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Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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Hi, I am still the custodian on my daughters two UTMA accounts.

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Hi, I am still the custodian on my daughters' two UTMA accounts. They are over 21. One of my daughters wants to use money from her account for classes she needs to apply to grad school. I know education is a permitted use. Are there limits on how the money can be used? What are the tax consequences related to whatever amount she withdraws for classes (right now she says $5,000). Are taxes based on her income or mine? THANKS, XXXXX XXXXX [email protected]
This is my first time using JustAnswer!

Lev :

Hi and welcome to our site!
Because your daughters are over 21 - you are not the custodian anymore - and they may full rights to use their accounts. If that are simple UTMA accounts - they may use funds are they want without any limitations.
Funds may be used for educational purposes or any other purposes.
The only tax consequences are related to earnings credited to these accounts. For instance if there was interest income credited to accounts - it will be reported to account owners and they must include that amount on their individual tax returns. There are no consequences for you.

Lev :

However - if that are not simple UTMA accounts - but educational accounts which allow to defer tax liability - the tax treatment is different. In this case they may avoid any tax liability if distributed amounts are used for qualified educational expenses.
So - I suggest you to verify if these are special educational account - Qualified Tuition Program (QTP) accounts or Coverdell Education Savings Accounts (ESA).


Hi Lev, thanks for the prompt and substantive reply. For some reason Fidelity still shows me as the Custodian on their accounts even though they are both over 21. I will have to double-check with Fidelity. And I was not aware there was a distinction among UTMA accounts. Thanks again, Leslie

Lev and 3 other Tax Specialists are ready to help you
Hi Leslie,
There are no distinction among UTMA accounts.
However there might be some confusions - and I am trying to address possible variations.

The Uniform Transfers To Minors Act (UTMA) is an extension of the Uniform Gifts to Minors Act (UGMA) which provides a mechanism of gifting to a minor without requiring the presence of an appointed guardian. So anyone - not only parents - may open an account for the minor.
When such account is opened - it is considered as owned by the minor but rights to manage the account are still belongs to the custodian. Still any income earned on that account is taxable for the minor.
However your custodian rights and responsibilities are eliminated when the minor reach the age of majority.
So - ever your name is still listed s the Custodian on their accounts - you will not be able to make any transactions because they are not minors anymore.

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