Table of Contents
- 1 What are the pros and cons of a custodial account?
- 2 What is a custodial bank account?
- 3 Who controls a custodial account?
- 4 Can you invest in stocks with a custodial account?
- 5 Can parents spend child’s money?
- 6 Can you cash out a custodial account?
- 7 How can I add a custodial account?
- 8 Who is eligible for a custodial account?
- 9 Is a custodial account a good idea?
What are the pros and cons of a custodial account?
Pros and Cons of Using a Custodial Account for College Savings
- There are no rules on how the money is spent.
- No limits on how much you can invest.
- Investment options are plentiful.
- Opening a custodial account is convenient.
- Limits on financial aid.
- Better alternatives on taxes.
- No change in beneficiaries.
What is a custodial bank account?
A custodial account is simply an investment account that’s in a child’s name but managed by an adult. It offers considerably more flexibility than other traditional child-oriented savings and investment options (think 529 plans and education savings accounts).
What can you do with a custodial account?
A custodial account can be an excellent way to make a financial gift to a child—whether your own, a relative’s, or a friend’s. This type of account, established under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA), is set up by an adult for the benefit of a minor.
Who controls a custodial account?
If you are under the age of either 18 or 21, depending on the state, an adult can open a custodial account for you. The person who opens the account would manage it until you reach the age of majority, at which point it is transferred over to you and you are responsible for its management.
Can you invest in stocks with a custodial account?
Once the custodial account is open and funded, the real fun begins: Investing the money. Within their brokerage account, your kids will be able to invest in individual stocks, as well as mutual funds, index funds and exchange-traded funds.
Can you take money out of a custodial account?
While you can technically withdraw money from a custodial account before your child reaches the age of majority, you can only do so for the direct benefit of the child. Keep in mind that any funds you take out may also create taxable gains for your child, and that withdrawn money won’t have as much time to grow.
Can parents spend child’s money?
If the check is made out to the child’s name, then yes, the parents can legally spend it however they see fit. However, if the check is made out to a trust account in the child’s name, then it is different. If the account is e.g. a UTMA, then the money can only be spent for the “benefit” of the child.
Can you cash out a custodial account?
Can a grandparent open a custodial account?
Grandparents, other family members, and even friends can also open a custodial account for a minor. There are two main types of custodial accounts: the Uniform Gift to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA). The largest difference between the UGMA and UTMA is that the UTMA covers more assets.
How can I add a custodial account?
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Who is eligible for a custodial account?
Who is eligible for a custodial account? Any minor under the age of majority (18 or 21 depending on the state) can be a beneficiary of a Stash Custodial Account. Minors who hold a green card or visa and are not U.S. citizens can receive money from a Custodial Account.
When does a person need a custodial account?
The term custodial account generally refers to a savings account at a financial institution, mutual fund company, or brokerage firm that an adult controls for a minor (a person under the age of 18 or 21 years, depending on the laws of the state of residence).
Is a custodial account a good idea?
A custodial account can certainly be a good choice for this type of extra savings, and a good way to teach the kids about investing. But as with anything, there are pros and cons. Here are some things to consider before you open the accounts.