A UGMA account is a custodial account that lets an adult transfer money or securities to a minor without setting up a formal trust. The adult, known as the custodian, manages the account until the child reaches the age of majority in their state, typically 18 or 21. Once that age is reached, the assets legally belong to the child, and they gain full control over how the money is used.

UGMA accounts can hold cash, stocks, bonds, and mutual funds, but they can't hold real estate or other physical property. Contributions are irrevocable, meaning once money goes into the account, it belongs to the minor and can't be taken back. Many families use UGMA accounts to save for a child's future while taking advantage of the child's typically lower tax rate on investment earnings.