Custodial Account Tax Calculator
Every guide to custodial accounts tells you the kiddie tax starts at $2,700. None of them tell you what balance produces $2,700. This works out the tax on your child's account — and the balance at which it starts to matter.
At 3%, this account owes nothing at your rate until it holds $90,000, and owes no federal tax at all until $45,000.
At what balance does the kiddie tax actually start?
The thresholds are fixed dollar amounts, so the balance that triggers them depends entirely on yield. Divide the threshold by the yield and you get the answer the explainer pages never print:
| Annual yield | Balance where tax starts | Balance where your rate starts |
|---|---|---|
| 1.0% | $135,000 | $270,000 |
| 1.5% | $90,000 | $180,000 |
| 2.0% | $67,500 | $135,000 |
| 2.5% | $54,000 | $108,000 |
| 3.0% | $45,000 | $90,000 |
| 3.5% | $38,571 | $77,143 |
| 4.0% | $33,750 | $67,500 |
| 4.5% | $30,000 | $60,000 |
| 5.0% | $27,000 | $54,000 |
A custodial account yielding 3% doesn't touch the parent's tax rate until it holds around $90,000. That is a long way from where most family accounts sit, and it is worth knowing before the tax treatment drives the decision.
Note what the yield input does and doesn't include. Unearned income is interest, dividends and gains you actually realise. An index fund that rises 8% and is never sold produces almost no unearned income — only its dividends count. A savings account paying 4% produces the full 4%.
How the kiddie tax works in 2026
A child's unearned income is split into three tiers. The first $1,350 is covered by the dependent standard deduction and taxed at nothing. The next $1,350 is taxed at the child's own rate. Anything above $2,700 is taxed at the parent's marginal rate.
It applies to a child under 18; to an 18-year-old whose earned income was not more than half their support; and to a full-time student aged 19 to 23 in the same position. At least one parent must have been alive at the end of the tax year. Where it applies, Form 8615 is attached to the child's return.
The threshold is per child, not per account. A child with three accounts adds the unearned income from all of them.
UTMA, UGMA and 529: what's actually different
The three vehicles differ less in what they hold than in when the money is taxed, what it can be spent on, and who ends up in control.
| UTMA / UGMA | 529 plan | |
|---|---|---|
| Whose money legally | The child's — an irrevocable gift | The account owner's, usually the parent |
| Who controls it | Custodian, until the state's termination age | The owner, indefinitely |
| Control transfers at | Generally 18 to 25, varying by state | Never automatically |
| Growth taxed | Yes, each year, under the kiddie tax | No — earnings accumulate tax free |
| What it can be spent on | Anything, once transferred | Qualified education expenses |
| Non-qualified withdrawal | Not applicable | Earnings taxed, plus 10% additional tax |
| K-12 tuition | Not applicable | Up to $20,000 a year from 2026 |
| Student loan repayment | Not applicable | $10,000 lifetime |
| Roth IRA rollover | No | Up to $35,000 lifetime, account open 15+ years |
| Financial aid | Counted as the student's asset | Counted as the parent's, when parent-owned |
Student assets are assessed more heavily than parent assets on the FAFSA, so the last row matters more than it looks. The exact percentages depend on the formula in force for the year your child applies, and they have changed recently — check the current Student Aid Index formula rather than relying on a number from an older article.
When control transfers, and why it varies
A custodial account is an irrevocable gift: the money belongs to the child from the moment it goes in, and a parent cannot take it back except to spend it on the child. At the state's termination age, control transfers and the money can be used for anything at all.
For UTMA accounts that age is 21 in most states, and 18 in California, DC, Kentucky, Maine, Maryland, Michigan, Nevada, Oklahoma and South Dakota. Louisiana uses 22. UGMA accounts terminate at 18 in most states, 19 in Alabama and Nebraska, and 21 in Mississippi. Several states let the donor elect a later age when the account is created — Florida up to 25, Wyoming up to 30.
What changed for 2026
The One Big Beautiful Bill Act, signed on 4 July 2025, doubled the amount that can be withdrawn from a 529 for K-12 expenses to $20,000 a year for 2026 distributions, up from $10,000. It also widened what counts as a qualified K-12 expense to include curriculum and instructional materials, tutoring by an unrelated qualified tutor outside the home, standardised, AP and college admission test fees, and educational therapies for students with disabilities.
The kiddie tax thresholds themselves did not move: $1,350 and $2,700 are the same for 2026 as for 2025. Many pages still quote the old $10,000 K-12 cap, so it's worth checking the date on anything you read about this.
Where these numbers come from
Every figure on this page is federal, sourced, and dated. Rates change; the checked-on dates tell you how much to trust them.
- Kiddie tax tiers of $1,350 / $1,350 / $2,700 for 2026, per Rev. Proc. 2025-32 — Fidelity. Checked 28 July 2026.
- Age and support tests, and the Form 8615 filing requirement — IRS Topic 553. Checked 28 July 2026.
- 2026 federal ordinary rates and brackets, from Rev. Proc. 2025-32 — Tax Foundation. Checked 28 July 2026.
- 529 treatment: tax-free earnings, the $20,000 annual K-12 limit ($10,000 before 31 December 2025), $10,000 lifetime for student loan repayment, and the $35,000 lifetime Roth rollover after 15 years — IRS Topic 313. Checked 28 July 2026.
- The 10% additional tax on non-qualified distributions, and its exceptions for death, disability, scholarships and the service academies — 26 U.S.C. §529(c)(6) applying §530(d)(4). Checked 28 July 2026.
- Custodial accounts as irrevocable gifts, and transfer of control between 18 and 25 depending on the state — Fidelity; state-by-state termination ages — Finaid. Checked 28 July 2026.
This calculator describes how the rules work. It is not tax advice, it models federal tax only, and it ignores state tax and the preferential rates that apply to qualified dividends and long-term capital gains. For anything that turns on your own circumstances, talk to a tax professional.
What the account grows into
This page deals with what happens to the earnings. For what the balance itself becomes, the investing for kids calculator projects a monthly amount through to 65, and the savings by 18 calculator does the same to the eighteenth birthday. If you're running the money yourself rather than through a broker, how to run a bank of mom and dad covers the setup.
Frequently asked questions
At what balance does a custodial account start owing tax?
It depends on yield, not on balance alone. At a 3% taxable yield, the first tax is owed at about $45,000 and the parent's rate starts at about $90,000. At 5% those figures fall to $27,000 and $54,000. Divide $1,350 or $2,700 by your yield to get the balance.
Does the kiddie tax apply to a 529 plan?
No. Earnings in a 529 accumulate tax free, so there is nothing to tax each year. The difference between a 529 and a custodial account is not the rate — it is whether growth is taxed annually at all. A 529's tax arrives only if money comes out for something that isn't a qualified expense, as income tax on the earnings plus a 10% additional tax.
What happens to a UTMA when my child turns 18?
In most states, nothing — UTMA accounts usually terminate at 21, not 18. Where they do terminate at 18, control passes to your child and the money becomes theirs to use for any purpose. The account has legally been theirs the whole time; what changes is who signs for it.
Is the $2,700 threshold per child or per account?
Per child. All of a child's unearned income is added together, across every account they hold, and the tiers are applied to the total. Opening a second custodial account does not create a second allowance.