Who controls a custodial account?

The custodian of the account, usually the parent or guardian, has control over the account until the child reaches the age of majority. The custodian can also make investment decisions and withdrawals, but only when they are for the benefit of the beneficiary. However, the money in the account belongs to the beneficiary, or the child.

Can I transfer money from a custodial account?

Custodial accounts can hold gifts from parents, grandparents and other adults. Once the gift is made, the donor/transferor gives up all rights to the assets, the minor becomes the owner and the gift may not be revoked or changed. When the minor reaches the age of termination (typically 18 or 21, but some state laws allow an older age), they gain control over the assets. Once the transfer is made, the minor becomes the owner of the assets and distributions must be used for their benefit.

Should I open a custodial account?

If you are looking to give a minor investments or cash, you may want to consider opening a custodial account. Assets in this account can only be used to benefit the minor who is the account owner and can be used in different ways. Custodial accounts have few rules other than the account must benefit the minor. Also, there are no limits on contributions (other than the annual federal gift tax exclusion amount of $17,000 per contributor, per beneficiary). In addition, a custodial account has many investment options. However, there are a few reasons you might want to look into other financial tools. If you are looking for tax benefits, there are alternatives that a financial advisor can suggest. A custodial account’s beneficiary cannot be changed and parents have less control over this type of account. Also, this account is considered an asset of the minor, so it may reduce financial aid eligibility.

How can assets in a custodial account be used?

Custodial accounts have flexibility in how distributions can be used as long as it benefits the minor who is the account owner. Distribution approval depends on factors related to each specific situation, but common requests include: School tuition, Transfer to a Custodian 529, Extracurricular training, Summer camps, Cars for minors at or near driving age, Dental procedures

When does a minor take control of assets in a custodial account?

For custodial accounts held at Edward Jones, when the former minor reaches the age of termination (typically 18 or 21, but some state laws allow an older age), the account is restricted and no further instructions will be accepted until the account assets are transferred to an account, such as an individual account, for the former minor. Once transferred, the former minor can conduct account transactions. At this point, the custodian is no longer authorized to provide instructions on the account.

How do I set up a custodial account?

A custodial account can be useful, especially if you want to give a minor investments or cash to use for their benefit. Overseen by an adult who acts as the custodian of the account, the assets in a custodial account must be used to benefit the minor account owner. To set up a custodial account, you may want to work with a financial advisor.

What is a custodial account?

If you want to give a minor a gift of investments or cash, opening a custodial account may be one solution. A custodial account is managed by a custodian on behalf of a minor who is the account owner. These accounts hold assets the custodian use for various reasons as long as the minor benefits from the use of the funds.

Important Information:

Edward Jones, its employees and financial advisors cannot provide tax or legal advice. This content should not be depended upon for other than broadly informational purposes. You should consult your attorney or qualified tax advisor regarding your situation. Specific questions should be referred to a qualified tax professional.