What is a Custodial Account?
Because most states do not allow minors to own stocks, bonds, mutual funds and other investment vehicles, custodial accounts allow an adult to open an account for the benefit of a minor. They feature tax benefits and the flexibility to invest the way you want. The two most common custodial accounts used for education are the Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA). The Uniform Gift to Minors Act established a SIMPLE way for a minor to own securities without requiring the services of an attorney to prepare trust documents or the court appointment of a trustee. A state statute instead of a trust document establishes the terms of this trust. The Uniform Transfer to Minors Act (UTMA) is similar, but also allows minors to own other types of property, such as real estate, fine art, patents and royalties, and for the transfers to occur through inheritance. UTMA is slightly more flexible than UGMA. By establishing either of these custodial accounts, the
Custodial accounts are set up and controlled by an appointed adult for a minor. Assets placed in the account are considered an irrevocable gift and become the property of the child. The funds in the account remain in the trustee’s name until the child reaches the age of majority. (This age depends on your state’s law, so please check your state law governing custodial accounts.) At that time, the child takes full control of any assets in the account. Tax Advantages There are tax advantages to opening and funding a custodial account. Federal tax laws allow you to give up to $10,000 per individual each year without incurring gift tax. Additionally, the first $700 of income that the account generates is tax free. The next $700 to $1,400 of unearned income will be taxed at the child’s rate which will most likely be lower than the tax rate of the custodian. Any income above $1,400 for a child under age 14 will be taxed at the adult’s rate. Please consult with your tax advisor for specific t
A custodial account is an account set up at a bank, brokerage firm or other financial institution in the name of a minor, with a parent or other adult named as the custodian until the child turns 18 to 21, depending on the state. These are also called UGMA or UTMA accounts, which stands for Uniform Gift (or Transfer) To Minors Act. The investment options are almost unlimited, but tax benefits can be slim. The first $850 in annual account earnings is tax-free. The next $850 in earnings is taxed at the child’s rate. Annual earnings over $1,700 are taxed at the parents’ rate until the child turns 18. There are no contribution limits, but this so-called kiddie tax eliminates the tax benefits on large custodial accounts. Custodial accounts can hurt your chance of getting financial aid because in determining how much a family can pay, aid formulas generally assess a larger percentage of student assets than parental assets. UGMA and UTMA accounts are considered student assets. Another downsid
Custodial accounts allow minors to have financial resources including cryptocurrency but under the parent’s guardianship. I think it’s amazing because modern kids grow up pretty fast, and they know all the high technologies. If my kid wants to have cryptocurrency, I’ll tell him everything about the investment and advice him Bitcoin Era ZA as an auto-trading application so he could understand the worth of money.
The ShareBuilder custodial account is an investment account created for the benefit of a minor. Custodial accounts are opened under the Uniform Transfer to Minors Act (UTMA), and the minor is the owner of the account and its assets. However, a custodian must manage the account until the minor reaches the age of distribution for their state of residence. Earnings (up to a certain amount) will be taxed at the minor’s rate. Note: State laws may restrict who can open a custodial account. Please consult a financial advisor for additional information on custodial account restrictions and tax reporting questions. Also, there can only be one minor and one custodian for each ShareBuilder custodial account.
