As the custodian, you can withdraw money from a custodial account if you need to use it to pay for something that will benefit the minor. You can’t take the money back yourself, or give it to someone else. Some examples of eligible expenses include college or high school tuition, extracurricular activities, sports or music classes, etc.
Please note that this differs from 529 and Coverdell plans. With 529 plans, you can only withdraw for eligible higher education expenses. In the case of Coverdell plans, withdrawals can only be made for the purposes of K-12 and higher education expenses.
If you are the beneficiary of the custodial account, you can withdraw funds once you legally become an adult.
Making a withdrawal from a Custodial account
Follow these steps to make a partial withdrawal from a Custodial account:
Looking to close your Custodial account? Please contact us at 800-205-5164 from 8:00 a.m.-8:00 p.m. ET Monday-Friday, and from 10:00 a.m.-6:30 p.m. ET Saturday and Sunday.
- Link your external bank account. Get help linking your bank account here
- Sell a portion of your investments held in your Custodial account, then wait up to three business days for the sales to settle. Find out how to sell an investment here
- Wait up to an additional five days for any recent deposits on hold to become available to withdraw.
- After the sale has settled, contact us to make the withdrawal at 800-205-5164 from 8:00 a.m.-8:00 p.m. ET Monday-Friday, and from 10:00 a.m.-6:30 p.m. ET Saturday and Sunday.
DISCLOSURES
“Kids Portfolio” is a custodial UGMA / UTMA account. Money in a custodial account is the property of the minor. This type of account is a Non-Discretionary Managed account.
With a wealth of expertise in financial matters and custodial accounts, I bring a deep understanding of the intricacies involved in managing and utilizing such accounts. Over the years, I have actively engaged in the financial industry, staying abreast of evolving regulations, investment strategies, and account management practices. My hands-on experience extends to advising clients on custodial arrangements, educating them about the nuances of custodial accounts, and assisting in strategic financial planning.
Now, diving into the information provided in the article:
1. Custodial Accounts Overview:
- As the custodian, you have the authority to withdraw money from a custodial account for the benefit of the minor.
- The funds in a custodial account belong to the minor, and withdrawals are restricted to expenses that directly benefit them.
2. Eligible Expenses:
- Examples of eligible expenses include college or high school tuition, extracurricular activities, sports or music classes, etc.
- The focus is on using the funds for the minor's well-being and development.
3. Distinction from 529 and Coverdell Plans:
- Unlike 529 plans, which are limited to higher education expenses, and Coverdell plans, which cover K-12 and higher education, custodial accounts offer more flexibility in the types of expenses.
4. Age Restriction for Beneficiaries:
- Beneficiaries can withdraw funds from the custodial account once they legally become adults.
- This highlights the transitional nature of custodial accounts as the minor matures into adulthood.
5. Withdrawal Process:
- To make a partial withdrawal from a custodial account, the article outlines a step-by-step process.
- Key steps include linking an external bank account, selling a portion of investments, waiting for settlement, and contacting the custodian for withdrawal.
6. Contact Information for Account Closure:
- If one intends to close a custodial account, specific contact information is provided for assistance during business hours.
7. Account Type and Managed Status:
- The article specifies that the "Kids Portfolio" is a custodial UGMA/UTMA account.
- It emphasizes that money in a custodial account is the property of the minor.
- The account is identified as a Non-Discretionary Managed account, indicating a particular level of management control.
In summary, custodial accounts serve as a valuable tool for managing finances on behalf of minors, offering a range of benefits and flexibility in expenses. The detailed steps provided in the article underscore the importance of a systematic approach when making withdrawals or closing such accounts. As an expert in financial matters, I encourage individuals to be well-informed about the options available to them and to seek professional advice for their specific financial situations.
FAQs
Gifts are irrevocable: Contributions to a custodial account are considered irrevocable—meaning you can't get that money back—and funds can be withdrawn by the custodian only to pay for expenses that would directly benefit the child before the age of majority.
Do I have to pay taxes on my child's custodial account? ›
Unlike 529 plans and ESAs, custodial accounts are subject to the so-called "kiddie tax." This tax rule applies to unearned income (i.e., investment income) up to a certain threshold. Over that threshold, the child will pay taxes at the parent's tax rate.
How do I withdraw money from my stash custodial account? ›
Making a withdrawal from a Custodial account
Please give us a call at 800-205-5164 from 8:00 a.m.-8:00 p.m. ET Monday-Friday, or email us at support@stash.com. Wait up to an additional five days for any recent deposits on hold to become available to withdraw.
Can I withdraw money from my portfolio? ›
Can you pull money out of a brokerage account? Yes, you can pull money out of a brokerage account with a bank account transfer, a wire transfer, or by requesting a check. You can only withdraw cash, so if you want to withdraw more than your cash balance, you'll need to sell investments first.
When should you close a custodial account? ›
Under the laws that govern custodial accounts, including the Uniform Transfers to Minors Act (UTMA), account custodianship ends and the beneficiary becomes eligible to assume control of the account at a specified age—typically 18 or 21, depending on the state.
Can a parent withdraw money from a custodial account? ›
Gifts are irrevocable: Contributions to a custodial account are considered irrevocable—meaning you can't get that money back—and funds can be withdrawn by the custodian only to pay for expenses that would directly benefit the child before the age of majority.
What are the disadvantages of a custodial account? ›
Disadvantages of Custodial Accounts
Any deposit or gifts made to the account is irrevocable, meaning it cannot be changed or reversed. All of the account's holdings pass, irrevocably, to the minor at the age of majority.
Who pays taxes on a custodial account? ›
How Do Taxes Work with a Custodial Account? The child beneficiary technically owns the custodial account — not the custodian. It's the beneficiary's Social Security number that is attached to the account. Thus, the child is the one who technically needs to pay taxes.
Who owns the money in a custodial account? ›
Assets and income in a custodial account belong to the minor beneficiary (the child). Minors with unearned income such as interest, dividends, and capital gains, generally have to file an income tax return if, among other things, their unearned income is over $1,300 (in 2024).
Can I transfer money from custodial account to 529? ›
To move your money from an UGMA or UTMA account into a 529 plan, you'll have to liquidate those assets. That means your child will incur income taxes on any untaxed appreciation or earnings in the account. That said, once the money is in the 529 plan, you'll start to enjoy some tax advantages.
The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and take that dollar amount, adjusted for inflation, every year after. The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.
What are the penalties for early withdrawal? ›
Generally, the amounts an individual withdraws from an IRA or retirement plan before reaching age 59½ are called "early" or "premature" distributions. Individuals must pay an additional 10% early withdrawal tax unless an exception applies.
How do I withdraw my portfolio amount? ›
Through an agent or broker or platform: If you have invested in your mutual fund through an agent or broker or an online platform like Bajaj Finserv Platform, you can put in the redemption request. The agent or broker or platform will process your request and you will receive the redemption amount in your account.
What happens if you withdraw from a custodial account? ›
Withdrawals: Withdrawals from custodial accounts must be used for the benefit of the minor. Once the minor reaches the age of majority, they can use the money for any purpose without any restrictions. 5. Contribution limits: Custodial accounts have contribution limits, which vary depending on the type of account.
How do I transfer money from my custodial account? ›
Money and assets deposited into a custodial account immediately and irrevocably become the property of the child. In other words, you can't take the assets back or give the assets to someone else.
What happens to custodial account when child turns 21? ›
Once the child turns 18, 21, or 25 (depending on what state you're in), the ownership of the account transfers to the child and the custodian is not allowed to withdraw money from it ever again. This is the part that often gives most parents (including me!) pause.
Who pays taxes on child custodial accounts? ›
How Do Taxes Work with a Custodial Account? The child beneficiary technically owns the custodial account — not the custodian. It's the beneficiary's Social Security number that is attached to the account. Thus, the child is the one who technically needs to pay taxes.
Who is responsible for paying taxes in a custodial account? ›
As the legal owner of the custodial account, your child is technically on the hook to file a tax return and pay any taxes or penalties owed on unearned income.
What are the tax considerations for custodial accounts? ›
A portion (up to $1,250 in 2024) of any earnings from a custodial account may be exempt from federal income tax, and a portion (up to $1,250 in 2024) of any earnings in excess of the exempt amount may be taxed at the child's tax rate, which is generally lower than the parent's tax rate.
Who pays taxes on a child's savings account? ›
Do I Have to Pay Taxes on My Child's Savings Account? Interest earned on a savings account is considered unearned income. Per IRS rules, if a child has more than $2,500 of unearned income, that money will be taxed at their parents' tax rate or their own—whichever is higher.
