A custodial account is a special savings or investment account that one person opens for the financial benefit of another. In many cases, a parent or guardian opens a custodial account to give mo🏅ney to or invest money for a minor. Parents can use it to build savings for a child, to allow other family members to make financial gifts to that sa💟me child, or to teach their child about investing at a young age. 

If you’re considering a custodial account, it’s normal to wonder about the potential expenses you might face along the way. Custodial account costs are typically lܫow, but they can vary based on꧅ the broker or financial institution you work with and the type of custodial account you choose to open.

There are two common types of custodial brokerage accounts: Unifo👍rm Gift to Minors Act (UGMA) accounts and Uniform Transfers to Minors Act (UTMA) accounts. The primary differences have to do with the types of assets you can contribute to each. Here’s what you need to know abou🙈t custodial accounts for minors and their associated costs.

UGMA Custodial Account

The Uniform Gift to Minors Act is the name of a law that lets minors receive financial gifts without the need for a trustee. You can use a UGMA account to give financial assets to a minor, like a child or grandchild. Some examples of assets you (and other family members or friends) can contribute to a UGMA include cash, stocks, bonds, 澳洲幸运5官方开奖结果体彩网:certificates of deposit (CDs), index funds, mutual funds, and more.

Costs Associated With UGMA Accounts

澳洲幸运5官方开奖结果体彩网:Custodial accounts, like UGMA accounts, can include fees like any other deposit or investment account you open. So, it’s important to pay attention to the fees that a 澳洲幸运5官方开奖结果体彩网:brokerage firm or financial institution charges to find the best UGMA 𝕴account for your child’s needs. 

Some of the fees and requirements associated with a UGMAꦉ account may include: 

• 澳洲幸运5官方开奖结果体彩网:Monthly maintenance fees
• Annual fees
• Account minimums
• Trade fees
• Commissions
• Transfer fees

UTMA Custodial Account

The Uniform Transfers to Minors Act is another law that gives minors the ability to receive financial gifts and other valuable assets without the need for a special 澳洲幸运5官方开奖结果体彩网:trust fund. The UTMA came after the UGMA, and not only lets minors receive gifts of financial assets (like cash, stocks, bonds, mutual funds, etc.), but also real estate, fine art, and other types of property. 

Costs Associated With UTMA Accounts

The cost of a UTMA account can vary just like any other type of investment account or deposit account you open. Thereforeℱ, it’s important to shop around and compare fees from multiple brokerage firms or financial institutions before you open one. 

🧔You should watch out for the same kinds of expenses mentioned above for UGMA accounts. Be sure to read the fine print so you don’t miss any important details that could impact your overall costs. 

Tax Requirements of Custodial Accounts

Fees from your brokerage firm or financial institution aren’t the only expense to consider. It’s also important to understand tax requirements associated with 澳洲幸运5官方开奖结果体彩网:custodial accounts and who’s responsible for paying taxes on any income those assets generate while the beneficiary is still a minor. 🐷;

Both UGMA and UTMA custodial accounts are taxable investment accounts, which means they are not 澳洲幸运5官方开奖结果体彩网:tax-advantaged. But, since the child owns the custodial account, the initial earnings it generates should fall under the child’s lower tax rate rather than the parent’s typically higher 澳洲幸运5官方开奖结果体彩网:tax bracket. However, there are limits.

Here are some potential tax benefits of using a UGMA or UTMA account for eligible minors (children under 19 or full-time stude🎀nts under 24 years old):

• Up to $1,350 in custodial account earnings may be exempt from federal income tax.
• Pay federal taxes at the child’s tax rate for the next $1,350 in earnings. 
• Pay federal taxes at the parent’s tax rate for any earnings above $2,600. 

Pros and Cons of Opening a Custodial Account

If you’re considering opening a UGMA or UTMA account ไfor your child (or anyone else), it’s wise to consider the advantages and disadvantages first. Here are some important facts you should know.

Compare the Best Custodial Accounts

The Bottom Line

Custodial accounts allow adults to help their kids (or grandkids) start saving without needing a trustee. If you open one, you're responsible for managing it. This means that you make all the investment decisions and decide how the money will be used. While there are no income or contribution limits, you must keep in mind that the account can only be used for the benefit of the named beneficiary. Once named, you can't change it to someone else. And if you plan on applying for financial aid for school, the balance in the account could reduce any funding you receive.