Definition
An investment account an adult manages for a minor, who takes full control at the age of majority (18 to 21 depending on the state). Unlike a 529, the money can fund anything for the child's benefit, but it is irrevocably the child's.
Why it matters
Custodial accounts trade flexibility for control: no education-only strings, but at 18 or 21 the child can spend it on anything, and the assets count more heavily against financial aid than a parent-owned 529. The gift cannot be taken back.
Example
A grandparent puts $10,000 into a UTMA for a newborn. Invested in an index fund, it compounds for two decades; at the state's transfer age the account re-registers in the child's name, whether the plan is tuition, a first apartment, or a motorcycle.
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.