Introduction to custodial accounts

Introduction to custodial accounts

A Schwab One® custodial account is a brokerage account established and managed by an adult for the benefit of a minor. The account is established under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA) and is used to pass irrevocable gifts to a minor or as a savings account for the child.

Key features of custodial accounts:

  • Tax benefits—No gift tax for contributions made up to $15,000 ($30,000 joint) for each beneficiary per year (subject to inflation adjustments).
  • Spending flexibility—Withdrawals can be made at any time for education or any other purpose for the benefit of the minor.
  • Contributions—Can be made at any time with no lifetime limit.
  • Account control—Established and managed by an adult until minor reaches age of majority—typically 18 or 21, depending on the state law governing the account.
  • Available account features include:
  • Investment flexibility.

Key information related to custodial accounts:

  • The UTMA and the UGMA are the two model laws governing custodial accounts, with variations, throughout the United States and some of the U.S. territories.
  • The address on a custodial account must be in the United States, Puerto Rico, the Virgin Islands, or the Canal Zone.
  • Only one custodian and one minor are allowed per account. The custodian must be at least 18 years old. The minor must have a Social Security number.
  • The custodian is responsible for adhering to the laws applicable in the relevant state and/or locality.
  • Gifts to custodial accounts are irrevocable.
  • Schwab reserves the right to request additional documentation as it pertains to any distribution requests.
  • Custodial accounts are restricted once the beneficiary reaches the age of termination designated on the account.
  • Assets may impact the amount of financial aid available for higher education.
  • Funds (cash only) may be transferred to a UGMA/UTMA 529 College Savings Plan. Liquidation of assets in a custodial brokerage account may create a taxable event. Schwab does not provide tax advice. Please consult a tax advisor.


  • Custodial termination age is the point at which the custodian is required to deliver the assets to the beneficiary and the custodial relationship ends. The age for termination is established when the account is first opened.
  • Many states permit a transferor or custodian to specify a termination date that is later than the age of majority. Often this can be age 21 for transfers by gift or age 25 for gifts made by a will or testamentary trust.
  • If no action has been taken within 90 days after the beneficiary has reached the age of termination, the account will be converted into an individual account in the name of the beneficiary. The account will be restricted until Schwab has received the Schwab One Custodial Account Beneficiary Conversion Application signed by the former minor.
  • Upon restriction of the account (when the beneficiary reaches the age of termination designated on the account).
    • Custodians and investment advisors lose the ability to place buy orders, deposit or withdraw funds, and charge management fees.
    • Account features such as Schwab MoneyLink® and Schwab One® checks are disabled.
  • To remove the restriction on the account, custodial beneficiaries will need to either convert the account to a noncustodial account type of their choosing (individual, joint tenant, etc.) using the Schwab One® Custodial Account Beneficiary Conversion Application or request a full distribution using the Custodial Account Beneficiary Disbursement Form.


Transfers are permitted from Schwab custodial accounts to the Schwab UGMA/UTMA 529 College Savings Plan or, if established before August 15, 2006, a Learning Quest UGMA/UTMA 529 Plan offered through Schwab. To transfer funds from a Schwab custodial account to a Schwab or Learning Quest UGMA/UTMA 529 Plan:

  • The custodial/UGMA beneficiary must be named as beneficiary account owner on the 529 application, and an adult account owner must be named for the 529 account if the beneficiary is a minor.
  • The beneficiary account owner may not be changed on the account. When the minor reaches the age of termination, the adult account owner can turn over control to the former minor.
  • Anyone may make subsequent contributions to that account.
  • If the child dies before the age of majority, those assets will be included in the child's estate.

Non-Schwab custodial transfers to Schwab or Learning Quest UGMA/UTMA 529 Plans are also allowed.

Note: The adult account owner can convert the custodial assets they wish to transfer to cash and forward a check to the Schwab 529 College Savings Plan or call the 529 team to process the transfer. This may be a taxable transaction, and clients should consider any tax implications before liquidating the account assets. Schwab does not provide tax advice. Please consult a tax advisor for guidance.

Tax treatment of income:

  • First $2,200 is tax-free.
  • Amounts over the $2,200 threshold are taxed at the new rates (based on estate and trust rates). For a child under the age of 19 considered a dependent at the end of year (or a full-time college student under the age of 24), the first $2,200 of child's unearned income is tax-free, amounts over the $2,200 threshold are taxed at the rates for trusts and estates. See IRS Publication 929 for more details.


The UGMA applies to South Carolina and the U.S. territory Guam. The U.S. Virgin Islands and all other states follow the UTMA. The Canal Zone and Puerto Rico do not apply. The applicable law (including local variations) may vary, and the custodian is responsible for adhering to whichever law applies. You should consult your state and local laws.

Review a side-by-side comparison of the goals and advantages of college savings investing accounts and their tax considerations: College savings accounts goals and advantages

Can a financial advisor be added to a custodial account?
Yes. If the custodian does not want to manage the account's assets, any registered financial advisor (whether with Schwab Advisor Services™ or otherwise) can be added to a custodial account.

When can a custodial account be established?
A custodial account may be established any time before the minor is 18 years of age.

Is a custodial account the best way to set up a college fund?
If your client's primary goal is to provide funds for college, you might want to consider a 529 College Savings Plan or an education savings account, which have specific tax advantages for saving for college. Consult a tax advisor to find out which might be right for your client.

At what age must contributions stop?
Contributions can be made until minor reaches the age of majority. This varies by state, but is typically 18 or 21.

What is the deadline for contributions?
Contributions to a custodial account must be made by December 31.

Are there restrictions on distributions from custodial accounts?
Yes. Custodial account distributions can be made anytime during the year without penalty but must directly benefit the minor. Distributions that appear to benefit a minor indirectly (e.g., home purchase, household goods, etc.) may require additional legal research to determine acceptability.

What if my client wants to transfer a significant amount of wealth to a child?
If that's your client's primary goal, you might want to consider opening a trust account, which can offer your client more flexibility, control, and protection than any other type of account.

How to add and update account beneficiaries
Introduction to 529 College Savings Plans
Introduction to education savings accounts
Introduction to householding

Leverage the College Savings Calculator to help you estimate the annual deposits your client may need to make.

For information on commissions, transaction fees, and handling fees for custodial accounts, refer to the Charles Schwab Pricing Guide