Opening a savings account for an infant grandchild gives you 18 to 21 years to make deposits to support their future needs and dreams. Most banks allow grandparents to start and control a minor child’s savings account until they reach adulthood. In addition to creating a valuable gift for them, you’ll get to plan deposit amounts and make them when they fit your budget.
Minor Bank Account Regulations
Under most state laws, minors can’t open or own bank accounts. However, adults can open accounts for minors who are related to them.
Savings accounts for minors fall under two federal laws that govern custodial accounts for minors. Uniform Transfer to Minors Act accounts are available in all 50 states. However, Uniform Gift to Minors Act accounts are not available in Vermont and South Carolina, according to Business Insider.
Minor Bank Account Identification Requirements
Because the account is for a minor, you will become the custodian of the account, but your grandchild is legally the account holder. You will also need documents that confirm your own name, address, Social Security number and relevant banking information. The bank normally sends your grandchild’s account statements to your address.
Bankrate notes that you should expect to provide your grandchild’s Social Security number, parent’s address and names and possibly their birth certificate. With most existing bank relationships, you can usually ask the manager if you must supply other documentation to prove your relationship to your grandchild.
Physical and Online Access
Ideally, you should try to open your grandchild’s savings account at the bank where you already have your own bank accounts. This makes it simpler to add money to your grandchild’s account when you do your own banking. In addition, if possible, you should arrange to have online banking access for the custodial account. This will allow you to make electronic transfers from your account to your grandchild’s account.
Account Funding Methods
Some banks will help you fund your grandchild’s account automatically. Ask if you can arrange for monthly or quarterly debit from your own accounts to your grandchild’s account. Like a utility or mortgage payment, these deposits will take place on the date that you choose. You’ll see them listed on your grandchild’s online or paper statements. This funding method is helpful if your grandchild’s account is not at your personal bank.
IRS gift tax regulations and rules also apply to custodial savings accounts for minors. Once you deposit funds into a UTMA or UGMA account, they legally become a gift to your grandchild. While you are the custodian you can make withdrawals from the account only for your grandchild’s benefit. Get receipts of expenditures that you make, such as classroom supplies or band uniforms, if you withdraw money from your grandchild’s account.
Grandparent Gift Tax Exemption
IRS regulations allow you to deposit $15,000 per year into your grandchild’s custodial savings account without using any of your lifetime gift tax exclusion, according to JP Morgan. For couples, the excluded amount is $30,000 per grandchild. You’ll report your total deposits on your tax return each year.
Custodial Savings Account Taxes
Although your grandchild won’t control the funds in their savings account, the IRS considers the interest that the account earns as income for them. Usually, your grandchild’s parents need to file a tax return for unearned income from interest.
For unearned income of $1,100 or less, your grandchild won’t pay taxes. If the interest is between $1,101 and $2,200, the IRS taxes their income at the rate for children. The parent’s tax rate applies any year your grandchild’s interest from a custodial savings account is more than $2,200.
- Business Insider: What is an UTMA or UGMA? A Custodial Investment Account For Your Child
- Bankrate: Why Your Child Should Have A Savings Account And How To Open One
- JP Morgan Securities: Custodial Accounts
- Nolo. "'Permissive Use' Car Insurance Coverage." Accessed April 23, 2020.
- Insurance Information Institute. "What Is Covered by a Basic Auto Insurance Policy?" Accessed April 23, 2020.
- Claims Journal. "Does Automobile Insurance Follow the Car or the Driver?" Accessed April 23, 2020.
Carol Luther has published feature articles in print magazines, ghostwritten blogs, and produced digital content since 2007. She has published personal finance and small business articles for the Houston Chronicle, Mahalo, the Nest, USA Today, Wahm, and Zacks. Carol has designed, implemented and managed multi-year, multimillion-dollar domestic and international projects services for higher education, nonprofits, and small to medium businesses for more than 20 years.