Best Custodial Accounts of March 2024: A Comprehensive Guide for Parents and Guardians (2024)

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The best custodial accounts are accessible and low-cost, user-friendly platforms for parents/ guardians to invest funds on behalf of their children/dependents. Custodial account investment options also offer multiple tax perks. Remember that funds in these accounts must be used for the child's benefit.

Best Custodial Accounts of 2024

• Charles Schwab: Best custodial account for all types of investors
• Merrill Edge: Best custodial account for Bank of America clients
• Vanguard: Best custodial account for mutual funds
• Fidelity Investments: Best custodial account for low fees
• TD Ameritrade: Best custodial for active traders
• E*TRADE: Best for robo advisors

Compare the Top Custodial Accounts

Custodial accounts, also known as UGMA/UTMA accounts, are brokerage accounts that allow parents or guardians to invest on behalf of their children or dependents. Ownership of these accounts transfers to the minors once they reach legal age (typically 18 or 21, depending on the state).

Many brokerages offer other brokerage accounts for minors, like 529 plans, IRAs, and trusts. Open a custodial account for minors to unlock tax benefits and educational resources.

Custodial Account Reviews

Best Custodial Account for All Types of Investors

Charles Schwab

Known as the Schwab One Custodial Account, this account offers investors several perks. These include a $0 minimum opening deposit, $0 account setup and maintenance fees, and commission-free stocks and ETFs. In addition, you can invest in mutual funds and other securities and utilize investment research and other tools.

With custodial accounts, you won't have to worry about contribution limits. Parents and guardians might also consider Schwab's custodial IRAs (you can open these as a traditional IRA or Roth IRA), 529 college savings plans, and education savings accounts (ESA).

Another advantage of Schwab's custodial account is that it isn't just for self-directed investors. You can automate your investments by setting up the account through the Charles Schwab Intelligent Portfolios or Schwab Intelligent Portfolios Premium robo-advisors. Just note that you'll need a minimum of $5,000 for the former and at least $25,000 for the latter.

Once the account beneficiary reaches legal age, they'll retain complete ownership of the account's earnings and can then utilize additional Schwab products if so desired.

What to look out for:If you decide to take the automated investing route for your custodial account, you'll need at least $5,000 for Schwab Intelligent Portfolios and $25,000 for Schwab Intelligent Portfolios Premium.

Schwab Intelligent Portfolios review

Best Custodial Account for Bank of America Clients

Merrill Edge

Merrill Edgelets you invest for your minor without running into any minimum opening deposits, annual fees, or account maintenance fees. Merrill Edge also offers commission-free stocks, ETFs, and options. And you can choose the robo-advisor route with Merrill Guided Investing or Merrill Guided Investing with an Advisor.

If you're already a Bank of America client, you can fund the account by linking your existing Bank of America account. Merrill Edge also allows checks, wire transfers, and transfers or rollovers from existing accounts.

In addition to its custodial accounts, Merrill Edge offers a vast range of other competitive products, including automated investing accounts (robo-advisors), IRAs, 529 plans, retirement calculators, margin accounts, and more.

Merrill Edge also offers 24/7 phone support and live chat.

What to look out for:Annual fees for Merrill Edge's automated accounts — Merrill Guided Investing and Merrill Guided Investing with an Advisor — are on the higher side. You'll incur a 0.45% fee for the former and a 0.85% fee for the latter.

Merrill Edge review

Best Custodial Account for Mutual Funds

Vanguard

A behemoth in the retirement investing and mutual funds space, Vanguard also offers some competitive features with its custodial accounts. There aren't any opening deposit, maintenance, or account transfer fees, and you can automate transfers from both your bank account and other Vanguard accounts.

Vanguard allows for investments in stocks, bonds, Vanguard mutual funds, non-Vanguard funds, and more. Plus, with Vanguard Personal Advisor Services, you can skip out on the self-directed investing route and take advantage of robo-advice paired with ongoing financial advisor guidance. Note, however, that you'll need at least $50,000 to get started with this service and be responsible for a 0.30% annual fee.

Vanguard's suite of investment products also features 529 plans and trusts. And if you're looking to deepen your investing knowledge before and/or after you set up a custodial account, the brokerage offers an extensive selection of resources (investing tools and calculators, market news and perspectives, and educational guides) to help you do so.

What to look out for:Vanguard doesn't currently offer fractional shares, and options contracts will cost you $1 (many brokerages charge $0.65 per contract).

Vanguard review

Best Custodial Account for Low Fees

Fidelity

Fidelity's custodial account lets you build wealth through stocks, ETFs, options, bonds, mutual funds, and much more. Plus, the account has no minimum opening requirements or fees, and any stocks, ETFs, or options the account holder invests in are commission-free.

Its custodial offerings are also supplemented with account perks like Fidelity Viewpoints, an online center with expert commentary on investing strategies, markets, and much more. In addition, Fidelity's Planning & Guidance Center offers tools to help you meet investing goals.

Fidelity Investments offers multiple other minor investment account options beyond UGMA/UTMA custodial accounts. These include its Roth IRA for Kids account, 529 plan, Fidelity Youth Account (which lets children between the ages of 13 and 17 invest independently), and trust accounts.

What to look out for: Fidelity Godoesn't support custodial accounts.

Fidelity review

Best Custodial Account for Active Traders

TD Ameritrade

TD Ameritradeoffers a vast range of accounts for youth. These include its UGMA/UTMA accounts, Coverdell Education Savings accounts, and 529 plans (TD Ameritrade is no longer offering 529 plans to new clients).

And like all of the other brokerages listed above, you won't have to worry about minimum deposits to get started. TD Ameritrade also offers a competitive investment selection. It gives you access to commission-free stocks and ETFs and provides more than 13,000 mutual funds.

If you're a hands-off investor and would rather leave the day-to-day trading decisions to the professionals, you'll have to set up an account through Charles Schwab. TD Ameritrade is no longer accepting new clients for any of its managed portfolios, but you can still open an automated investing account through Schwab Intelligent Portfolios or Schwab Intelligent Portfolios Premium.

What to look out for: Schwab acquired TD Ameritrade, so many of the brokerage's offerings have merged with Schwab's. However, both platforms still offer stand-alone products, so be sure to keep this in mind as you weigh different account options.

TD Ameritrade review

Best Custodial Account for Automated Investing

E*TRADE

E*TRADE offers account options for all types of investors, but it provides a particularly competitive suite of custodial products. These include its standard UGMA/UTMA custodial account, IRA for Minors, and Coverdell ESA accounts. Its standard custodial account allows for commission-free stocks, ETFs, and options.

However, you'll pay $1 per bond; bond minimums can range from $10 to $250. Fees for funds vary, but E*TRADE offers more than 4,500 no-load, no-transaction-fee mutual funds. And those who prefer robo-advice can build wealth through its expert-managed automated investing account,Core Portfolios(note that you'll need at least $500 to set up this account).

Its custodial accounts also have no income or contribution limits, and they come with a free debit card, checking perks, and online bill pay.

What to look out for: E*TRADE doesn't offer fractional share trading.

Custodial Accounts Frequently Asked Questions (FAQs)

Opening a Custodial Account

A custodial account is a tax-advantaged investment account that allows parents or guardians to invest on behalf of children and/or dependents until those minors reach their state's age of majority. These accounts also have no income or contribution limits, and you can make early withdrawals without racking up any penalties.

By opening a custodial account on behalf of a child/dependent, you're building a nest egg for a kid's future education expenses. To build long-term wealth, you can contribute gifts like money or other assets into a custodial account.

Custodial accounts are similar to 529 plans. However, a custodial account offers more flexibility, making these accounts easier and cheaper than trusts. However, opening a custodial account may affect your child's ability to get financial aid.

Managing and Contributing to a Custodial Account

Like any other brokerage account, custodial accounts can be opened with a bank, credit union, or other investment platform that offers these accounts as an investment option. Both traditional brokers and online brokers offer custodial account options.

You don't have to be a parent or legal guardian to open a custodial account on behalf of a child/dependent. Other relatives and friends can also open an account. Custodial accounts no longer have contribution limits, so you can invest as much as you want toward your child's future.

Who Pays Taxes on a Custodial Account?

The child or account beneficiary is responsible for taxes, but each parent or guardian must file taxes on behalf of their minor. However, the account beneficiary won't incur taxes in 2023 if they amass no more than $1,250 in unearned income. The next $1,250 the custodial account earns is taxed at the child's tax rate.

In addition, any income earned over $2,500 is taxed at the parent's income tax rate. But with UGMA accounts, any contributions to the beneficiary's account are technically regarded as a "gift" and will incur a federal gift tax. However, you won't run into any gift taxes as a single individual if your contributions don't exceed $17,000 a year. The limit for couples is $34,000.

E*TRADE review

Why You Should Trust Us: Our Expert Panel For The Best Custodial Accounts

We interviewed the following investing experts to see what they had to say about custodial accounts.

• Sandra Cho, RIA, wealth manager, and CEO of Pointwealth Capital Management
• Tessa Campbell, Investment and retirement reporter at Personal Finance Insider

What are the advantages/disadvantages of opening a custodial account?

Sandra Cho:

"One disadvantage is that 20% of custodial assets count as available to be used to pay for higher education, while only 5.64% of assets held in a 529 plan count when determining qualification for financial aid with FAFSA. Another disadvantage is that the account must be turned over to the child when they reach the age of majority (18-25 depending on the state.)

"The advantages are that the accounts have flexibility in that there are no income or contribution limits. There are also no requirements to make regular distributions at any point. There are also some limited tax advantages."

Tessa Campbell:

"The advantage of custodial accounts like a UGMA or UTMA is that you can easily save and invest toward your child's future. Plus, custodial accounts are easy to set up and more flexible than 529 plans.

"However, custodial accounts don't have as many tax advantages, and contributions may not be tax deductible. Another disadvantage of custodial accounts is that it may affect your child's ability to qualify for financial aid."

Who should consider opening a custodial account?

Sandra Cho:

"Those that have children and want to provide a financial cushion for them should consider opening an account. Custodial accounts can be a very beneficial way to ensure your children are financially provided for once they have become legal adults and can give them stability once they are out from under your watch."

Tessa Campbell:

"Parents or guardians with children under the age of 18 should consider opening a custodial account. Compared to a trust, custodial accounts are simple to set up. Moreover, custodial accounts allow friends and family to gift money toward your kid's future.

"It's also the best option if you're not sure whether or not your child will go to college since money in a custodial account can be used for essentially anything as long as it directly benefits the child."

Is there any advice you'd offer someone who's considering opening a custodial account?

Sandra Cho:

"My main advice would be to have a conversation with your child for who the account is set up for. This conversation should be ongoing and should ensure that they understand what the purpose of this account is for. This transparency is needed as they will eventually be the beneficiary and controller of the account."

Tessa Campbell:

"You can open a custodial account with a bank, online investment platform, or brokerage firm that offers a custodial account option. But make sure to compare rates, perks, fees, and other resources to ensure you're opening the best account option for you."

Other Custodial Accounts We Considered

• Ally Invest: Ally Invest offers a vast collection of investment products, allowing you to set up a self-directed or automated custodial account. One thing to consider, however, is that the platform doesn't offer any no-transaction-fee mutual funds.
• Firstrade: Firstrade provides commission-free trading for stocks, ETFs, options, and mutual funds. The platform also offers international investing accounts, but it doesn't provide any managed accounts or automated investing options.
• M1 Finance: Offering a combination of self-directed trading and automated investing for stocks and ETFs, M1 Finance is a competitive platform in the online brokerage space. However, only M1 Plus members get access to custodial accounts, and the M1 Plus subscription costs $125 per year.
• Stash Invest: Stash gives investors access to automated investing (for both stocks and ETFs), round-ups, banking, and more. The platform also offers retirement portfolios and family financial advice packages. One downside to consider is that you'll pay a $9 monthly fee — through the Stash+ plan — to utilize a custodial account.
• Stockpile: This investment platform is a great wealth-building option for kids and teens. It offers no minimums, no recurring fees, and no gift card or funding fees (you can buy gift cards that are redeemable for different stocks in your child or dependent's account). One downside is that, while Stockpile offers thousands of stocks, it only offers two account types: individual accounts and custodial accounts.
• Loved App: Loved is a financial education app offering investment accounts and financial literacy resources for parents who want to get their kids (or other dependents) into investing at an early age. It lets you invest in themes, goals, and companies that align with your preferences, and you can set up custodial accounts. However, it may not be the best choice for those who want a wider range of account types and investment choices.
• Acorns: Acorns is a beginner-friendly investment app for passive investors wanting to start wealth-building for their kids or teens. Acorns Early is the platform custodial account option. It offers a diverse portfolio of ETFs based on your investment goals and risk tolerance. But it can cost up to $9 per month, and its investment options are limited.

Why You Should Trust Us: Our Methodology

We reviewed more than a dozen custodial accounts using Insider's rating methodology for investing products to find the best options for the lowest fees, ease of use, flexible investment choices, and customer service availability. We also sifted through multiple investment platforms to find the best options both for self-directed traders and hands-off investors.

You'll notice that many of the platforms mentioned in our guide offer the option to both trade on your own or automate your custodial account's investments. Investment platforms are given a rating between 0 and 5.