When you establish and fund a custodial account for your child – either an UGMA or UTMA account – it’s a gift you can't take back. Schwab gives you access to a wide range of investments with no minimum opening balance, no monthly fee, and free trades of Schwab ETFs and accounts on the Schwab Select List of mutual funds. A brokerage account is a must-have if you want to be a great investor. Unlike a savings account you might open for your child, these brokerage accounts allow your kid to benefit from the wealth-generating potential of the stock market. Using a custodial account … Regular trades are $4.95 each, but with a huge list of Schwab funds to choose from with no trade fees, you likely won’t need to pay that $4.95. Instead, you have to invest assets and spend money in the account in the best interests of the child named on the account. Because it’s a convenient way to give a child a financial head start. That means you’ll pay a few extra dollars for their fees on top of FutureAdvisor, but you’ll know your investments are in the right place for your goals. Custodial brokerage accounts can help you set your child up for financial success. That is particularly valuable for income tax purposes, because unearned income in a custodial account typically gets taxed to the child rather than to the person managing the account. That is the case at Etrade and other custodial accounts that fall under the UTMA/GTMA regulations. Better investing begins with the account you select Whatever your strategy might be, TD Ameritrade has an online brokerage account suited for you. And … The Ascent is a Motley Fool service that rates and reviews essential products for your everyday money matters. Brokerage firms may charge account maintenance fees in addition to trading fees or commissions. When funds are transferred into a minor child’s custodial account at a financial institution or brokerage firm, the funds now irrevocably belong to that child. Custodial accounts in the United States are regulated by the Uniform Transfers to Minors Act (UTMA) and Universal Gifts to Minors Act (UGMA). Everything You Need to Know About Savings, Copyright, Trademark and Patent Information. Technically, the Uniform Gift to Minors Act usually provides for only a limited set of possible gifts, including cash, stocks, bonds, mutual funds, insurance policies, and other securities. It’s how we make money. By opening a custodial brokerage account in the name of a child, you can provide a huge leg up for that child's financial future. In addition, custodial accounts give you maximum flexibility in using the money on the child's behalf. One benefit of custodial brokerage accounts is that they allow you to continue to invest money on behalf of a child without you having to hold legal ownership of those assets. While trade fees up to $5 per trade are common, you should not open an account that charges regular fees even when you don’t have trading activity. Custodial brokerage accounts are accounts that a person sets up on behalf of a minor child. Your state of residence will define which law is available to you in establishing a custodial account. One of the great things about gifting stocks, mutual fund shares, and bonds via a custodial account at a brokerage like Ally Invest is that any child (yours or someone else’s) can receive them. That means, once you open a custodial account, you no longer have unlimited control over the assets in that account. You control the account until the child comes of age, with access to our full range of investing choices. Some brokerages offer you free personal advice and support, some manage investments for you, and others offer research and resources to learn and make decisions on your own. One common problem is that when a child who has a custodial account goes to college, the assets in that account are treated as if they belong to the child. This kind of account provides you with maximum flexibility in how you choose to invest and use the funds. What’s a custodial account you ask? They can hop on the Stockpile website and choose one of 1,000 stocks and ETFs (they don’t support every stock out there) with an e-gift card, print-at-home gift card, or mailed gift card. Once redeemed, the shares show up in your minor’s account the same way they'd show up if you had invested yourself. The overall best choice for a custodial account is Charles Schwab. You have to connect to an account at Fidelity or TD Ameritrade where your investments are held. While stock and options trades cost $6.95 (not the cheapest on this list), account holders get access to 4,400 no-load and no-transaction-fee mutual funds. You may find some custodial accounts referred to as UTMA or UGMA accounts, but those terms can be used interchangeably with "custodial account" in many scenarios. Custodial brokerage accounts are accounts that a person sets up on behalf of a minor child. If you just want to put the funds in an account and let someone else take care of the rest, FutureAdvisor might be your best choice. Within the framework of that relationship, the custodian has full authority to manage the assets in the account. If you open a UTMA custodial account for your child at Stockpile, other family members may want to contribute. To … Compensation may impact the order in which offers appear on page, but our editorial opinions and ratings are not influenced by compensation. Traditionally, a custodial account refers to a managed … You can open a custodial account — both a standard brokerage account and a Roth IRA — for your child in under 15 minutes or so; at most brokers, the entire process is completed online. In general, a custodial account is an account managed by an individual for the benefit of another. A custodial account is really any type of financial account that one person opens and maintains for another person. Updated April 9, 2020. A custodial account is generally created by a parent or grandparent for the benefit of a minor child or grandchild. When opening a new custodial account, you have plenty of options from investment brokerages, banks, and other financial institutions. Matt is a Certified Financial Planner® and investment advisor based in Columbia, South Carolina. However, custodial accounts also have some requirements you have to follow, along with some potential traps for the unwary. If you want high-tech trading that looks like something a Wall Street trader uses, you’ll be thrilled with the advanced trading options in Thinkorswim. With a brokerage account, you can buy and sell stocks along with a host of other investments that can help you reach your financial goals. Why open a Custodial Account? For the most part, there's little practical difference between an UGMA account and an UTMA account. By using The Balance, you accept our. Custodial brokerage accounts can be … The Ascent does not cover all offers on the market. The only big downside is that you can’t buy stocks or mutual funds from outside from the Vanguard family. The Ascent is reader-supported: we may earn a commission from offers on this page. We have not reviewed all available products or offers. All rights reserved. TD Ameritrade categorizes its custodial account as an education savings vehicle for marketing purposes, but you are not restricted to use the funds for college. Finally, it's important to remember that establishing a custodial account involves making a gift. The first thing to consider is the fees. Custodial accounts under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) allow you to save on behalf of a child for education or any other purpose that benefits the … The most important characteristic about a custodial account is that opening the account creates something called a "fiduciary relationship" between the custodian and the child. If you are a parent or guardian of a young person, this gives you the opportunity to save and invest for your child while retaining full control of the account until they reach adulthood. A custodial account is a type of savings or investment account that an adult (often a parent or grandparent, but can also be a nonrelative) opens for a child. He has an MBA and has been writing about money since 2008. Learn more about opening investment accounts … As such, you're potentially subject to gift tax unless one of the many exclusions to the tax applies. He’s a graduate of the University of South Carolina and Nova Southeastern University, and holds a graduate certificate in financial planning from Florida State University. Know what you will be able to access when you sign up and consider the minor’s long-term needs beyond the next few years. The more time you have to invest, the more likely you are to achieve the growth in your portfolio that you're seeking to attain. So how do you decide which account is best for your family? You can unsubscribe at any time. However, if you go over the annual exclusion amount, you might need to file a gift tax return in order to claim the lifetime exclusion. Explore the best credit cards in every category as of February 2021. Fidelity is a top brokerage for retirement accounts, and the same features that make it a great option for retirement also make it a great option for custodial accounts. Most brokers and financial institutions won't let minor children open accounts directly. A custodial account is a financial account held in the name of a minor, usually by a parent, legal guardian, or another relative. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team. The accounts offer potential tax benefits and the flexibility to use funds for educational or non-educational expenses. That can have a much larger negative impact on the amount of financial aid that the child receives than if the money were held in a parent's brokerage account or in a tax-favored vehicle like a 529 college savings plan. Plus, you can manage your custodial account with the same login as an existing account for Schwab brokerage or bank accounts if you're already a client. Most commonly, custodial accounts are held by parents, but there's no limitation on who can act … A custodial account is a financial account (such as a bank account, a trust fund or a brokerage account) set up for the benefit of a beneficiary, and administered by a responsible person, known as a legal guardian or custodian, who has a fiduciary obligation to the beneficiary.. Custodial accounts come in a number of forms, one being an account … Your FutureAdvisor account does not work alone. A custodial account is a savings or investment account that is setup for a minor and managed in their best interest by a custodian until the minor becomes an adult, at which point they gain complete ownership of the account’s assets. Thanks to the account’s FDIC insurance, you never have to worry about losing a cent. 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