Only the custodian can withdraw money from a custodial account, and every dollar taken out must be spent for the minor beneficiary’s direct use and benefit. The minor has no independent right to the funds, and no other adult — not even a non-custodian parent — can access the account until it terminates at the age of majority set by state law.1Social Security Administration. POMS SI 01120.205 – Uniform Transfers to Minors Act
Custodians don’t need court approval for individual withdrawals. Under the Uniform Transfers to Minors Act, the custodian has broad discretion to deliver or spend as much of the custodial property as they consider advisable for the minor.1Social Security Administration. POMS SI 01120.205 – Uniform Transfers to Minors Act That discretion isn’t unlimited. The money was an irrevocable gift the moment it went into the account, meaning legal ownership belongs to the child from that point on.2Cornell Law Institute. Uniform Transfers to Minors Act The custodian holds a fiduciary duty to put the child’s financial interests first, and mismanaging the assets or spending them on things that don’t benefit the child can lead to removal, repayment obligations, and further legal liability.
What Counts as Spending for the Minor’s Benefit
The legal standard is “use and benefit” of the minor, and it’s intentionally broad. It covers far more than basic necessities. The test is whether the expense directly benefits the child as an individual rather than the family or household as a whole.
Expenses that generally qualify include:
- Education costs like private school tuition, tutoring, college application fees, or a laptop for schoolwork
- Extracurriculars such as summer camp, sports equipment, music lessons, or travel for competitions
- Health expenses not covered by family insurance, including orthodontics or the child’s own insurance premium
- Transportation, including a car for a teenage beneficiary’s use, driving lessons, or the related insurance
A laptop the child uses for schoolwork qualifies. Upgrading the family’s internet plan for everyone doesn’t. A family vacation paid from the account could be challenged for the same reason, because the whole household benefits rather than the child alone. Be ready to explain and document how each withdrawal served the minor.
What Custodial Funds Cannot Pay For
Custodial money cannot substitute for a parent’s legal duty to support the child. Parents are generally required to provide food, clothing, shelter, and basic medical care from their own income. Paying the family’s rent, groceries, or utilities from the child’s account looks like the custodian using the minor’s money to settle their own obligations.
This isn’t just a fiduciary issue. It’s a tax one. When custodial funds are used to satisfy a parent’s support obligation, the IRS taxes the income those funds generated to the parent, not the child, because the expenditure relieved the parent of a debt they already owed. Some jurisdictions can also order the parent to reimburse the account in full.
The working rule: custodial spending should supplement the child’s life, not subsidize the household.
How to Make a Withdrawal
The mechanics themselves are straightforward. Most brokerages and banks let the custodian submit a distribution request through an online portal. Some still require a paper form by mail or in person, and an in-person visit typically calls for government-issued ID. Funds usually arrive within a few business days by electronic transfer to a linked checking account, though some institutions issue a check payable to the custodian or directly to a third party like a school or medical office.
To process a request, you’ll typically need to provide:
- The minor’s Social Security number or taxpayer identification number, used for tax reporting
- A distribution request form stating the amount and purpose of the withdrawal
- Supporting documentation such as invoices, tuition bills, or receipts
Some institutions require the custodian to sign a declaration affirming the funds will be used for the minor’s benefit. Transaction fees are generally minimal but vary.
Keep the Paper Trail
Records are your protection. Keep original invoices, receipts, and billing statements for every withdrawal, and note which expense each one covered and how it benefited the child. The IRS generally advises keeping tax records for at least three years from the date the return was filed.3Internal Revenue Service. Good Recordkeeping Year-Round Helps Taxpayers Avoid Tax Time Frustration Because the beneficiary can question your management of the account after reaching adulthood, holding onto custodial records for longer — through at least a few years after the account terminates — is a practical safeguard.
Tax Consequences When You Withdraw
The withdrawal itself isn’t a taxable event. But the income the account earns each year is taxable, and if you’re selling investments to fund the withdrawal, that sale usually is too. Because the child legally owns the assets, income is reported under the child’s Social Security number on Form 1099-DIV for dividends of $10 or more or Form 1099-B for investment sales.4Internal Revenue Service. Instructions for Form 1099-DIV
The Kiddie Tax
A child’s unearned income above a set threshold is taxed at the parent’s marginal rate under 26 U.S.C. § 1(g).5Office of the Law Revision Counsel. 26 U.S. Code 1 – Tax Imposed For 2026:
- The first $1,350 is tax-free
- The next $1,350 is taxed at the child’s own rate
- Anything above $2,700 is taxed at the parent’s marginal rate
The rule applies to children under 18, children who are 18 and earn less than half their own support, and full-time students aged 19 to 23 in the same situation.6Internal Revenue Service. Topic No. 553, Tax on a Child’s Investment and Other Unearned Income When unearned income tops $2,700, Form 8615 goes with the child’s return.7Internal Revenue Service. Instructions for Form 8615 If the child’s only income is interest, dividends, and capital gain distributions totaling less than $13,500, the parent can instead report it on their own return using Form 8814. Filing separately for the child often produces a lower total bill, so run the numbers both ways.
Selling Investments to Cash Out
If the account holds stocks, bonds, or mutual funds, selling them to fund a withdrawal triggers capital gains or losses on the minor’s return. Those gains count as unearned income and fall under the kiddie tax rules above. A large enough sale can push the child past the $2,700 threshold and cause the gains to be taxed at the parent’s higher rate.
Two Side Effects Worth Knowing About
Custodial assets can be rolled into a UTMA or UGMA 529 plan for tax-free growth on qualified education expenses. You have to sell the underlying investments first, which can trigger capital gains, and the 529 keeps the original account’s restrictions: the beneficiary can’t be changed, and control still passes to the child at the age of majority.
Custodial accounts also weigh heavily in college financial aid. On the FAFSA, a dependent student’s assets are assessed at a 20% conversion rate when the Student Aid Index is calculated, so $10,000 in a custodial account adds about $2,000 to what the formula expects the family to contribute that year.8Federal Student Aid. 2026-27 Student Aid Index and Pell Grant Eligibility Guide Parent-owned assets like a standard 529 are assessed at roughly 5.64%.
When Custodial Authority Ends
The custodian’s control ends when the beneficiary reaches the age of majority under the state law governing the account. All remaining assets must then be transferred to the now-adult beneficiary, who can use the money for any purpose.
Termination age varies. Most states default to 21, several default to 18, and a number allow the donor to specify a later age at the time the gift was made — some up to 25, and a few later still.9Social Security Administration. POMS SI SEA01120.205 – The Legal Age of Majority for Uniform Transfer to Minors Act The age set when the account was created controls, so check the original account paperwork if you’re unsure.
When the beneficiary reaches that age, the custodian should start the transfer promptly. The beneficiary signs new account agreements and the custodian’s name comes off the account. After that, the former custodian has no legal right to the funds. Refusing to transfer the assets when the beneficiary reaches the termination age and asks for them can result in legal action to recover the full account value. Ownership is absolute at that point, and disagreement with how the young adult plans to spend the money is not a basis to withhold it.