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Since I have a couple kids, I’ve been looking into options for saving for them outside of a 529 or a regular high-yield savings account.
I want to talk about Custodial Accounts today
#FinanciallyFluentThread #CustodialAccounts
I want to talk about Custodial Accounts today
#FinanciallyFluentThread #CustodialAccounts
A custodial account is a financial account that would be in my son’s or daughter’s name but would be controlled by me until they are no longer a minor (depends on state laws)
Once they’re “majority”, they would assume control of the account (irrevocable)
Once they’re “majority”, they would assume control of the account (irrevocable)
There are two types of custodial accounts
1) UTMA - The Uniform Transfers to Minors Act
2) UGMA - The Uniform Gift to Minors Act
1) UTMA - The Uniform Transfers to Minors Act
2) UGMA - The Uniform Gift to Minors Act
UTMA allows the adult to contribute any kind of asset to the account - stocks, bonds, real estate, royalties.
There are no contribution limits for a UTMA. There’s no cap to how much you want to save for your children.
There are no contribution limits for a UTMA. There’s no cap to how much you want to save for your children.
UGMA accounts also don’t have limits.
However...
This account is only limited to cash, securities, annuities and insurance policies.
However...
This account is only limited to cash, securities, annuities and insurance policies.
Custodial accounts work just like a standard brokerage account. You can open one online or in-person.
Keep in mind to shop around as I’m seeing that fees will vary based on the brokerage.
Keep in mind to shop around as I’m seeing that fees will vary based on the brokerage.
Most of my accounts are on Fidelity
Looks like they carry over commission-free to these accounts like they do on brokerage accounts.
I can’t wait to show them their money growing in their 529 and maybe this one!
Looks like they carry over commission-free to these accounts like they do on brokerage accounts.
I can’t wait to show them their money growing in their 529 and maybe this one!
Once the account is open and you start purchasing assets, those assets legally belong to the beneficiary.
You will be able to withdraw from that account but the money must be used “for the use and benefit of the minor”.
You will be able to withdraw from that account but the money must be used “for the use and benefit of the minor”.
PROS:
No contribution limit and can invest in a variety of assets
Flexibility - not tied to just high school or college expenses like a 529
No legal work involved to transfer the assets to the beneficiary
The beneficiary can claim the assets in this account at a reduced rate
No contribution limit and can invest in a variety of assets
Flexibility - not tied to just high school or college expenses like a 529
No legal work involved to transfer the assets to the beneficiary
The beneficiary can claim the assets in this account at a reduced rate
CONS
Impacts financial aid - if applying, having this account can work against you
Limited tax breaks - first $1,050 contributed is tax-free but everything after that can be taxed back on the state you live in
Irrevocable - once the child reaches “majority”, account is theirs
Impacts financial aid - if applying, having this account can work against you
Limited tax breaks - first $1,050 contributed is tax-free but everything after that can be taxed back on the state you live in
Irrevocable - once the child reaches “majority”, account is theirs
I’m going to do a bit more research but it doesn’t seem like a bad idea vs what I was initially thinking of setting up a high-yield savings account
Hope that helps!
#FinanciallyFluent
Hope that helps!
#FinanciallyFluent
