Understanding CUTMA Accounts: A Guide to Saving for Your Child in California
Key Takeaways
- A CUTMA account is a custodial account that holds assets for a minor under the California Uniform Transfers to Minors Act.
- Assets can include cash, investments, or property.
- The custodian manages the account and must use funds solely for the child’s benefit.
- In California, a CUTMA account generally transfers to the child at age 18, unless the account is established with a later age—up to 25—specified in writing (California Probate Code §3920.5).
- When held at an FDIC-member bank and properly titled, a CUTMA account is eligible for up to $250,000 in FDIC insurance coverage per child, for eligible deposit products.
- Funds may be used for education, healthcare, or other child-related expenses.
- It offers a convenient way to gift and manage assets for a minor—without the complexity of establishing a formal trust.
Every parent, grandparent, or guardian wants to give the next generation a head start—whether that means saving for college, a first car, or even a future home. And the earlier you start, the greater the impact.
A CUTMA account offers a flexible, straightforward way to gift and manage assets for a child’s future. Whether you’re building toward short-term milestones or long-term wealth, this custodial account can help you support their journey with confidence.
What Is a CUTMA Account?
A CUTMA account—short for California Uniform Transfers to Minors Act account—is a type of custodial account governed by California Probate Code §§3900–3925 that allows an adult (the “custodian”) to manage assets on behalf of a child until they reach legal adulthood.
It’s important to note that a CUTMA account isn’t a “savings account” in the traditional sense. Instead, it’s a legal structure that can hold various types of assets, such as:
- Cash
- Stocks, bonds, or mutual funds
- Real estate (in some cases)
- Other personal property
These contributions are considered irrevocable gifts to the child. While the custodian maintains control and decision-making authority, the assets legally belong to the child and must be used solely for their benefit.
Unlike education-only savings vehicles, such as 529 plans, CUTMA accounts offer far greater flexibility in how funds can be used—making them a popular choice for families looking to support a child’s broader life goals, not just tuition.
Who Controls the Funds in a CUTMA Account?
The custodian manages the account but has a fiduciary duty to use the funds solely for the child’s benefit. This means the custodian can use the funds for the child’s needs, such as:
- Private school tuition
- Extracurricular activities
- Medical needs
- General living expenses that benefit the child
- A first car or other essentials as the child grows
Important: Funds cannot be used for the custodian’s personal needs or for any non-child-related expenses.
Control of the account generally transfers to the child at age 18. However, custodianship may extend to age 25 if this is specified in writing when the account is established, under California Probate Code §3920.5.
Key Benefits of a CUTMA Account
- Flexibility: Funds can support any purpose that benefits the child — not just education.
- Diverse Asset Options: Contribute cash, securities, or other property types.
- Simplicity: A convenient way to gift and manage assets for a minor — without the complexity of establishing a trust.
- Potential Tax Advantages: Earnings may be taxed at the child’s lower tax rate (subject to “kiddie tax” rules).
- Irrevocable Ownership: Assets belong to the child, managed by the custodian until adulthood.
How Does a CUTMA Account Compare to a 529 Plan?
While both accounts help save for a minor’s future, they serve different goals.
| Feature | CUTMA Account | 529 Plan |
|---|---|---|
| Use of Funds | Flexible — any expense that benefits the child (education, healthcare, living expenses) | Primarily for qualified education expenses (tuition, books, room and board) |
| Account Ownership | Belongs to the child | Belongs to the account owner |
| Control Over Funds | Custodian loses control once the child reaches age of majority | Account owner retains control, even after the child reaches adulthood |
| Tax Advantages | Possible tax benefits; subject to “kiddie tax” rules | Earnings grow tax-deferred and may be withdrawn tax-free for qualified education expenses |
| Impact on Financial Aid | Considered the child’s asset; may reduce eligibility more significantly | Considered a parental asset; less impact on financial aid |
| Flexibility | Very high; funds can be used for a wide range of needs | Limited to educational purposes for tax-advantaged treatment |
Is a CUTMA Account FDIC Insured?
Yes — conditionally. CUTMA accounts held at an FDIC-member bank like New Omni Bank are eligible for FDIC coverage, provided they hold deposit products (such as savings accounts, CDs, or money market deposit accounts).
- Covered: Deposits held in FDIC-insured products are insured up to $250,000 per child, per insured bank.
- Not Covered: Investments like stocks and mutual funds held within the account are not FDIC-insured.
Even though the account is managed by the custodian, FDIC coverage is applied to the minor as the legal owner. This protection helps safeguard your child’s savings in the event of a bank failure.
How to Open a CUTMA Account
Opening a CUTMA custodial account at New Omni Bank is straightforward. Our team can help you:
- Understand contribution rules and potential tax implications (please consult a qualified tax advisor)
- Work with us to identify the ideal deposit product
- Set up and title the account properly
- Manage distributions in line with your child’s needs
If you’re wondering how to open a CUTMA account, our bankers are here to walk you through every step.
Why Open a CUTMA Account with New Omni Bank?
At New Omni Bank, we specialize in helping families plan with purpose. Whether you’re building an education fund, preparing for big milestones, or simply wanting to pass on a financial legacy, a CUTMA custodial account is a great place to start.
We offer CUTMA accounts with no monthly service fees, making it easier and more affordable to save for your child’s future.
Visit your nearest branch or speak with a banker today to learn more about UTMA.
Disclaimer: The information provided in this article is for general informational purposes only and should not be considered legal, tax, or financial advice. Tax laws regarding CUTMA accounts and the “kiddie tax” can be complex and subject to change. Please consult your tax advisor, legal counsel, or financial professional to determine what strategies may be appropriate for your situation.
