A custodian account is a common way for parents and guardians to invest for their children’s future. Accounts are easy to set up and manage, and adult managers can choose from a wide range of investment options.
What is a custodial account?
A custodian account is an investment account offered by a broker for children and teens. An adult (usually a parent) makes contributions to the account on behalf of the child until the child reaches the age of majority under state law.
The term custodial account typically refers to Uniform Transfers to Minor Accounts (UTMA) and Uniform Gifts to Minor Accounts (UGMA). Each state administers its own UTMA/UGMA program.
The adult who opens the account (called the custodian) has wide discretion over how the account is invested and managed. The custodian can buy and sell securities, reinvest dividends, and make withdrawals for the benefit of the minor. When your child reaches the age of majority, he or she can control the account and its assets.
Best Custodial Investment Accounts of 2024
The brokers on our list offer access to a wide variety of investment assets, low fees and account minimums, easy-to-use interfaces, and educational resources to improve your investment knowledge.
To determine the best custodial account, we considered factors such as minimum deposit requirements, maintenance fees, and fees for online stock and ETF trading.
fidelity
Earning the highest rating in Bankrate’s comprehensive review of brokers, Fidelity offers outstanding custodial accounts. A full-service broker known for its outstanding customer service, extensive research resources, and wide range of investment options, Fidelity offers UTMA/UGMA custodial accounts that are comparable to other great services.
Fidelity custodial accounts provide access to stocks, bonds, mutual funds, ETFs, options, CDs, and fractional shares. There are no minimum deposits or regular maintenance fees, making it a low-barrier entry point for children to start investing.
Fidelity also offers other investment account options, including Roth IRAs for kids and youth accounts for youth ages 13-17. The latter gives teens complete control over their investments before they turn 18, with no fees or minimum balance requirements.
charles schwab
Charles Schwab is a pioneer in the discount securities industry, building a reputation for first-class customer service, a wide range of investment options, and minimal commissions.
The Schwab One Custodial Account offers the same key features as the company’s flagship product, the Schwab One Brokerage Account. There are no trading fees for stocks or ETFs, no minimum opening deposit, and no maintenance fees. Account holders enjoy top-notch customer service, hundreds of office locations nationwide, and a variety of investment tools.
Another great feature is that you can buy fractional shares of S&P 500 companies for as little as $5, making Schwab a great choice for an affordable custodial account.
Schwab Intelligent Portfolios is the company’s robo-advisor service that creates and manages diversified portfolios and supports custodial accounts. However, the minimum balance required to open an Intelligent Portfolio account is $5,000, so if you’re starting with less than that, the Schwab One Custodial Account is the best choice.
merrill edge
Merrill Edge’s Safeguarding Account provides a fee-free, easy-to-access way to start saving for your child’s future.
With no minimum account requirements, $0 commissions on stock and ETF trades, and $0.65 on options contracts, Merrill Edge is a great option for Bank of America customers who can benefit from an extensive network of physical locations. , is a particularly attractive option. Fractional shares cannot be used to purchase stocks, but dividends can be reinvested.
E-Trade
With E-Trade’s custodial account, stock and ETF trades are commission-free, and option contract fees range from $0.50 to $0.65.
To automate the process, you can open an account using the E-Trade Core Portfolios robo-advisor service. The service creates and manages portfolios for a low annual fee of 0.30 percent of assets under management and a minimum of $500. This custodial account also comes with free debit cards, checks, and bill payments. As with all custodial accounts, withdrawals may be made without penalty for any purpose as long as it benefits the minor beneficiary.
E-Trade also offers Coverdell Education Savings Accounts and IRAs for minors.
vanguard
Known for its low-cost investment options, Vanguard is a great choice for an equally low-cost custodial account. This broker boasts that there are no registration fees, no transfer fees, and no advisor fees for self-custodial accounts.
Account holders can invest fee-free across Vanguard’s entire portfolio of funds, including index funds, actively managed funds, and ETFs. You can invest in individual stocks and bonds in addition to Vanguard funds, but fractional shares are not available.
Acorn
Acorns, an investment app designed for simplicity and accessibility, offers a comprehensive financial platform that includes a custodial account known as Acorns Early.
Available in the Acorns Gold service tier ($12 per month), Acorns Early is easy to set up and allows you to create multiple child accounts at no additional charge. It costs just $5 to open an account. You can also set up regular “Roundup” deposit contributions by linking your checking account. The fintech app also offers a 1 percent match for parents who contribute to their child’s custodial account.
While it’s nice that Acorns automatically includes your account with a diversified portfolio of ETFs, there are other brokers on this list that offer the same robo service without a monthly fee. However, Acorns maintains minimum investment amounts for automated storage accounts.
How do custodial accounts work?
A custodial account functions like a regular brokerage account, allowing the custodian to buy and sell stocks, bonds, funds, and other investments. Anyone can contribute to a custodian account.
Custodial accounts are typically managed by a parent or guardian, who funds the account and makes investment decisions.
These accounts have no income or contribution limits. However, gifts exceeding $18,000 per year ($36,000 for married couples filing jointly) in 2024 may incur federal gift tax.
Unlike college savings plans, there are no penalties if the assets in your account are not used to pay for your education.
The custodian has full control of the account until the beneficiary reaches the age of majority. The age of majority varies by state, but is at least 18 years old, but often 21 years old. At that point, the custodian must transfer the assets to the beneficiaries.
The account and its assets are irrevocable and legally belong to the minor. This means that minors are responsible for paying taxes on the income they earn from investments. Donations are not tax deductible to administrators.
If you want to invest for your child’s future, the best 529 plans are worth considering.
conclusion
A custodial account with no contribution limits provides flexibility and convenience when sending money to minors. These can be valuable tools, but if college savings are your primary goal, consider alternative options such as 529 plans. 529 plans often offer tax benefits and may have less impact on your child’s college financial aid eligibility.
