UGMA Withdrawal Rules: What a Custodian Can and Cannot Spend

A custodian can withdraw money from a UGMA account at any time, for any expense that benefits the child, without a court order and without a penalty. What a custodian cannot do is take the money back or spend it on the parents or the household. Using it for things the parents are already legally required to provide is not forbidden by the statute, but it does not reduce the parents’ duty of support, and the income used that way can be taxed to the parents. When the child reaches the transfer age (18 by default in California, 21 for most gifts in Washington), the account becomes theirs outright and the custodian’s say ends.

For a two-income household earning $600,000 to $1.2 million, the rules that matter most are not the spending rules. They are the tax on selling appreciated shares, the kiddie tax at your bracket, and the fact that a large account lands in your child’s name at 18 or 21 whether or not they are ready for it.

Most UGMA accounts in California and Washington now follow UTMA law

UGMA (the Uniform Gifts to Minors Act) is the older statute. Both states replaced it with the Uniform Transfers to Minors Act: California in Probate Code sections 3900 and following (the California Uniform Transfers to Minors Act), and Washington in RCW chapter 11.114. California’s statute expressly covers transfers made on or after January 1, 1985 that were labelled as made under the old California Uniform Gifts to Minors Act (Probate Code §3922). So if your brokerage statement still says “UGMA”, the withdrawal rules below come from the UTMA sections. The practical difference between the two is what the account may hold; the spending rules are the same.

What a custodian may spend UGMA money on

California Probate Code §3914(a) lets the custodian pay to the minor, or spend for the minor’s benefit, “as much of the custodial property as the custodian considers advisable for the use and benefit of the minor, without court order.” Washington’s RCW 11.114.140 uses nearly identical language. There is no list of approved expenses and no early-withdrawal penalty. Reasonable uses for a family at this income level include:

• Tuition or enrichment the parents would not otherwise pay for, such as a summer program, a music conservatory, or a competitive sports season.
• A car, a laptop or travel for the child when the child is the one who benefits.
• College costs, including costs a 529 cannot cover.
• Reinvesting inside the account, or moving it to a custodial 529 (see below).

Both statutes add one sentence that trips up high-income parents: a payment from the account “is in addition to, not in substitution for, and does not affect, any obligation of a person to support the minor” (CA §3914(c)). The statute lets a custodian spend “without regard to” anyone’s duty to support the minor (§3914(a)), but the spending does not replace that duty. Food, housing, routine clothing and medical care remain the parents’ job. The IRS follows the same line. IRS Publication 550 says income from property given to a child under the Uniform Gifts to Minors Act is taxable to the child, “except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation.” What counts as support depends on state law and on the family’s standard of living, so for a household at $900,000 the line may sit higher than parents expect. Private K-12 tuition is the common grey area and worth a conversation with your tax preparer before you pay it from the account.

What a custodian cannot do

A transfer to a custodial account is irrevocable, and the property is “indefeasibly vested in the minor” (CA Probate Code §3911). That rules out several moves parents sometimes consider when RSU income is lumpy or a house purchase is coming:

• Borrowing from the account for a down payment or a tax bill, even with a plan to repay.
• Retitling the account to a parent, or moving it into a joint or parent-owned brokerage account.
• Changing the beneficiary to a sibling. Each child’s account belongs only to that child.
• Keeping the account past the transfer age because the child “is not ready”.

Custodians must also act as a prudent person, keep the account separate and keep records of every transaction (CA §3912). If the child is 14 or older in California, the child can petition a court to order a distribution (§3914(b)). A written record of what was spent and why is the best protection if a grown child, a former spouse or a grandparent who funded the account later asks questions.

When your child takes control: 18, 21 or 25

The delay only works if it was written into the transfer when the account was opened (“as custodian for [child] until age 21”). Many accounts opened online use the default. You cannot add a later age afterwards, so an existing California account funded by lifetime gifts will usually pass to your child at 18.

How UGMA withdrawals are taxed in 2026

Taking cash out of the account is not itself taxable. Selling investments to raise the cash is, and so are the dividends and interest the account earns each year. That income belongs to the child, but the kiddie tax pulls most of it up to your rate. For 2026, per IRS Rev. Proc. 2025-32 and the Form 8615 instructions:

• The first $1,350 of a child’s unearned income is tax-free.
• The next $1,350 is taxed at the child’s own rate.
• Unearned income over $2,700 is taxed at the parents’ rate. This applies to children under 18, and in some cases to children aged 18, or full-time students aged 19 to 23, whose earned income is not more than half of their support.

Qualified dividends and long-term gains keep their lower federal rates under the kiddie tax, so at your income the excess is typically taxed at 20% rather than 37%. For 2026 the 20% rate applies to joint taxable income above $613,700.

California runs its own version. Form FTB 3800 (2025) taxes a child’s unearned income over $2,700 using the parent’s California taxable income, and California has no lower rate for capital gains, so a gain inside the account is taxed like wages at your bracket. Washington has no income tax on wages or dividends for 2026 (a new 9.9% tax on income over $1,000,000 is scheduled to start in 2028, per the Department of Revenue), and its 7% capital gains tax only applies above a $278,000 standard deduction (2025, the latest published figure), which a child’s account rarely reaches.

Worked example: a $180,000 account and a $20,000 withdrawal

Assumptions: a married couple in Sunnyvale with $950,000 of W-2 and RSU income and about $880,000 of taxable income. Their daughter is 11. Her grandparents have made yearly gifts to her UGMA account, each within that year’s gift tax annual exclusion, and it now holds $180,000 in an index fund. In 2026 the fund pays $3,600 of qualified dividends. The custodian sells $20,000 of shares, with an $8,000 long-term gain, to pay for a two-summer research program the parents would not otherwise fund.

The same family living in Bellevue would owe about $1,780 of federal tax and nothing to the state. Two takeaways: first, most of the tax comes from the dividends and the gain, not the withdrawal, so selling the lots with the highest cost basis first can reduce it. Second, if the parents had instead used the $20,000 for their daughter’s regular living costs, the income portion could be taxed to them, and they would have spent money they were obliged to provide anyway.

Moving UGMA money into a 529

Many families at this income level would rather hold college money in a 529, where growth is tax-free for qualified education costs. A custodian can sell the UGMA investments and contribute the cash to a custodial 529 set up for the same child. The money stays the child’s property: the beneficiary cannot be changed, and the account still passes to the child at the transfer age. The sale is taxed as above, so spreading it over two or three tax years can keep more of the gain at the child’s rates. California gives no state deduction for 529 contributions, so the benefit is the tax-free growth, not an upfront deduction.

On financial aid, the federal handbook is direct: “Because the minor is the owner of the account, it counts as the minor’s asset on the FAFSA form, not the asset of the custodian” (FSA Handbook 2025-26). A 529 is treated differently: for a dependent student, the same handbook says a 529 account designated for a dependent student is reported with the parents’ investments, so moving UGMA money into a custodial 529 generally changes how it counts for federal aid even though it stays the child’s property. Student assets count more heavily than parent assets, but at $600,000 or more of income most families will not qualify for need-based federal aid, so control and taxes usually matter more than aid.

A custodian’s checklist before any withdrawal

1. Does this expense benefit the child, not the household?
2. Is it something we are already legally required to provide? If yes, paying it from our own money is usually cleaner.
3. Which lots will we sell, and what gain does that create this year?
4. Will the child’s unearned income go over $2,700 for 2026, and are we ready for Form 8615 (and FTB 3800 in California)?
5. Have we written down the date, amount, purpose and who approved it?

Mistakes we see with custodial accounts

• Treating the $19,000 gift exclusion as an account limit. There is no UGMA or UTMA contribution limit. $19,000 (2026) is the federal gift tax annual exclusion per donor, per child. Larger gifts use part of the donor’s $15,000,000 lifetime exclusion and require Form 709. See UTMA contribution limits.
• Letting a relative’s generosity build a large account without a plan. A $300,000 account that passes to an 18-year-old in California is theirs to spend.
• Skipping the kiddie tax filing. Brokerages issue the 1099 in the child’s name. It still has to be reported.
• Using a custodial account when the child has earned income. A child with a real job can fund a custodial Roth IRA instead, up to the lesser of earnings or $7,500 for 2026.

What to write down for your child

The transfer age is a deadline, not just a legal event. By 18 or 21, your child will have full control of the money and none of the context unless someone wrote it down: who gave it, why, what it has already paid for, and how you would think about the rest. A one-page note in your FamilyKnowledge® Library each time you make a withdrawal is enough. As Kevin Luu, Co-Founder and Chief Learning Officer of Bright Advisers, puts it: “Your kids will inherit your money. Will they inherit your judgment?”

Frequently asked questions

Can a parent withdraw money from a UGMA account for personal use?

No. The money belongs to the child from the day it is deposited, and the gift cannot be reversed. A custodian who spends it on the parents or the household may be personally liable to repay it, and in California a child aged 14 or older can ask a court to step in. Spending on the child is allowed, but costs the parents must provide anyway are usually better paid from the parents’ own funds, since using the account does not reduce the parents’ support duty.

Is there a penalty for withdrawing from a UGMA account?

There is no withdrawal penalty and no age requirement for spending on the child. The cost is tax: selling investments creates capital gains, and together with dividends that income falls under the kiddie tax. For 2026, unearned income over $2,700 is taxed at the parents’ rate, and California applies the same idea on Form FTB 3800.

What happens if the custodian dies?

The account does not go to the custodian’s estate or heirs. A successor custodian takes over, ideally one named in advance. In California, if none was named, a child aged 14 or older may choose one within 60 days; otherwise the child’s conservator steps in, and failing that a family member can ask a court to appoint someone (Probate Code §3918). Parents who are custodians should name a successor custodian with the brokerage and in their estate documents.

Next step

Pull the account agreement and check two things: the transfer age written into it, and the cost basis of each holding. Those two facts decide how much time you have and what each withdrawal will cost. For step-by-step mechanics, see how to withdraw from a custodial account and 529 plans vs custodial accounts. Families who want the tax side and the conversation with their kids handled together can start with our tax management and Age Five Wealth Education work.

This is general education, and the right move depends on your family’s full picture.

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

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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