Custodial Accounts for

Your Children

What is a Custodial Account?

This is a savings account for a minor that is controlled or supervised by an adult - usually a parent, guardian or grandparent. Accounts can be held at banks, brokerage houses or mutual fund companies. All transactions made, such as buying or selling stock, must be approved by the adult overseeing the account.

Why do parents open custodial accounts for their children?

Parents open accounts for their children for a variety of reasons, but it’s usually to save for college, create a nest egg for their future, or to teach children the value of money. Children with custodial accounts can learn about investing at an early age and see the benefits of long term compounding.

Children take ownership of a custodial account between the ages of 18-21, depending on the state. If they make good investments, they could have money to pay for college, purchase a car or travel around the globe before starting their careers.

What types of custodial accounts are out there?

A custodial or UGMA (Uniform Gift to Minors) account can have cash, stocks, bonds, mutual funds and other secure financial products. UTMA accounts are basically the same, but can have property and real estate as well. Dividends, interest and earnings are taxed, but because the account is owned by a minor, the tax rate is lower than it would be if the money was in the parent’s account.

When is the right time

to open an account for your child?

It is different for everyone. Some parents do this when their child is born. Others open accounts when their child starts receiving an allowance, gifts from relatives, a first paycheck - or when their child expresses interest in investing in the stock market.

How much money is needed to open a custodial or education account?

You can open an account with any amount that is comfortable for you and your child. Some people open an account with $100 - Others open an account with $1,000, $5,000 or more.