Finance

Top 5 Things to Know About Custodial Account

As parents, our first responsibility is to secure the future of our children. Custodial accounts are an excellent way to gift them with financial security. For those parents looking to start saving and investing for their children’s future, we’re here with the top 5 things you need to know about custodial accounts.

Keep in mind the following features while choosing the best custodial account

  • What is a Custodial Account: A custodial account is a financial account for a minor handled and administered by a parent or a legal guardian. There are two types of custodial accounts – The Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA). 
  • Purpose: With the best custodial account, parents can give their children a financial head start for both education and non-education purposes. They can foster basic savings behavior in children and invest in companies and endeavors that both believe in, like Apple, Disney, Facebook, and more. 
  • Where can I open my custodial account: Custodial Accounts can be opened in various financial institutions like banks, brokerage houses, and credit unions. 
  • Benefits: Custodial Accounts are free from income, contribution, and withdrawal limits. Moreover, there are no penalties on withdrawals. What else? It even allows you to make investments in a variety of assets that both you and your child believe in. 
  • Drawbacks: The funds can only be used for purposes that directly benefit a child. You cannot re-purpose the money or claim it as yours in the near future. The child, only on reaching adulthood, gains complete control of the account.

Custodial Accounts can be a good teaching tool for the kids when it comes to fostering saving and investment habits. It is super flexible and requires minimal upfront investments to open an account.