Savings Accounts for Kids: Custodial vs. Joint, Taxes and Financial Aid
The ways to open a savings account for a child, who owns the money and when, how the kiddie tax applies in 2026, how each option affects college financial aid and how to use the account to teach money skills.
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Key takeaways
- Joint minor accounts are owned by parent and child together; the parent keeps practical control.
- Custodial accounts (UTMA/UGMA) belong to the child; gifts are irrevocable, and the child takes control at the age set by state law, often 18 or 21.
- For 2026, a child's unearned income above $2,700 can be taxed at the parents' rate (kiddie tax).
- On the FAFSA, assets owned by the student count far more heavily than parental assets, which matters for custodial accounts.
A first savings account teaches what no lecture can: that money grows when you leave it alone. How you set up the account also decides who controls the money, who pays tax on the interest and how it is treated if the child applies for college aid. Those details are worth getting right at the start.
Please note
General information about U.S. rules as of October 2026, not legal or tax advice. Custodial account ages and rules depend on your state's Uniform Transfers to Minors Act or Uniform Gifts to Minors Act.
The main options
| Joint account (parent and minor) | Custodial account (UTMA/UGMA) | |
|---|---|---|
| Legal owner | Parent and child jointly | The child; an adult manages it as custodian |
| Who can withdraw | The adult owner, often the child with limits | Only the custodian, for the child's benefit |
| Can the money be taken back? | Yes, the adult can use it | No, gifts are irrevocable |
| When the child takes control | Usually converts to an adult account at 18 | At the age set by state law, often 18 or 21 (up to 25 in some states for UTMA) |
| Whose taxpayer ID | Often the parent's or the child's, depending on the bank | The child's |
Many banks also offer "youth" or "teen" savings accounts that are technically joint accounts with built-in parental controls. Deposit insurance applies as for any account; joint accounts are insured per co-owner, as explained in FDIC insurance limits.
Taxes: the 2026 kiddie tax
Interest in a custodial account, and generally in an account using the child's taxpayer ID, is the child's income. For 2026:
| Child's unearned income | Tax treatment |
|---|---|
| First $1,350 | Covered by the dependent standard deduction, no tax |
| Next $1,350 | Taxed at the child's rate |
| Above $2,700 | Can be taxed at the parents' rate (Form 8615) |
A child would need a large balance to reach these levels with savings interest alone: $2,700 of interest at 4% requires about $67,500. More on how interest is taxed in is savings account interest taxable?
Gifts
Money you put in a custodial account is a gift to the child. In 2026, you can give up to $19,000 per recipient without filing a gift tax return, so two parents giving from their own money can contribute $38,000 together. If one spouse gives more and the couple elects to split the gift, a gift tax return (Form 709) is required. Larger gifts require a return but rarely any tax because of the lifetime exemption.
College financial aid
On the FAFSA, assets reported as the student's are assessed at about 20% when calculating aid eligibility, while parental assets are assessed at a much lower rate, at most about 5.64%. A custodial account counts as the student's asset. A large custodial balance can therefore reduce need-based aid more than the same money held by a parent. A 529 plan owned by a parent is treated as a parental asset, which is one reason families saving for college often prefer it.
Choosing the right option
- Small balances and teaching purposes: a joint youth savings account with parental controls.
- Gifts from relatives you want legally set aside for the child: a custodial account.
- College savings: usually a 529 plan, which offers tax-free growth for qualified education expenses.
- Long-term investing for a child: a custodial brokerage account or, if the child has earned income, a custodial Roth IRA.
Teaching money skills with the account
- Let them see the balance grow, ideally in a high-yield account where interest is visible; see high-yield savings accounts.
- Match their deposits, for example 50 cents for every dollar saved.
- Set a goal they choose, with a picture and a target date.
- Explain interest with real statements: "the bank paid you for keeping money here".
- Gradually hand over control as they grow, with a debit card and limits for teens.
Frequently asked questions
At what age can a child open a savings account?
Children can have accounts from birth when an adult opens them as joint owner or custodian. Opening an account alone usually requires being 18.
Can I take money out of my child's custodial account?
Only for the child's benefit. The money legally belongs to the child, and using it for the parent's own expenses is not allowed.
Does a child need to file a tax return for savings interest?
Only if their income exceeds the filing thresholds; in 2026, a child with only interest income generally needs to file if it exceeds $1,350. Parents can sometimes report it on their own return instead.
Is a custodial account bad for financial aid?
It can reduce need-based aid more than parental savings, because student assets are assessed at a higher rate on the FAFSA.
What happens to a custodial account when the child comes of age?
The child gains full control at the age set by state law and can use the money however they choose.
