Custodial Account
Account where assets are held and managed on someone else’s behalf.
Detailed Description
Custodial Account
What is the main purpose of a custodial account?
The main purpose is to manage and grow assets for a minor until they reach a specified age.
What are the two main types of custodial accounts?
The two main types are UTMA accounts and UGMA accounts.
What are the tax implications of custodial accounts?
Earnings are taxed at the minor's rate, and contributions are considered gifts with potential gift tax implications.
Who can open a custodial account?
An adult custodian, typically a parent or guardian, can open the account for a minor beneficiary.
What is a drawback of custodial accounts?
One drawback is that funds cannot be removed for the benefit of the custodian; they are irrevocably designated for the minor.