If you want to give a minor a gift of investments or cash, opening a custodial account may be one solution. It can be used for college savings, too.
With each custodial account, only one minor can be named as "beneficiary" and only one adult may act as the "custodian." Only the custodian can make contributions or investment decisions. The custodian can't be changed unless he or she resigns or becomes incapacitated, or a change is made by an order of the court.
Anyone can contribute, regardless of income, and there are no contribution limits. However, there's an annual federal gift tax exclusion amount of $15,000 per contributor, per beneficiary ($30,000 for a married couple).
Funds are set aside solely for the beneficiary; there are no other limitations on withdrawals.
Some of the earnings may be exempt from federal taxes; some income may be taxed annually at the beneficiary's and/or parent's rate (also known as the "kiddie tax"). Consult a qualified tax professional regarding specific questions about the tax consequences of custodial accounts.
A custodial account is considered the student's asset, and this type of account generally has a greater impact on financial aid eligibility than other college-savings vehicles, such as 529 plans or Coverdell Education Savings Accounts.
Financial aid is a complex subject and a financial aid officer should be consulted.
Edward Jones, its employees and financial advisors do not give tax or financial aid advice.