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Custodial accounts are designed to allow parents or other adults to gift and invest money on behalf of a minor child. Unlike other types of accounts designed to hold money for minors, such as college savings plans, custodial accounts don't have any specific purpose for the money held within them, nor do they have contribution limits.
The two main types of custodial accounts are UGMA and UTMA accounts. In this article, we'll go over how these accounts work, the main differences between them, and other things you should know before opening an account. And we'll share our picks for best brokerages for custodial accounts.
There are a lot of options to compare, even on this page. It can be overwhelming! If you're looking for a place to start, here are some custodial accounts our experts recommend and why they like them:
Broker/Advisor | Best For | Commissions | Next Steps | |
---|---|---|---|---|
2024 Award Winner
Rating image, 5.0 out of 5 stars.
5.0/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best = Excellent = Good = Fair = Poor |
Rating image, 5.0 out of 5 stars.
5.0/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best = Excellent = Good = Fair = Poor |
Best For:
Diversified investing needs |
Commission:
$0 commission for online U.S. stock and ETF trades; trade fractional shares for as little as $1 |
|
Rating image, 4.5 out of 5 stars.
4.5/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best = Excellent = Good = Fair = Poor |
Rating image, 4.5 out of 5 stars.
4.5/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best = Excellent = Good = Fair = Poor |
Best For:
Simplified mobile app investing |
Commission:
$3-$9 monthly |
|
2024 Award Winner
Rating image, 4.5 out of 5 stars.
4.5/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best = Excellent = Good = Fair = Poor |
Rating image, 4.5 out of 5 stars.
4.5/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best = Excellent = Good = Fair = Poor |
Best For:
Simple trading needs |
Commission:
$0 stock and ETF trades |
|
2024 Award Winner
Rating image, 4.5 out of 5 stars.
4.5/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best = Excellent = Good = Fair = Poor |
Rating image, 4.5 out of 5 stars.
4.5/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best = Excellent = Good = Fair = Poor |
Best For:
Low cost index investing |
Commission:
$0 online; $25 broker-assisted fee for some phone trades of stocks and ETFs from other companies (Less than $1 million) |
|
2024 Award Winner
Rating image, 4.5 out of 5 stars.
4.5/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best = Excellent = Good = Fair = Poor |
Rating image, 4.5 out of 5 stars.
4.5/5
Our ratings are based on a 5 star scale.
5 stars equals Best.
4 stars equals Excellent.
3 stars equals Good.
2 stars equals Fair.
1 star equals Poor.
We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
= Best = Excellent = Good = Fair = Poor |
Best For:
Broker versatility |
Commission:
$0 stock, ETF, and Schwab Mutual Fund OneSource® trades |
Choosing a broker for a custodial account may feel like a hassle, but it's simpler than it appears. Here's how to get started:
A clear top stock broker, particularly for mutual fund investors wanting to buy Fidelity mutual funds with no commissions. Importantly, Fidelity also offers $0 stock and ETF trades, plus a high-quality mobile app that's good for both beginners and seasoned investors.
$0 commission for online U.S. stock and ETF trades; trade fractional shares for as little as $1
$0
On Fidelity's Secure Website.
The simple, modern approach to investing helps people invest faster. It's fee structure is easy-to-understand and low, making a good fit for hands-off investors who want to participate in the market, but want to put their investments on cruise control.
$3-$9 monthly
$0
On Acorns' Secure Website.
Ally Invest offers an easy-to-use trading platform, solid selection of commission-free ETFs, and the potential for strong bonus cash for opening an account.
$0 stock and ETF trades
$0
Vanguard remains a top option for passive investors with excellent zero-commission options for index funds and ETFs.
$0 online; $25 broker-assisted fee for some phone trades of stocks and ETFs from other companies (Less than $1 million)
$0
Charles Schwab pioneered the low-cost brokerage model decades ago, and that legacy continues with its lineup of no-commission-fee offerings. The robust lineup of account types, investment vehicles, and high quality app round out the stacked feature set.
$0 stock, ETF, and Schwab Mutual Fund OneSource® trades
$0
TD Ameritrade has been acquired by Charles Schwab, and the company expects all accounts to be transitioned by the end of 2024. We've removed TD Ameritrade from our best-of lists to align with this development. Here at The Ascent, you can trust that we're constantly evaluating our top broker picks to bring you current recommendations.
Custodial accounts are typically easy to open, especially if you use an online-based broker like those on our favorites list. Here are the basic steps you'll take.
Before you start, you'll need to gather some documents. These include:
Managing a custodial account may seem intimidating, especially if you've done so before. However, once you become accustomed to the rules, you'll quickly feel like a pro. Here's a quick review of basic custodial account rules:
Custodial accounts are not entitled to any special tax benefits -- at least not directly.
Because the money in a custodial account is the legal property of the minor, some or all of the capital gains or income earned in the account will be taxed at the child's tax rate. Specifically, for 2023, the IRS allows every child under 19 (or full-time students under 24) to receive as much as $1,250 in unearned income tax-free, with the next $1,250 taxed at a favorable rate.
Note that this is referring to income, not investment gains. For example, if you buy a stock in a custodial account for $1,000 and its value rises to $10,000, you won't owe a penny of tax on the gain unless you sell it. However, any dividends or distributions received in the account will count. Under current tax law, any income beyond $2,500 in the custodial account will be taxed at the parent's rate until the child reaches the age of majority in their state, so this might be worth considering if you're planning to put relatively large amounts of money in custodial accounts.
Individuals can contribute as much as $18,000 to a custodial account without counting toward their lifetime estate tax exclusion (married couples can contribute $36,000). But beyond that, it can potentially result in federal gift tax liability.
"Custodial account" is a somewhat broad term that typically refers to an account at a financial institution set up for a minor, but that is controlled by an adult. For example, approval from the account's custodian would be required before using money in a custodial account to buy a specific stock investment.
Here are a few defining characteristics of custodial accounts:
Custodial accounts can be opened with most major brokerages and can be used to invest in a variety of assets like stocks, mutual funds, or ETFs. They come in two main varieties: UGMA and UTMA accounts. Let's go through the similarities and differences.
"UGMA" stands for "Uniform Gift to Minors Act." These accounts can be used to hold financial assets, including cash, stocks, mutual funds, ETFs, bonds, insurance policies, and annuities. They are allowed to be opened by residents of all 50 states.
"UTMA" stands for "Uniform Transfer to Minors Act" and is the newer of the two types of custodial accounts. Unlike UGMA accounts, UTMA accounts can be used to hold just about any type of asset you can think of (this is the big difference between the two). You can place real estate into a UTMA account, as well as things like artwork and collectibles, just to name a couple of examples. UTMA accounts are available in every state except South Carolina.
Aside from the broader variety of assets that can be held within UTMA accounts, these two types of custodial accounts are essentially the same. Just to name some of the key similarities:
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Our Brokerages Experts
Brokerages we evaluated for consideration on this page: Acorns, Ally Invest, Axos Self-Directed Trading, Betterment, Cash App Investing, Charles Schwab, Delphia, Domain Money, Ellevest, Empower, eToro Brokerage, E*TRADE Core Portfolios, E*TRADE, Fidelity, Fidelity Cash Management, Fidelity Go®, Firstrade, FOREX.com, Interactive Brokers, J.P. Morgan Self-Directed Investing, M1 Finance, Magnifi, Marcus Invest, Merrill Edge® Self-Directed, moomoo, NinjaTrader, Personal Capital, Plynk, Prosperi Academy, Public, Robinhood, Rocket Dollar, Schwab Intelligent Portfolios, SoFi Active Investing, SoFi Automated Investing, Stash, Stockpile, Tastytrade, Titan, Tornado App, TradeStation, Tradier, Vanguard, Vanguard Digital Advisor®, Wealthfront, Webull, Zacks Trade.
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Fidelity disclosure
Fractional share quantities can be entered out to 3 decimal places (.001) as long as the value of the order is at least $1.00. Dollar-based trades can be entered out to 2 decimal places (e.g. $250.00)