How to Open a Custodial Brokerage Account for Your Kids

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Parents commonly use custodial brokerage accounts to help save for college. But you can also use these accounts to instill money lessons into your children and show them how to grow their money by investing. 

But before you open a custodial brokerage account for your children, it’s essential to understand how they work, along with the benefits and drawbacks they offer. 

Read on to learn more about these accounts and how to open one for your minor children.  

Investment Account for Kids

What is a Custodial Brokerage Account?

You can use a custodial brokerage account to save for your child’s future. Grandparents, aunts, uncles and family friends can also open custodial accounts for minors. 

The account is the property of the child. However, it’s managed by the custodial parent(s) or adult until the child reaches adulthood or the age of majority, as determined by your state of residence. 

You can contribute up to $30,000 annually to a custodial brokerage account, and there are no overall contribution limits. And if the assets held in the account generate interest, this amount can be assessed kiddie tax. 

There are two types of custodial accounts – UTMAs and UGMAs. More on this shortly. 

The Benefits of a Custodial Brokerage Account

  • There are no restrictions on how the assets can be used once the child reaches the age of majority. 
  • You’re permitted to contribute as much as you want over time as long as you don’t exceed the annual contribution limit. 
  • You won’t pay gift tax on annual contributions.

The Disadvantages of a Custodial Brokerage Account

  • If the child uses the funds for college-related expenses, the account won’t receive any tax benefits. 
  • The financial aid office at the child’s college or university may consider the value of the assets when calculating the child’s estimated financial need and eligibility for scholarships and student loans. 
  • You’ll still be on the hook for kiddie taxes on earnings.

What Is the Difference Between UTMAs and UGMAs?

Here’s the difference between the two types of custodial accounts: 

  • Uniform Transfers to Minors Act (UTMA) account: These accounts can be used to hold almost any type of asset. 
  • Uniform Gift to Minors Act (UGMA) account: These accounts can include annuities, cash and securities.

Investment Account for Kids

Should You Open a Custodial Brokerage Account 

Custodial brokerage accounts afford lots of flexibility that you won’t find with other investment vehicles designed to help save for your child’s future. For starters, your child can use the funds however they see fit when they get possession of the account. 

But there’s a drawback – if you open a custodial brokerage account solely for the purpose of saving for college, it won’t get the same preferential tax treatment that comes with 529 plans and Coverdell Education Savings Accounts

The upside is your child won’t be on the hook for federal income tax when they decide to withdraw the funds. 

How to Open a Custodial Brokerage Account for Your Kids

Have you considered the pros and cons of custodial brokerage accounts and decided to move forward with opening an account for your kids? Give UNest a try. 

It’s an online platform that offers tax-advantaged custodial accounts. Parents, relatives and friends use these accounts to save for tuition and other higher education expenses, along with other significant future life events.

You can start making contributions today to provide your child with a solid financial foundation for the future. And if they choose not to attend college, the funds can be used to pay for their first car, make a down payment on a home, cover wedding costs or make a big-ticket purchase. 

Ready to get started? Download the mobile app to your Android and iOS device and input an overall savings goal. Next, input your desired monthly contribution amount and choose from one of these plans: 

  • Regular plan: includes five-investment options, the ability to earn cash from UNest Rewards and gift-receiving capabilities from friends and relatives (Cost: $2.99 per month)
  • Family plan: includes all the features of the Regular plan and covers up to five children (Cost: $5.98 per month)

Once enrolled in the plan, deposit the agreed-upon amount each month and invite others to make contributions to help you meet your savings goals faster. You can also grow the account faster by signing up for UNest’s rewards program and earning money each time you shop with select retailers. 

Even better, the mobile app makes it easy to manage your custodial brokerage account and monitor your savings while on the go. You can log in and switch contribution plans, manage transactions and view account activity at the tap of a fingertip. 

It’s that easy, and you’ll give your child, loved one or friend a financial boost when starting out in the real world.

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