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Epoch Times
4 days ago
- Business
- Epoch Times
What You Need to Know About UGMA Brokerage Accounts for Minors
Your children may still be in diapers, but they don't need suits to become investors today. You can start investing in your children's future and begin building a legacy by turning to the Uniform Gifts to Minors Act (UGMA). The UGMA allows you to open a custodial brokerage account that holds assets such as stocks, bonds, and cash for the benefit of a minor. The minor is technically the legal owner of the account. But as a custodian, you manage the account and the assets it holds. Once the child reaches the age of majority, he or she is allowed to manage the account.
Epoch Times
23-05-2025
- Business
- Epoch Times
How to Open a Brokerage Account for a Minor
Yes, your child can become an investor. You can open a brokerage account called a custodial account for a minor, but retain control of it. And when your child reaches the age of maturity, your child can take over the account. But by learning the value of a dollar, saving and investing early on, your child can already be on the path to proper money management and financial wellness. And you have different types of accounts to choose from a variety of brokerage firms that may offer different investment options, competitive fees, and access to human financial advisers. So let's explore your options. Uniform Transfers to Minors Act (UTMA) Accounts The Uniform Transfers to Minors Act (UTMA) accounts are designed to hold a variety of investment options. These may include traditional and alternative investments, such as: stocks bonds mutual funds exchange-traded funds (ETFs) target-date funds (TDFs) precious metals (gold, silver, etc.) real estate works of art A UTMA account is relatively straightforward. You open an account through a brokerage firm and manage the investments. The assets technically belong to the minor. But they can't access these until they reach the legal age of maturity. That's usually age 18 or 21, depending on the state. You have a fiduciary duty to manage the account for the benefit of the minor. But there are some tax rules to keep in mind. This is how the 'kiddie tax' works: The first $1,300 is tax-free. The next $1,300 is taxed at the child's rate (typically 10 percent). Above $2,600, the money is taxed at the parent's marginal tax rate. Uniform Gifts to Minors Act (UGMA) accounts are limited to holding cash, stocks, mutual funds, and insurance policies. 529 Plans A 529 college savings plan is designed to help parents invest in their child's future college education. Contributions grow tax-free, and withdrawals are tax-free for qualified educational expenses like tuition, fees, and supplies required for enrollment. These are sponsored by states and managed by major brokerage firms. Some states also offer tax deductions or credits at the state level based on your contributions. And contribution limits are typically hundreds of thousands of dollars. Your investment options typically include mutual funds and TDFs. Coverdell Education Savings Accounts The Coverdell Education Savings accounts work similarly to 529 plans, but they have stricter contribution and income limits. The maximum contribution to your beneficiary is $2,000 per year. And your modified adjusted gross income (MAGI) can't exceed $110,000 or $220,000 for married couples filing jointly for you to be able to open an account. How to Open an Investing Account for a Minor The process of opening an investing account for a minor, such as an UGMA, UTMA, or 529 plan, is fairly straightforward. It can be done online through a brokerage firm's website in minutes. You generally need the following: Social Security number for you and the beneficiary; personal information like address; and checking account information to fund the account. What to Watch Out For Brokerage firms that offer these accounts vary in terms of quality. They offer different investing options, fees, services, and more. So it'll help to shop around for a firm and type of account that aligns with your overall investing goals. The Bottom Line Opening an investing account on behalf of your minor can be a great way to teach your kids about the value of money and money management. You can start as early as possible, as you would manage the assets. You have options such as UTMA accounts, UGMA accounts, 529 plans, and Coverdell Education Savings accounts. You can easily open one of these accounts online through a brokerage firm. But it would help to explore your options. Weigh points such as investment options, fees, and various services. The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided. Related Stories 4/30/2025 4/24/2025
Yahoo
08-05-2025
- Business
- Yahoo
Best custodial investment accounts
A custodial account is a popular way for parents and guardians to invest for their children's future. Accounts are easy to set up and manage, and the adult custodian can choose from a wide range of investment options. A custodial account is an investment account for children and teens offered by brokers. Adults, usually parents, make contributions to the account on behalf of the child until the child reaches the age of maturity as set by state law. The term custodial account typically refers to uniform transfer to minors accounts (UTMA) and uniform gift to minors accounts (UGMA). Each state manages its own UTMA/UGMA program. The adult who opens the account, known as the custodian, has broad discretion over how the account is invested and managed. The custodian can buy and sell securities, reinvest dividends and make withdrawals for the minor's benefit. Once the child reaches the age of maturity, he or she gains control of the account and its assets. Brokers who made our list provide access to a diverse range of investment assets, low fees and account minimums, easy-to-use interfaces and educational resources to help you grow your investing knowledge. To determine the best custodial accounts, we considered factors such as minimum deposit requirements, maintenance fees and commissions for online stock and ETF trades, among other factors. Fidelity, which earned top marks in Bankrate's comprehensive review of brokers, offers a standout custodial account. A full-service broker known for its exceptional customer service, extensive research resources and wide range of investment options, Fidelity offers UTMA/UGMA custodial accounts on par with its other stellar services. Fidelity's custodial account provides access to stocks, bonds, mutual funds, ETFs, options, CDs and fractional shares. With no minimum opening deposit or recurring maintenance fees, it's a low-barrier entry point for starting a child's investment journey. Fidelity offers other investment account options as well, including a Roth IRA for kids and a Youth Account for teens age 13-17. The latter gives a teen full control over their investments before they turn 18 with no fees or minimum balance requirements. Charles Schwab, a pioneer in the discount brokerage industry, has built a reputation for top-notch customer service, a wide range of investment options and minimal fees. The Schwab One Custodial Account offers the same key features as the company's flagship Schwab One Brokerage Account: Zero commissions for buying and selling stocks and ETFs, no minimum opening deposit and no maintenance fees. Account holders have access to first-class customer service, hundreds of nationwide office locations and a variety of investment tools. Fractional shares of S&P 500 companies starting at $5 is another great feature, making Schwab an excellent choice for an affordable custodial account. Schwab Intelligent Portfolios, the company's robo-advisor services that create and manage a diversified portfolio, supports custodial accounts. However, the minimum balance is $5,000 to open an Intelligent Portfolio account, so if you're starting with less, the Schwab One Custodial Account is the way to go. Merrill Edge's custodial account offers a fee-free and accessible way to start saving for a child's future. With no minimum account requirements, $0 commissions for stock and ETF trades and $0.65 options contracts, Merrill Edge is an attractive option, especially for Bank of America customers who can benefit from its extensive network of physical locations. While fractional share investing isn't available for stock purchases, it offers dividend reinvestment. E-Trade's custodial account offers commission-free trading for stocks and ETFs, with a $0.50 to $0.65 contract fee for options. To automate the process, you can open an account using the E-Trade Core Portfolios robo-advisor service, which creates and manages the portfolio for you for a low annual fee of 0.30 percent of assets under management and a $500 minimum to get started. The custodial account also comes with a free debit card, checking and bill pay. Like all custodial accounts, you can make withdrawals for any purpose without penalties so long as it benefits the minor beneficiary. E-Trade also offers a Coverdell education savings account and an IRA for minors. Vanguard, famous for its low-cost investment options, is an excellent choice for an equally low-cost custodial account. The broker boasts no enrollment, transfer or advisor fees for its self-directed custodial accounts. Account holders can invest in Vanguard's entire fund lineup, including index funds, actively managed funds and ETFs fee-free with no commissions. Beyond Vanguard funds, you can invest in individual stocks and bonds, although fractional shares are not available. Acorns, an investment app designed for simplicity and accessibility, offers a comprehensive financial platform that includes a custodial account, known as Acorns Early. Available under the Acorns Gold service tier ($12 per month), Acorns Early is easy to set up and allows for multiple children's accounts without additional fees. It takes just $5 to open an account. You can also set up recurring 'round-up' deposit contributions by linking a checking account. The fintech app also offers a 1 percent match on up to $7,000 per year in deposits to a child's custodial account. While it's nice that Acorns automatically places you into a diversified portfolio of ETFs for the account, there are other brokers on this list that provide the same automated portfolio management service without a monthly fee. However, Acorns maintains the lowest minimum investment for an automated custodial account. Custodial accounts function like regular brokerage accounts, allowing custodians to buy and sell stocks, bonds, funds and other investments. Anyone can contribute to a custodian account. Custodial accounts are typically managed by parents or guardians, who contribute to the account and make investment decisions. There are no income or contribution limits for these accounts. However, contributions above $19,000 per year in 2025 ($38,000 for a married couple filing jointly) can incur federal gift tax. Unlike college savings plans, there are no penalties if assets in the account aren't used to pay for education. Custodians have full control over the account until the beneficiary reaches the age of majority, which is at least age 18 but is often age 21, depending on the state. At that point, the custodian is required to transfer assets to the beneficiary. The account and its assets are irrevocable and legally belong to the minor. This means the minor is responsible for paying taxes on any investment income earned. Contributions aren't tax-deductible for the custodian. If you're looking to invest for a child's future, it's also worth exploring the best 529 plans. With no contribution limits, custodial accounts offer flexibility and convenience when transferring money to a minor. While they can be a valuable tool, consider alternative options like 529 plans if college savings is your primary goal. A 529 plan often provides tax benefits and may have less impact on your child's eligibility for college financial aid. Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation. — Bankrate's Dayana Yochim contributed to an update of this article. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
14-02-2025
- Business
- Yahoo
How to start a savings fund for a baby
As a new parent, there are many details to plan for. Yet saving for your child's future is an important financial responsibility that you may want to start preparing for sooner rather than later. The good news is there are many options available for starting a savings fund for your baby. And even if you only have the ability to put away a few extra dollars each month, making a consistent habit of saving for your child could produce big benefits over time. When you're ready to begin saving cash for your baby's future, you may want to consider setting up a designated, separate account to hold the money. The best savings funds for babies and children feature above-average returns, low fees, and potential tax benefits. Here's a look at four smart ways to start a savings fund for a baby, depending on your goals. Opening a savings account for your baby can be an easy, low-risk way to stash away cash for your child's future. So, if you plan to open a savings account for a child, you may want to consider whether a high-yield savings account (HYSA) might be a good fit for your goals. High-yield savings accounts are deposit accounts that typically offer above-average interest rates compared to traditional savings accounts — as much as 10 times the national average. And if you open a HYSA with an FDIC-insured bank, you can trust that your deposits are safe (up to $250,000 per depositor, per account ownership category). One downside: High-yield savings accounts come with variable interest rates that can go up and down with market conditions. Plus, despite competitive rates compared to other types of deposit accounts, they still don't match the returns you can achieve by investing in the market. High-yield savings accounts are commonly found at online banks, but you should also check with traditional banks and credit unions. It's wise to compare multiple HYSA account options to make sure you find the best rates and account terms available. Read more: The 10 best high-yield savings accounts available today Another way to save money for your baby is to open a custodial account. These types of accounts allow you to save and invest money on your child's behalf. Custodial accounts come in the following two main varieties: Uniform Gifts to Minors Act (UGMA) accounts: UGMA accounts can hold cash and financial investments. You can open these accounts on behalf of a minor family member in all 50 states. Uniform Transfers to Minors Act (UTMA) accounts: UTMA accounts can hold cash, financial investments, real estate, and other types of property. You can open these accounts on behalf of a minor family member, but they're not available in all 50 states. These custodial accounts have no annual contribution limits, but the IRS does impose a gift tax if you deposit over a certain threshold. The federal gift tax limit for 2025 is $19,000 per individual and $38,000 per married couple. Gifting a certificate of deposit (CD) is another option to consider if you're looking for ways to invest money for your baby's future. A CD can be appealing because it offers a fixed interest rate for the entire term (which can range from a few months to several years), which can be particularly beneficial in a falling interest rate environment. The catch is that you must keep the money you deposit in a CD in the account until it reaches maturity. Otherwise, you'll be subject to an early withdrawal penalty. If you want to gift a certificate of deposit to your child, you first need to open the CD as a custodial account — either a UTMA or UGMA (see above). This means your child won't own the CD, at least not until they reach adulthood. And since the age of adulthood varies on a state-by-state basis, the process of transferring the CD to your child once they're old enough can differ. With a UGMA account, your child would need to withdraw the cash from their CD between the ages of 18 and 21 (depending on the state of residence). A UTMA account, by comparison, lets you, as a parent, make withdrawals for the benefit of your child at any time. Once your child (aka the beneficiary) reaches adulthood (18 to 21, depending on the state of residence), they can take control of the CD. Read more: Can you gift a certificate of deposit? As a parent, one of the biggest expenses you may need to plan for when it comes to your child is their college education. A 529 plan could be a great tool to help you accomplish that goal. A 529 plan is a tax-advantaged, flexible savings plan you can use to pay for educational expenses. Parents, grandparents, and other family members can contribute to the 529 plan as well. Plus, you can invest the money in potentially high-return stock funds on behalf of your child, who is the beneficiary. Additionally, as long as the beneficiary uses the money for qualified educational expenses, they won't have to pay taxes on any gains. You may even be able to open a 529 plan for an unborn child if you want to start saving money early. Technically, you would name yourself as the beneficiary in this situation and list your baby as the beneficiary once they receive a Social Security number. It's also possible to change the beneficiary on 529 plans, giving parents more flexibility than some other savings products. But you should also consider the limitations of 529 plans (like the fact that you can only spend the money on educational expenses) before you open this type of account. There's no one-size-fits-all solution when it comes to saving money for your child. Depending on the financial goals you want to achieve, opening more than one type of savings fund for your baby might be the best option. Keep in mind that it's also fine to ask for advice if you're not sure where to start. A trusted financial advisor can help you work through your financial priorities and create a financial plan that makes sense for your family—especially when you're undergoing a major change like adding a new child to your household. Finally, remember that you don't have to start with a huge savings goal if doing so isn't affordable right now. Even if you can only afford to save a few extra dollars per month for your baby, creating the habit of saving is what matters most.
