What is a Custodial Account?
A custodial account is a common financial strategy for establishing and protecting financial assets for minor children. Often created by a parent or legal guardian, there are two common functions of a custodial account. A minor’s account helps to ensure that financial resources are available to meet the needs of the child during adolescence. Second, the custodial account creates a financial base that will allow the child to pursue a higher education after high school, launch a business, and in general get off to a solid start in life. For the duration of the custodial account, an adult who has been appointed as the custodian handles the operation and management of the process. The custodian may be a parent or legal guardian. However, in situations where the parents or guardians are deceased, the custodian may be an individual who was pre-selected by the parents or is appointed by the courts. Essentially, the custodian handles the financial resources until the child reaches the age of m
It is an account established at a financial institution, like your local bank or the Actors Federal Credit Union, for the benefit of a minor and is managed by the parent/guardian or another designated custodian until the child reaches majority. In addition to a percentage of your childs salary, other assets such as stocks, bonds, and life insurance policies and annuities can also be transferred or gifted to a custodial trust account. Under most state laws minors would not be permitted to own assets like mutual funds, real estate or stocks but the establishment of a custodial trust allows parents, guardians, grandparents, and others to transfer assets to this trust, which will become the property of the minor once he/she reaches majority.
In very basic terms, a custodial account is a savings account in your child’s name that you control until your child reaches legal adulthood, either 18 or 21 depending on where you live. You decide how much to put into the account, how the money is invested, how earnings are reinvested, and when to take money out of the account to spend on your child’s behalf. And a custodial account is flexible. You can deposit cash, savings bonds, and other securities into your child’s custodial account. The first $850 of earnings each year is tax free, and the next $850 is taxed annually at your child’s rate — generally 15 percent. So you get tax breaks for setting up a custodial account. Any earnings beyond that are taxed at your rate. Withdrawals are subject to federal tax as well.
In very basic terms, a custodial account is a savings account in your child’s name that you control (if you’re the custodian) until your child reaches legal adulthood (18 to 21, depending on where you live). You decide how much to put into the account, how the money is invested, how earnings are reinvested, and when to take money out of the account to spend on your child’s behalf. You can deposit cash, savings bonds, and other securities in a custodial account. The first $850 of earnings each year is tax free, and the next $850 is taxed annually at your child’s rate — generally 15 percent. Any earnings beyond that are taxed at your rate. Withdrawals are subject to federal tax as well.
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), or the Uniform Gift to Minors Act (UGMA) of your respective state. 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 in accordance with the laws of the state under which the account was established. Earnings (up to a certain amount) will be taxed at the minor’s rate.
