How to Get Money Out of a Custodial Account (UTMA or UGMA)

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

To get money out of a custodial account (UTMA or UGMA), the custodian sells what is needed in the account and withdraws the cash, and the brokerage typically does not ask why. The legal limit is on use, not access: the money already belongs to the child, so it can only be spent for that child’s benefit, and it cannot be returned to the parent or grandparent who gave it. Selling investments also creates capital gains that are taxed to the child, often at the parents’ rate under the kiddie tax.

For a two-income household in California or Washington earning $750,000 to $3 million, the account itself is rarely the hard part. The hard part is that it was often funded quickly (grandparent gifts, a block of vested RSU shares) and nobody wrote down what it was for. This guide covers the rules, the tax math at your income, and the steps.

What the law lets a custodian do with UTMA money

Both states use the Uniform Transfers to Minors Act. In California, Probate Code section 3914(a) lets the custodian “deliver or pay to the minor or expend for the minor’s benefit as much of the custodial property as the custodian considers advisable,” without a court order. Washington’s RCW 11.114.140 uses almost the same words. Three rules follow from that:

• The gift is irrevocable. California Probate Code section 3911(b) says the property is “indefeasibly vested in the minor.” A parent who needs cash for a down payment or a tax bill cannot take it back, even if they funded every dollar.
• Spending must benefit the child. Summer programs, a laptop, travel, tutoring, a car for a teenager, or tuition all fit. Paying the family mortgage or a parent’s own expenses does not.
• It does not replace your duty of support. Both statutes say a payment from the account is “in addition to, not in substitution for” a parent’s obligation to support the child. Basic food, housing and medical care are the parents’ job.

The brokerage will not police any of this. The accountability comes later: in California, a child who has reached 14, another adult family member or the person who made the gift can petition a court for an accounting of the custodian’s decisions (Probate Code section 3919). Keep a record of every withdrawal and what it paid for.

One California detail matters for parents who are both the giver and the custodian. Under section 3914(d), a transferor who is also the custodian can elect stricter rules that block any spending before the transfer age without a court order. Few families choose this, but check your account paperwork to confirm which rules apply.

How withdrawals are taxed in 2026: the kiddie tax at your income

Taking cash out of the account is not a taxable event. Selling the investments to raise that cash is. The gain belongs to the child and goes on the child’s return, where the kiddie tax applies to children under 18 (and, in some cases, to children aged 18 to 23, per the Form 8615 instructions). For 2026, per IRS Rev. Proc. 2025-32:

At a $750,000 to $3 million household income, the parents’ rate on long-term gains is usually the 20% federal rate, which for 2026 applies to married-filing-jointly taxable income above $613,700. So once a child’s gains pass $2,700 in a year, most of the tax advantage of holding money in the child’s name is gone at the federal level.

California adds its own layer: the state has no lower rate for capital gains and taxes them as ordinary income. Washington has no wage income tax in 2026 (a new 9.9% income tax on AGI over $1,000,000 is scheduled to start in 2028, per the Washington Department of Revenue), and its 7% capital gains tax only applies above a standard deduction of $278,000 (the latest published figure, for 2025), which a child’s account will almost never reach.

Worked example: a $950,000 Palo Alto household sells $25,000 from a UTMA

Assumptions (illustrative, not a recommendation): married couple filing jointly in California, $950,000 of W-2 income including RSU vests, taxable income around $880,000. Their daughter is 11. Her UTMA holds $150,000 of index funds with a $90,000 cost basis, built from grandparent gifts of up to $19,000 a year (the 2026 gift tax annual exclusion) and one gift of vested company shares. The custodian sells $25,000 to pay for a summer language program abroad and a year of math tutoring. The year also brings $2,500 of qualified dividends.

1. Gain on the sale. 40% of the account is unrealized gain, so the $25,000 sale realizes about $10,000 of long-term gain. Total unearned income: $12,500.
2. First $2,700. $1,350 is tax-free. The next $1,350 is taxed at the child’s rate, which for long-term gains and qualified dividends is 0% at her income level.
3. The remaining $9,800. Taxed at the parents’ 20% long-term rate: about $1,960 federal.
4. Net Investment Income Tax. The 3.8% tax applies on the child’s return only if her own income passes the $200,000 single threshold, so none here.
5. Compare with the parents selling their own shares. The same $9,800 at 20% plus 3.8% NIIT is about $2,330 federal. The saving from using the child’s account is roughly $370, plus the tax-free first $2,700.

Two lessons from the numbers. First, when the parents’ income is this high, spreading sales across years can matter more than which account pays. About $2,700 of gains a year can typically be realized at little or no federal tax if the child has no other unearned income. Second, parents can sometimes elect to report a child’s income on their own return (for 2026, when the child’s gross income is over $1,350 and under $13,500), but only if the child’s income is solely interest and dividends, including capital gain distributions (Form 8814 instructions). A year with a sale from the account, like this one, does not qualify. Even in a dividends-only year, the election usually costs more at this income, because it adds to the parents’ income, where the 3.8% NIIT already applies.

Five steps to take money out of a custodial account

1. Confirm who the custodian is and which rules apply. Only the named custodian can place trades or request a withdrawal. Check the account paperwork for a transfer age and, in California, for a section 3914(d) election.
2. Write down the purpose and the amount before you sell. One paragraph is enough: what the money is for, why it benefits the child, and why this account is paying rather than your own cash.
3. Choose which lots to sell. Selling the highest-basis lots first can keep the gain, and the kiddie tax, lower. Ask the brokerage to use specific-lot identification.
4. Pay the expense as directly as you can. Paying the program, school or vendor from the custodial account, or moving cash to a bank account titled to the custodian for the child, leaves a cleaner record than moving money into a joint family checking account.
5. Keep receipts and tell your tax preparer. The brokerage issues a Form 1099-B under the child’s Social Security number. The child may need to file a return and Form 8615.

Can you close a custodial account or move the money?

You can close the account only by spending the money for the child or handing it over when the custodianship ends. You can move it, but it stays the child’s property wherever it goes. Common moves:

• Into a custodial 529. Many families move UTMA money into a 529 so future growth is tax-free for qualified education costs. The investments must be sold first (a taxable event for the child), and the child cannot be swapped for a sibling as beneficiary.
• Into a custodial Roth IRA. Only if the child has earned income, and only up to the lesser of that income or $7,500 for 2026.
• To the child at the transfer age. In California the default is 18, a gift can delay it to no later than 21, and a will or trust can delay it to no later than 25 (Probate Code section 3920.5). In Washington, gifts end at 21, and the person making the transfer can extend to 25 when naming the custodian (RCW 11.114.200). At that point the child controls the full balance.

Estate planning note: when a parent who made the gift also serves as custodian and dies before the child takes control, the account can be counted in that parent’s taxable estate. That rarely matters under the $15,000,000 federal exclusion for 2026, but Washington’s estate tax exclusion is $3,076,000 or $3,000,000 in 2026, depending on date of death. Naming a different adult, such as a grandparent or sibling, as custodian is one way families deal with this. Your estate attorney can confirm the right choice.

Common mistakes we see with custodial withdrawals

• Using the account to cover a parent’s cash crunch after a large RSU tax bill, then “paying it back.” The money was never the parent’s to borrow.
• Selling a large position in one year and pushing thousands of dollars of gain into the parents’ rate.
• Paying for ordinary support (groceries, the family’s rent, routine medical care) from the child’s account.
• Forgetting that a $150,000 account at 18 or 21 is the child’s to spend, with no guardrails, unless a plan was set up years earlier.

What to document for your kids

A custodial account is the first money your child will legally control. The balance matters less than whether they understand why it exists and how you decided to spend it. Write a short note each time you withdraw: what it paid for, why it was worth it, what you chose not to spend it on. Filed in your FamilyKnowledge® Library, those notes become the reasoning your child can read before the account becomes theirs.

As Kevin Luu puts it: “Your kids will inherit your money. Will they inherit your judgment?”

Frequently asked questions

Can a parent withdraw money from a child’s custodial account?

Yes, if the parent is the named custodian, but only for the child’s benefit. The brokerage typically processes the request without asking the reason. What the custodian cannot do is use the money for their own expenses or return it to themselves, because the gift is irrevocable and the property already belongs to the child. A court can later require an accounting of how the money was spent.

Can I withdraw money from my child’s bank account if it is not a UTMA?

It depends on how the account is titled. A joint account with a parent as co-owner lets either owner withdraw, and the money is treated as the parent’s too. A UTMA or UGMA account titled to a custodian for the minor follows the custodial rules above. Check the account agreement or ask the bank how the account is registered before moving money.

Does a withdrawal from a custodial account have to be reported to the IRS?

The withdrawal itself is not reported as income. Sales of investments, dividends and interest are, on Forms 1099 issued under the child’s Social Security number. For 2026, if the child’s unearned income is above $2,700, the excess is taxed at the parents’ rate and the child typically files a return with Form 8615.

Next step

Pull the latest statement for each custodial account, note the cost basis and the transfer age, and write one sentence on what each account is for. If you want a second set of eyes on how these accounts fit with your RSUs, 529s and estate plan, our Age Five Family Office™ starts with a Tax & Wealth Assessment. Related reading: UTMA withdrawal tax rules, what happens when your child turns 21, 529 plans vs. custodial accounts, and our Age Five Wealth Education work.

This is general education, not individual tax or legal advice. The right move depends on your family’s full picture.

Sources: Cal. Probate Code 3914, 3911, 3919, 3920.5; RCW 11.114.140, RCW 11.114.200; IRS Rev. Proc. 2025-32; Form 8615 instructions; Form 8814 instructions; WA DOR on income tax; IRS on NIIT.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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