Can I Open a Bank Account for My Nephew?

An aunt or uncle can open a bank account for a niece or nephew. This process involves establishing an account where an adult manages funds on behalf of a minor, as minors cannot hold direct legal control from the outset.

Account Options for Minors

Custodial accounts are a common option for opening a bank account for a minor. Established under either the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA), these accounts involve an adult, the custodian, managing assets for a minor beneficiary. The custodian controls the account until the minor reaches a specified age, but the funds legally belong to the minor and are considered an irrevocable gift.

UTMA accounts offer broader flexibility than UGMA accounts, allowing for a wider range of assets like real estate, intellectual property, artwork, and traditional financial assets. All states have adopted the UGMA, and most have also adopted or superseded it with the UTMA. Any adult can contribute to these accounts without specific contribution limits.

Another possibility is a joint account, where the adult acts as a co-owner with the minor. In this setup, both the adult and the minor have access to the account. Minors cannot open bank accounts independently, so an adult co-owner is required.

Information and Documents Needed

Opening a bank account for a minor, whether custodial or joint, requires documentation from both the adult and the minor. The adult opening the account will need to provide a government-issued identification, such as a driver’s license or passport, along with their Social Security Number. Proof of address, such as a recent utility bill or financial statement, is also requested.

For the minor, documents include their birth certificate and Social Security Number. Financial institutions may also require a school identification card or a photograph of the minor. Both the adult and the minor may need to be present at the bank to complete the account opening process.

Understanding Account Control

Once a custodial account is established, the custodian holds legal control over the funds until the minor reaches the age of majority. The assets within the account are legally owned by the minor, and any withdrawals or expenditures must be for the minor’s direct benefit. For joint accounts, both the adult and the minor possess transactional access to the funds.

The age at which a minor gains legal control of a custodial account varies by state, falling between 18 and 21 years old, though in some states it can extend up to 25. Once this age is reached and control is transferred, the minor has complete discretion over how the funds are used.

These accounts can have financial implications, particularly concerning taxation and eligibility for financial aid. Income generated from custodial accounts, such as interest, dividends, and capital gains, may be subject to “kiddie tax” rules. For the 2025 tax year, the first $1,350 of a child’s unearned income is tax-free, the next $1,350 is taxed at the child’s rate, and any unearned income exceeding $2,700 is taxed at the parents’ marginal tax rate. This rule applies to dependent children under 18, or full-time students under 24 who meet specific income criteria.

From a financial aid perspective, custodial accounts are considered student assets on the Free Application for Federal Student Aid (FAFSA). This can reduce eligibility for need-based aid by approximately 20% of the asset’s value. In contrast, parent-owned 529 plans are treated more favorably, with a maximum of 5.64% of their value considered available for college expenses.