Custodial Accounts

A parent, grandparent, or family friend of a minor child might want to establish an account to save money for that child's education. In that case, one possibility is a custodial account, which is established in the child's name. You can establish
this account using the provisions of the Uniform Gifts to
Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). The person who sets up the account controls the way the money is invested. For more information on UGMA or UTMA accounts, go to

However, the income tax advantages these accounts formerly provided have been essentially eliminated for college savings. In addition, because the assets are in the beneficiary's name, the value of the account may reduce his or her eligibility for financial aid.

Finally, the money in a custodial account becomes the property of the beneficiary when he or she reaches the age of majority — 18 in many states, but 19 or 21 in others — or at the age established by law. After that, the beneficiary controls the money and how it is spent.