business day. Once the account is funded, you can begin investing.

What to Do After Opening the Account

After your custodial account is active, log in to Fidelity and set your investment strategy. For a minor’s long-term account, as explained in foundational texts such as Principles of Finance, diversified, low-cost investments like index funds or target-date funds are generally appropriate (OpenStax, 2026).

Consider these starting points:

  • Total market index funds: Provide broad exposure to U.S. stocks with minimal fees.
  • Target-date funds: Automatically adjust asset allocation as the child approaches college age.
  • Balanced funds: Combine stocks and bonds for moderate risk.

Avoid individual stocks or speculative investments unless you have substantial experience and understand the heightened risk.

Set up automatic contributions if you plan to add money regularly. Even $50 or $100 per month can grow significantly over 18 years thanks to compound returns.

Common Mistakes to Avoid

Using account funds for non-minor expenses: Custodial account money must be used for the minor’s benefit. Using it to pay your own bills or expenses violates your fiduciary duty and could trigger tax issues or legal problems.

Forgetting about financial aid impact: Custodial accounts reduce need-based financial aid more heavily than parent-owned assets. If you anticipate needing significant aid, a 529 plan may be a better choice despite fewer investment options.

Not discussing the transfer with your child: When your child reaches the age of majority, they gain full legal control. Many parents are surprised to learn they cannot stop this transfer or impose conditions. Have conversations about financial responsibility before that date arrives.

Overfunding the account: Contributions to custodial accounts cannot be reversed. If you deposit too much or circumstances change, the money still belongs to the minor.

Choosing risky investments: While you want growth, remember the time horizon and the fact that this money belongs to a minor who may need it for education or starting adult life. Prioritize diversified, age-appropriate investments.

Frequently Asked Questions

Can I open a custodial account for a child who isn’t my biological child?

Yes. Grandparents, aunts, uncles, godparents, and even family friends can serve as custodians. Only one custodian is allowed per account, and the minor must be a U.S. citizen or resident alien.

What happens to the account if the custodian dies?

You should name a successor custodian when opening the account. If the custodian dies, the successor takes over management until the minor reaches the age of majority. If no successor is named, a court may appoint one.

Can I transfer a custodial account to a 529 plan?

Not directly. You would need to liquidate the custodial account (which may trigger capital gains taxes), then contribute the proceeds to a 529 plan. Because the assets belong to the minor, this may have tax and legal implications, so consult a tax professional first.

Are there fees to maintain a UTMA or UGMA account at Fidelity?

Fidelity does not charge account maintenance fees for custodial accounts. You’ll pay only the expense ratios of the funds you invest in and any applicable trading commissions, though Fidelity offers commission-free trading on stocks, ETFs, and many mutual funds as of October 2026.

Can the minor access the account before reaching the age of majority?

No. Only the custodian can manage the account and make withdrawals (which must be for the minor’s benefit) until the minor reaches the age of majority as defined by state law.

Conclusion

UTMA and UGMA custodial accounts are powerful tools for building wealth for a child’s future. Opening one at Fidelity is straightforward and can be completed online in under 30 minutes. Once funded, these accounts offer tax advantages on modest investment gains and the flexibility to invest in nearly any security.

Start by gathering the required information for both yourself and the minor, then follow Fidelity’s online application process. After the account is open, choose diversified, age-appropriate investments and consider setting up automatic contributions. Keep records of all deposits and withdrawals, and remember that the funds irrevocably belong to the minor.

If you’re unsure whether a custodial account or another savings vehicle like a 529 plan is right for your situation, consult a certified financial planner who can evaluate your specific goals and tax circumstances.

Financial Disclaimer: This article provides educational information about UTMA and UGMA custodial accounts and is not personalized financial or investment advice. Custodial accounts have tax, legal, and financial aid implications that vary by individual circumstance. Consult a qualified tax professional or financial advisor before opening an account or making investment decisions. All investment products carry risk, including the potential loss of principal.