Best Brokers With Custodial Accounts 2025

Understanding Custodial Accounts for Minors

Many adults decide to set up a custodial account for a child, often aiming to provide a better financial future for them. This guide explains what these accounts are, their advantages and disadvantages, and how to select a suitable broker. We also highlight some top brokers offering custodial accounts.

What is a Custodial Brokerage Account?

A custodial account is a financial account opened by an adult for someone under 18, usually a child or grandchild. These accounts require an adult, known as the custodian, to approve transactions. The custodian must make decisions in the best interest of the minor, often choosing low-risk investments to help the account grow over time. The account can also be a straightforward savings account without any investments.

How Do Custodial Brokerage Accounts Work?

Custodial accounts can be either savings or investment-focused and are offered by banks, mutual funds, or online brokerage firms. When the minor reaches adulthood, determined by the laws in their location, they gain full control of the account. Usually, the custodian manages the investments and can contribute funds, ensuring they are low-risk.

Most brokers with custodial accounts allow investing across various assets. However, risky investments like trading on margin or in futures are typically not permitted.

Types of Custodial Accounts

There are two main types of custodial accounts:
– The Uniform Gift to Minors Act (UGMA): Covers financial assets like stocks and bonds.
– The Uniform Transfers to Minors Act (UTMA): Includes assets like real estate and personal possessions, but is not available in South Carolina.

Both accounts are established in a minor’s name, with parents or guardians handling them until legal adulthood. Specifics like initial deposit, account balance, and interest rates are defined by the financial institution involved.

Custodial Accounts vs. College Savings Accounts & Trusts

Despite serving similar purposes, custodial accounts, college savings accounts, and trust funds differ:

– College Savings Accounts are designed for education, offering tax benefits but with restricted fund usage.
– Trust Funds are flexible, allowing gifts to individuals or organizations regardless of age, but setting them up can be complex.
– Custodial Accounts offer freedom for any benefit to the minor, although the assets can’t be reclaimed by the custodian and must stay with the named beneficiary.

Advantages of Custodial Accounts

Some perks of custodial accounts include:

Tax Advantages

Custodial accounts are taxed at the child’s rate, often leading to tax savings.

Flexible Spending

The money can be used for a range of needs, from education to daily necessities.

No Income & Contribution Limits

You can add any amount at any time, in one big lump or regularly in smaller amounts.

No Withdrawal Fees

You can withdraw funds without penalties when they’re needed for expenses benefiting the minor.

Drawbacks of Custodial Accounts

There are also some cons to consider:

Reduced Financial Eligibility

The funds count as assets for the child, affecting financial aid eligibility.

Irreversible Deposits

Funds can’t be taken back once deposited; they fully transfer to the minor upon adulthood.

Unchangeable Beneficiary

The beneficiary of a custodial account cannot be changed or transferred to others.

How to Choose Brokers for Custodial Accounts

Consider these factors when selecting a broker:

Reliability

Choose reputable and regulated brokers. Good customer service is essential for addressing concerns.

Fees

Look for brokers with low or no fees to maximize funds available for the minor. You might pay more if you want someone to manage the account, like a robo-advisor.

Variety of Assets

Ensure the broker offers a range of assets to create a balanced portfolio for the child’s future.

Setting Up a Custodial Account

After picking a broker, setting up an account is typically a smooth online process. You’ll need:
– Minor’s personal details (name, birth date, social security number)
– Your driver’s license information
– Your social security number
– Banking details
– Employer information

Investing in a Custodial Brokerage Account

When investing this account’s funds, aim for low-risk, long-term investments such as a mix of stable stocks, ETFs, or bonds. Be cautious with riskier investments and try balancing them with safer ones like gold or index funds.

Reviews: Top Brokers with Custodial Accounts

Some top brokers offering custodial accounts include:

Charles Schwab

– Offers a wide range of investment options with no fees
– Fractional shares available
– 24/7 customer service

Vanguard

– Access to both passive and actively managed accounts
– No transaction fees
– Educational support for decisions

Fidelity

– No management fees
– $50 reward when the beneficiary opens a Youth Account
– 24/7 customer support and educational resources

Conclusion on Brokers with Custodial Accounts

Custodial accounts provide adults a way to manage savings for a child until they reach adulthood, along with potential tax benefits. However, these accounts can impact financial aid eligibility. Ensure you choose a reputable broker to secure these advantages for the minor’s future.

FAQs

How Do Brokers with Custodial Accounts Work?

Custodial accounts are set up by an adult who approves all fund-related decisions. The child takes control upon reaching adulthood.

Can You Take Money From a Custodial Account?

Yes, funds can be withdrawn if they benefit the child, such as education or living expenses.

What Happens When the Beneficiary Turns 18?

The child gains full control of the account at the legal adulthood age.

How Can I Open a Custodial Account?

An adult must open the account. They manage it until the child turns legal age, when control shifts to the child.

What Is the Taxation of Brokers with Custodial Accounts?

In the US, the first $1,100 of income is tax-free, with additional amounts taxed at different rates.