Custodial Accounts 101 (Everything You Need in 25 Minutes)

Custodial accounts are an incredible way to set kids up for life financially. But are they the best way? And what do you need to know about them to decide if they are the right kind of account for you, your life, and the children in your life? Today I will explain everything we need to know about these accounts including how they work, who can open them, when kids can get money and for what reasons, how the money can be invested, how taxes work, the impact on college savings and financial aid, and compare the custodial account with the 529 college savings plan as well as the Roth IRA. Let's go!

⏱Handy Timeline:
0:00 Intro
0:29 Part 1: The Basics
0:37 What is it
1:38 Why not use a "regular" account
2:32 2 types of accounts
3:06 How to open a custodial account
3:39 Who can open a custodial account
4:19 When does the kid get the money
5:02 Part 2: What happens with the money
5:23 Where is the money in the account
6:38 How do we take money out
8:04 Taxes!
12:50 Costs and Fees
13:48 Pros and Cons list
14:09 Pros
16:27 Cons
18:33 529 vs custodial account
20:44 Secrets
21:32 Roth IRA vs custodial account
22:38 What companies to use
24:28 Next video

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Disclaimer: Any financial or investing-related topics discussed on this channel are not from a professional investment advisor and are not financial advice for you. This is for entertainment and inspirational purposes only. My opinions are not reflective of the companies mentioned in the video. Also please know that many of the links I have in video descriptions like this one are affiliate links which means I may be compensated by the company whom you do business with at no extra expense to you. Thank you for your support!

Updated Acorns Affiliate disclosure as of 4/9/24:

[mephisto_octopus]

So i was trying to convince my father to make one acc for me but then he didn't even let me complete my words and laugh it off.... Im never telling them anything Im letting my aunt open it for me... Anything thank you so much for this video it really is gonna help so many people ❤

[carbon-structure]

I set one up as soon as my boy got his SSN and am doing the 15k/year gift maximum on it (or whatever I can afford going forward). He already has a dividend income of $5/mo. That's better than I was doing at 3 months of age 😂

[johnnycrash_]

We have set up one for my daughter. We asked her to think about things she likes, then we’ve told her to look up who makes it, and find out if they are doing well. She’s 7, but I think its good to learn about this early.

[testit]

I get the Custodial Roth in the child's name once they have earned income and it is fantastic, but I've never really understood the UGMA for folks with under 20 million in assets. At that point for estate planning you do need to be making some moves, but the stepped up basis for inherited assets is a huge tax benefit of holding in your name and you can always spend the money on their behalf up until that time. My instinct is in a long term portfolio the tax drag isnt going to overtake the benefit of stepped up basis. Zooming out a bit if you do gift as a down payment for a house there is benefit to it being in their name in advance for mortgage applications.

[Diva-lkjy]

Thanks for this video, it's very thorough, very information and to the point. You covered everything. Just one question - I did not see Fidelity on your list, could you please provide your thoughts on that as well? Thanks.

[Exbackzack]

Thanks for making this video brother shows you read your comments and respect all you say brother.

[NotKings]

How do I use this for stocks etc? Like I have to be over 18 to make a account in the first place and there no place for me to go to like a custodial login

[Savvyester]

Wait so do we have to file taxes even when we haven't sold our positions in the account?

[kylee]

What's your opinion on Earlybird? I set one up because I like that family members can contribute easily. Is it common for people to have both a UGMA and a 529?

[me_rap]

can you share benifeciary for custodial account and in 529? what if you have multiple kids.

[jackdelane]

Does the account get to stay as it is, just owner ship moves? Or does the account get luqidated and the money handed over as a lump sum? If my son wanted to can he leave the investments alone and let them continue to build?

[LeviOdom-ds]

Trying to convene my parents to open a custodial acount.

[pault]

I opened a custodial account with charles schwab, roth Ira, and they put 100% of the asset allocation into cash & cash investments. That doesn't seem right to me. My child is 14 and this is for his future. Like 40 yrs later. Does this seem right to you?

[russthompson]

I really wish the age could be set at 26, the same age that most kids leave your insurance and graduate. Then, if desired, they can use the fund to pay off the student loans. Also, one must teach kids the value of saving and investing, because an 18 year old with that kind of money might just blow the money, like on an overpriced car.

[livingworkingoutsidebox]

Benny is going to be an underwater welder 😉

[Hooplamoopla]

You don't need an axe to set yourself apart