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Introduction to Custodial Accounts
Custodial accounts are brokerage accounts that allow parents or guardians to invest on behalf of their children or dependents. Ownership of these accounts transfers to the minors once they reach legal age (typically 18 or 21, depending on the state).
Other savings accounts for minors are 529 college savings plans, custodial IRAs, and trusts. Depending on the purpose of your savings and how you want your money distributed, consider opening a custodial account for minors to unlock tax benefits and compound growth.
Types of Custodial Accounts
There are two main types of custodial accounts: the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UGMA).
UTMAs/UGMAs accounts are taxable custodial accounts set up by parents or guardians for the benefit of a minor. Assets in these accounts are considered "irrevocable gifts," meaning the account technically belongs to the child, not the adult who sets up the account. Therefore, any contributions and earnings are considered gifts to the child that can't be taken away.
The main difference between the two types of accounts is that UGMAs are more limited. UTMA accounts allow real assets like real estate and cars, while UGMAs only hold traditional investable securities, cash, and other financial products.
Best Custodial Accounts of 2024
- Charles Schwab: Best for all types of investors
- Merrill Edge: Best for Bank of America clients
- Vanguard: Best for mutual funds
- Fidelity Investments: Best for low fees
- TD Ameritrade: Best for active traders
- E*TRADE: Best robo advisor
- Acorns: Best for mobile
- Stash: Best for fractional shares
$20 monthly minimum contribution
$3 per month ($5 per month flat fee for multiple accounts)
- Fully digital account with mobile access
- SIPC-insured up to $500,000
- Personalized and easily adjustable portfolio allocations
- $20 monthly minimum requirement
- Limited tax advantages
A UGMA account with Fabric by Gerber Life is a great option for young families willing to make regular monthly contributions into a custodial account.
Compare the Best Custodial Accounts
The best custodial accounts are accessible and low-cost, user-friendly platforms for parents or guardians to invest funds on behalf of their children. Custodial account investment options also offer multiple tax perks. Remember that funds in these accounts must be used for the child's benefit.
Here are the best custodial brokerage accounts for kids, as picked by Business Insider editors in 2024.
Best Custodial Account for All Types of Investors
The Schwab One Custodial Account offers investors several perks, including no minimum deposit requirement, $0 account setup and maintenance fees, and commission-free stocks and ETFs. In addition, you can invest in mutual funds and other investable securities.
You won't have to worry about contribution limits with Charles Schwab's custodial accounts. Parents may also consider Schwab's custodial IRAs (you can open these as a traditional IRA or Roth IRA), 529 college savings plans, and education savings accounts (ESA).
Another advantage of Schwab's custodial account is that it isn't just for self-directed investors. You can automate your investments by setting up the account through the Charles Schwab Intelligent Portfolios or Schwab Intelligent Portfolios Premium robo-advisors.
What to look out for: If you decide to take the automated investing route for your custodial account, you'll need at least $5,000 for Schwab Intelligent Portfolios and $25,000 for Schwab Intelligent Portfolios Premium.
Schwab Intelligent Portfolios review
Best Custodial Account for Bank of America Clients
Merrill Edge's custodial accounts let you invest for your minor free of balance minimums, annual fees, or account maintenance fees. Trade commission-free stocks, ETFs, and options, but contract fees may apply.
You can also choose the robo-advisor route with Merrill Guided Investing or Merrill Guided Investing with an Advisor (higher minimums and fees apply). Merrill Edge also offers 24/7 phone support and live chat.
If you're already a Bank of America client, you can fund the account by linking your existing Bank of America account. Merrill Edge's custodial account allows checks, wire transfers, and transfers or rollovers from existing accounts.
What to look out for: Annual fees for Merrill Edge's automated accounts — Merrill Guided Investing and Merrill Guided Investing with an Advisor — are higher.
Best Custodial Account for Mutual Funds
A behemoth in the retirement investing and mutual funds space, Vanguard offers some competitive features with its custodial accounts. Vanguard custodial accounts don't require an opening deposit, nor does it charge maintenance or account transfer fees.
Vanguard custodial brokerage accounts invest in a blend of stocks, bonds, Vanguard mutual funds, non-Vanguard funds, and more. Plus, with Vanguard Personal Advisor, you can skip the self-directed investing route and use robo-advice paired with ongoing financial advisor guidance.
Vanguard's suite of investment products also features 529 plans and trusts. And if you're looking to deepen your investing knowledge before and/or after you set up a custodial account, the brokerage offers an extensive selection of resources (investing tools and calculators, market news and perspectives, and more) to help you do so.
What to look out for: Vanguard doesn't offer fractional shares, and options contracts will cost you $1 (many brokerages charge $0.65 per contract).
Best Custodial Account for Low Fees
Fidelity's custodial account lets you build wealth through stocks, ETFs, options, bonds, mutual funds, and much more. Plus, the account has no minimum opening requirements or fees, and any stocks, ETFs, or options the account holder invests in are commission-free.
Its custodial offerings are supplemented with account perks like Fidelity Viewpoints, an online center with expert commentary on investing strategies, markets, and much more. In addition, Fidelity's Planning & Guidance Center offers tools to help you meet investing goals.
Fidelity Investments offers other minor investment account options beyond UGMA/UTMA custodial accounts. These include its Roth IRA for Kids account, 529 plan, Fidelity Youth Account (which lets children between the ages of 13 and 17 invest independently), and trust accounts.
What to look out for: Fidelity Go doesn't support custodial accounts.
Best Custodial Account for Active Traders
TD Ameritrade custodial accounts include its UGMA/UTMA accounts, Coverdell Education Savings accounts, and 529 plans (TD Ameritrade no longer offers 529 plans to new clients).
And like all other brokerages listed above, you won't have to worry about minimum deposits to get started. TD Ameritrade offers a competitive investment selection of commission-free stocks, ETFs, and mutual funds.
If you're a hands-off investor and would rather leave the day-to-day trading decisions to the professionals, you'll have to set up an account through Charles Schwab. TD Ameritrade is no longer accepting new clients for its managed portfolios, but you can still open an automated investing account through Schwab Intelligent Portfolios or Schwab Intelligent Portfolios Premium.
What to look out for: Schwab acquired TD Ameritrade, so many brokerage offerings have merged with Schwab's. However, both platforms still offer stand-alone products, so consider this as you weight different account options.
Best Custodial Account for Automated Investing
E*TRADE offers account options for all types of investors, but it provides a particularly competitive suite of custodial products. These include its standard UGMA/UTMA custodial account, IRA for Minors, and Coverdell ESA accounts. E*TRADE custodial accounts allow for commission-free stocks, ETFs, and options.
Fees for funds vary, but E*TRADE offers thousands of no-load, no-transaction-fee mutual funds. Those who prefer robo-advice can build wealth through its expert-managed automated investing account, Core Portfolios.
Its custodial accounts also have no income or contribution limits, and they come with a free debit card, checking perks, and online bill pay.
What to look out for: E*TRADE doesn't offer fractional share trading.
Best Custodial Account for Mobile
Open a UTMA/UGMA custodial account with Acorns Early, but you must be an Acorns Premium user. Unlock simplified trading on the go with one of the most popular robo-advisors. Acorns Invest creates a personalized portfolio of low-cost ETFs based on your risk tolerance, time horizon, and investment goals.
If you already have an Acorns Invest account, you can open a custodial account for your kid for no extra cost. You can even open multiple kid's accounts for the price of one. Plus, signing up with Acorn's Early gets you full access to Acorn's suite of investing tools, like automatic portfolio rebalancing and round-ups.
Acorns Smart Deposit feature will automatically invest a portion of your paycheck into an Acorns Early account. When you sign up, Acorns will gift you a free copy of the platform's new children's book, "Grow Your Oak."
Acorns Early accounts automatically default as an "aggressive portfolio," but can be rebalanced over-time to match your preferences.
What to look out for: Acorns Premium costs $12 per month.
Best for Investing in Fractional Shares
Stash Invest is a subscription-based investment platform that offers active and passive investors access to low-cost micro-investing through stock and ETF fractional shares. Its custodial brokerage account offers an accessible and low-cost way of investing on behalf of your child.
Kids Portfolios on Stash are managed by a parent/guardian. It offers investors access to personalized advice from a Stash RIA and automatic trading features. Stash only offers UGMAs, so you can't hold real assets in this account.
What to look out for: To unlock custodial accounts, you must have a Stash+ subscription, which costs $9 per month.
Opening a Custodial Account
A custodial account is a tax-advantaged investment account that allows parents or guardians to invest on behalf of children and/or dependents until those minors reach their state's age of majority. These accounts also have no income or contribution limits, and you can make early withdrawals without racking up any penalties.
By opening a custodial account on behalf of a child/dependent, you're building a nest egg for a kid's future education expenses. To build long-term wealth, you can contribute gifts like money or other assets into a custodial account.
Custodial accounts are similar to 529 plans. However, a custodial account offers more flexibility, making these accounts easier and cheaper than trusts. However, opening a custodial account may affect your child's ability to get financial aid.
Managing and Contributing to a Custodial Account
Like any other brokerage account, custodial accounts can be opened with a bank, credit union, or other investment platform that offers these accounts as an investment option. Both traditional brokers and online brokers offer custodial account options.
You don't have to be a parent or legal guardian to open a custodial account on behalf of a child/dependent. Other relatives and friends can also open an account. Custodial accounts no longer have contribution limits, so you can invest as much as you want toward your child's future.
Custodial Accounts FAQs
A custodial account is a brokerage account created by a parent, family member, or guardian for the benefit of a child or minor. The money put into a custodial account is gifted to the beneficiary or child for future expenses, including college tuition, rent, travel expenses, etc.
The cons of a custodial account is that contributions aren't always tax deductible. Plus, the beneficiary of the account may have to pay tax on the gains. Other cons of custodial accounts are that they may affect a child's ability to get financial aid, and the money contributed into the account is irrevocable.
Parents can make withdrawals from the account at any time as long as the withdrawal directly helps the minor.
Custodial accounts are a great idea for parents or guardians to save money on behalf of a child or dependent. Funds in a custodial account can be used for tuition, living expenses, and much more as long as it's for the benefit of the beneficiary of the account.
Managing and Contributing to a Custodial Account
Like any other brokerage account, custodial accounts can be opened with a bank, credit union, or other investment platform that offers these accounts as an investment option. Both traditional brokers and online brokers offer custodial account options.
You don't have to be a parent or legal guardian to open a custodial account on behalf of a child/dependent. Other relatives and friends can also open an account. Custodial accounts no longer have contribution limits, so you can invest as much as you want toward your child's future.
Why You Should Trust Us: Our Expert Panel For The Best Custodial Accounts
We interviewed the following investing experts to see what they had to say about custodial accounts.
- Sandra Cho, RIA, wealth manager, and CEO of Pointwealth Capital Management
- Tessa Campbell, Investment and retirement reporter at Personal Finance Insider
What are the advantages/disadvantages of opening a custodial account?
Sandra Cho:
"One disadvantage is that 20% of custodial assets count as available to be used to pay for higher education, while only 5.64% of assets held in a 529 plan count when determining qualification for financial aid with FAFSA. Another disadvantage is that the account must be turned over to the child when they reach the age of majority (18-25, depending on the state.)
"The advantages are that the accounts have flexibility in that there are no income or contribution limits. There are also no requirements to make regular distributions at any point. There are also some limited tax advantages."
Tessa Campbell:
"The advantage of custodial accounts like a UGMA or UTMA is that you can easily save and invest toward your child's future. Plus, custodial accounts are easy to set up and more flexible than 529 plans.
"However, custodial accounts don't have as many tax advantages, and contributions may not be tax deductible. Another disadvantage of custodial accounts is that it may affect your child's ability to qualify for financial aid."
Who should consider opening a custodial account?
Sandra Cho:
"Those that have children and want to provide a financial cushion for them should consider opening an account. Custodial accounts can be a very beneficial way to ensure your children are financially provided for once they have become legal adults and can give them stability once they are out from under your watch."
Tessa Campbell:
"Parents or guardians with children under the age of 18 should consider opening a custodial account. Compared to a trust, custodial accounts are simple to set up. Moreover, custodial accounts allow friends and family to gift money toward your kid's future.
"It's also the best option if you're not sure whether or not your child will go to college since money in a custodial account can be used for essentially anything as long as it directly benefits the child."
Is there any advice you'd offer someone who's considering opening a custodial account?
Sandra Cho:
"My main advice would be to have a conversation with your child for who the account is set up for. This conversation should be ongoing and should ensure that they understand what the purpose of this account is for. This transparency is needed as they will eventually be the beneficiary and controller of the account."
Tessa Campbell:
"You can open a custodial account with a bank, online investment platform, or brokerage firm that offers a custodial account option. But make sure to compare rates, perks, fees, and other resources to ensure you're opening the best account option for you."
Why You Should Trust Us: Our Methodology
We reviewed over a dozen custodial accounts using Business Insider's rating methodology for investing products to find the best options for the lowest fees, ease of use, flexible investment choices, and customer service availability. We also sifted through multiple investment platforms to find the best options for self-directed traders and hands-off investors.
You'll notice that many of the platforms mentioned in our guide offer the option to trade on your own or automate your custodial account's investments. Investment platforms are given a rating between 0 and 5.
