Can I Open a Savings Account for My Grandson?

Grandparents often wish to contribute to their grandchildren’s future. Establishing a savings account is a practical way to set aside funds for significant life events, such as higher education or starting a career. This financial foresight provides a meaningful head start.

Exploring Savings Account Options for Minors

When considering a savings account for a minor, two primary options are custodial accounts (UGMA or UTMA) and joint accounts with a parent or guardian. Each type offers distinct structures for ownership and control.

Custodial accounts (UGMA or UTMA) are established by an adult for a minor. Assets legally belong to the minor, though an adult custodian manages the account until the child reaches a certain age. UGMA allows for gifts of cash and securities, while UTMA permits a broader range of assets. All 50 states have adopted either UGMA or UTMA, with many now offering UTMA due to its expanded flexibility. The custodian has the fiduciary responsibility to manage the funds prudently for the minor’s benefit.

The custodian controls investment decisions but cannot revoke the gift or change the beneficiary. The minor cannot access the funds until they reach the age of majority, typically 18 to 21, or up to 25 in some states. At this age, the custodian transfers full control of the assets to the adult beneficiary, who can then use the funds for any purpose.

Alternatively, a joint savings account can be opened with a parent or legal guardian. Both the adult and minor are account holders, sharing access and control. While this offers immediate access for the minor, the adult retains full authority. This account type simplifies management but lacks the legal separation or potential tax advantages of custodial accounts.

Legal and Tax Implications

Establishing a savings account for a grandson involves specific legal and tax considerations for both the grandparent and the minor.

Funds deposited into a custodial account (UGMA or UTMA) are irrevocable gifts to the minor. The money legally belongs to the grandson and cannot be reclaimed. The adult grandson can use these funds for any purpose, even if originally intended for education.

Contributions to these accounts are subject to annual gift tax exclusion rules. For 2025, an individual can gift up to $19,000 per recipient without federal gift tax reporting. A married couple can gift up to $38,000. Gifts exceeding this reduce the donor’s lifetime gift and estate tax exemption ($13.99 million per individual for 2025). Exceeding the annual limit requires filing IRS Form 709.

Income generated within custodial accounts, such as interest, is taxed to the minor. However, “kiddie tax” rules may apply. For 2025, the first $1,350 of a child’s unearned income is generally tax-free. The next $1,350 is taxed at the child’s marginal tax rate. Any unearned income exceeding $2,700 is then taxed at the parents’ marginal tax rate. The child may need to file their own tax return if their unearned income surpasses these thresholds.

Process for Opening and Funding the Account

Opening and funding a savings account for a grandson involves required documentation. The process begins with selecting a financial institution offering suitable minor accounts, such as custodial or joint options. Research banks or credit unions to compare offerings, including minimum deposit requirements or fees.

Once a financial institution is chosen, documentation is needed from both the adult and the minor beneficiary. The grandparent (or parent for a joint account) needs valid government-issued identification and proof of address. For the grandson, his Social Security number and a birth certificate or other identification are typically required.

Account opening can often be completed in person at a bank branch. Some institutions offer online opening. During this process, the adult specifies the account type (UGMA/UTMA or joint) and provides the initial deposit.

After establishment, contributions can be made via direct deposits, electronic transfers, or check deposits. Regular contributions accumulate significantly over time due to compounding interest. The custodian manages custodial accounts until the minor reaches the age of majority.