Bible Money Matters

Christian personal finance

Menu
    • About
    • Archives
    • Contact
    • Close
  • Making Money
      • Popular Articles

        • 50 Ways To Make Money: Maximizing, Creating And Increasing Your Income
        • 10 Weird And Unconventional Ways To Make Money
        • Making Money With A Blog (e-Book)
        • 10 Places To Sell Or Trade Your Unused (Or Broken) Electronics
        • Ways To Make Extra Money Series: 20 More Income Generating Ideas From Our Readers
        • Making Side Income Can Help Blunt The Impact Of Becoming A One Income Family
        • Earn Cash Back With Discover it® Credit Card
      • Recent Articles – Making Money

        • Best Sites Like Fiverr To Make Money As A Freelancer
        • 13 Of The Best Independent Contractor Jobs
        • 25 Of The Best Gig Economy Jobs
        • How To Make Money Blogging: Turn A Blog Into A Business
      • Categories

        • Making Money
        • Investing
        • Retirement
        • Jobs & Work LIfe
        • Money
        • Income
    • Close
  • Saving Money
      • Popular Articles

        • 50 Easy Ways To Save Money Every Month
        • 10 Weird And Unconventional Ways To Save Money
        • 10 Practical Ways To Save Money And Increase Your Net Worth
        • How To Save Money On Just About All Of Your Regular Monthly Bills
        • Ways To Watch TV Without Paying An Arm And A Leg For Cable TV
        • Save Money On Your Hospital Bill - Just By Asking
      • Recent Articles – Saving Money

        • How To Save $100k In 7 Practical Steps
        • Stairs App Review: Save And Invest To Earn 4-6% Interest
        • Honey Review: Save Money Automatically When You Shop Online
        • 9 Convincing Reasons Why You Need An Emergency Fund
      • Categories

        • Saving Money
        • Frugality
        • Planning
        • Finance
        • Saving For Retirement
        • Savings Accounts
    • Close
  • Banking
      • Best Rates For 2019

        • Best Credit Cards
        • Best Savings Accounts
        • Best Mortgage Rates
        • Best CD Rates
        • Best Brokerages
        • Free Credit Scores
      • Recent Reviews

        • TradeStation Review: Commission Free Stock And ETF Trades
        • Firstrade Review: Commission Free Trades on Stocks, Crypto, And Options
        • Cadre Real Estate Investing Review: Commercial Real Estate Investing
        • Axos Self Directed Trading Review: Invest, Trade Stocks For Free
      • Categories

        • Bank & Software Reviews
        • Investing
        • Credit
        • Banking
        • Mortgage
        • Insurance
        • Family Budget
    • Close
  • Recommended
  • Video
    • Close

What Is A Custodial Savings Account And What Are The Pros And Cons?

By Peter Anderson 1 Comment - The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited February 10, 2014.

Share8
Pin
Tweet
Share3
11 Shares

There are times where you may want to help a child to start saving up for the future, saving for college or help to teach them how to manage money.  Depending on your exact goals there are different ways to go about doing this, but one option is to set up a custodial savings account.

The Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA) have provisions to allow an adult to set up a custodial account for a minor, whether for one of their children or not, and maintain control over the account until the child reaches the age of majority.

So what are some things that you need to know when setting up a custodial savings account?  What are some of the pros and cons?

Quick Navigation

  • Custodial Savings Accounts – What Are They?
  • Opening A Custodial Savings Account
  • Pros Of Custodial Savings Accounts
  • Cons of Custodial Savings Accounts
  • Conclusion

Custodial Savings Accounts – What Are They?

A custodial savings account is an an account setup at a bank that is controlled by an adult for a minor child. Depending on what state you’re living in the actual definition of a minor can vary since the “age of majority” will be different depending on the state. In some states you become an adult at the age of 18, others the age is 21.

Custodial - BoostWith a custodial account of just about any type the adult will control the account until the minor reaches adulthood, at which time the account legally becomes theirs and they can do with it as they see fit.

Under most custodial accounts the minor may not make changes to the account or do engage in any transactions without the consent or approval of the adult custodian.

In most cases the custodian of an account is going to be the parents of the minor, but usually any legal adult could be a custodian of an account for a minor. So in some cases that could mean a grandparent could have a custodial account for a grandchild,etc.

Opening A Custodial Savings Account

Setting up a custodial account is pretty easy. Let’s look at one example through a company I work with called CIT Bank, the process will be similar for most other banks.

CIT has a custodial savings account that you can setup through their site here.  Basically when opening the account you’ll just choose that you want to open a custodial account when choosing what type of account to open.

open custodial account

 

Once you choose that you want to open a custodial account the bank will ask you what type of account you want to open. There are a variety of custodial accounts available, but at CIT Bank there are either CD accounts or Savings accounts.  You can also open custodial accounts for mutual funds, brokerages and more at other companies.

Once you choose that you want to open a custodial savings, it will ask for your personal information as well as information about the minor, including Social Security numbers (so have them handy). Once you’re done the account will be confirmed and setup.

In short, setting up a custodial account is as simple as signing up for just about any other checking or savings account.  It will just be governed by slightly different rules once it is setup.

Open A Custodial Savings Account With CIT Bank

Pros Of Custodial Savings Accounts

There are a lot of reasons why people open and contribute to custodial savings accounts.

First, a lot of people like the fact that you can make unlimited contributions to a custodial account, unlike some other account types like a 529 college savings plan.

Second, there are no income restrictions on custodial accounts so anyone from any income bracket can give money to one of these accounts.

Third, custodial accounts are a good way to avoid the estate tax by giving the money as a gift while still living.  For people who want to avoid the estate and gift taxes, you can give up to $14,000 every year ($28,000 per couple) and put it into the custodial account.

Custodial savings accounts can be a good way to give a small financial gift, especially if you want to give the child a taste of ownership in an account of some time, to help instill some good financial principals.   As long as the income generated from the account is small enough, below $950, there is no tax on the account.

Cons of Custodial Savings Accounts

When you’re setting up a custodial savings account there are a few downsides to be aware of.

First, when you setup the custodial account the money is no longer technically yours. The money is now the child’s money, and  from then on that money can only be used for purposes that benefit them. You can’t re-purpose the money and claim it as yours again.

Second, the child will gain complete control over the money when they reach adulthood.  Even if the child isn’t ready for the money – if they aren’t mature enough or financially savvy enough – they will still have control over the money when they reach the age of majority.

Third, the child might need to file taxes if they make enough income. If the income from the accounts exceeds $950, a separate income tax return will need to be filed for the child at their tax rate. If above $1900 in gains are made, the money can be taxed at the parent’s higher rate.

Fourth, if you give more than $14,000, or $28,000 as a couple, to your child’s custodial account, you’ll be liable for gift taxes on that money.  Be aware of that and be careful not to go over if you don’t have to.

Finally, there are consequences for your child’s financial aid when they decide to go to college if they have custodial accounts in their name.

Conclusion

Custodial savings accounts aren’t for everyone, or for every situation.  For example, if you’re looking to save for a child’s college education there might be some other plans more suited to the goal like a 529 plan, ESA or a Roth IRA.

If, however, you’d like to make a small gift to a child or family member it might be a good option. As long as you’re only giving $13,000 or less per year to the account, you can avoid gift taxes. It can also be a good way to avoid estate taxes down the line if you’re looking to leave money to loved ones.

Custodial accounts can also be a good teaching tool, a way to teach your child about managing money, and the power of compound interest.

Do you have a custodial account?  What are your thoughts on this account type and how it fits into your financial plans?

custodial savings accounts

Related Posts

  • American Express Bank Savings Review: High Yield Savings Account

    American Express has been around for 160+ years, has one of the most recognizable brands in the world and now savings accounts as well!

  • FNBO Direct Online Savings Account Review: High Yield Savings Account

    Over the past year or so I've written quite a few reviews of online banks, talking about the histories and features of each respective financial…

  • Discover Bank Review: High Yield Savings Account

    Discover Bank has some of the highest interest rates in the country and all of their accounts are FDIC insured. They definitely have a solid…

Share8
Pin
Tweet
Share3
11 Shares
Last Edited: 10th February 2014 The content of biblemoneymatters.com is for general information purposes only and does not constitute professional advice. Visitors to biblemoneymatters.com should not act upon the content or information without first seeking appropriate professional advice. In accordance with the latest FTC guidelines, we declare that we have a financial relationship with every company mentioned on this site.

This article is about: Banking, Children, Saving Money

About Peter Anderson

Peter Anderson is a Christian, husband to his beautiful wife Maria, and father to his 2 children. He loves reading and writing about personal finance, and also enjoys a good board game every now and again. You can find out more about him on the about page. Don't forget to say hi on Pinterest, Twitter or Facebook!

Comments

    Share Your Thoughts: Cancel reply

  1. Mike says

    Is there any option other than a custodial account when opening it up and account for a minor child? Particularly an investment account?

    Reply
Previous Post: Should A Christian Lend Money And Earn Interest?
Next Post: A Quarter Of Americans Are Taking Money From Their 401k To Stay Afloat. Are You?
Discover Investment Platforms

Popular Posts

  • 21 Easy Ways To Earn Free Amazon Gift Cards
  • 10 Best Free Tax Filing Services And Software Online
  • 21 Apps That Pay You Real Money Fast
  • 17 TV Apps And Live TV Streaming Services To Watch TV Free
  • 30 Legit Online Jobs That Pay Well
  • 37 Easy Ways To Get Free Gift Cards
  • How To Get Free Stock
  • 40 Easy Ways To Get Free Money Fast
  • 21 Places To Read Free Books Online
  • 24 Legit Online Jobs
  • 17 Best Work From Home Jobs: A List Of Legit Online Jobs That Pay Well

Recent Posts

  • How To Save $100k In 7 Practical Steps
  • How to Save Money When Remodeling A Home
  • How To Hire A Contractor For Your Remodeling Project
  • Remembering 9/11 Years Later: Where Were You On That Fateful Day?
  • TradeStation Review: Commission Free Stock And ETF Trades
  • Firstrade Review: Commission Free Trades on Stocks, Crypto, And Options
  • Cadre Real Estate Investing Review: Commercial Real Estate Investing
  • Best Sites Like Fiverr To Make Money As A Freelancer
  • Axos Self Directed Trading Review: Invest, Trade Stocks For Free
  • 30 Quotes About Easter And Resurrection: He Is Risen!

Disclaimer

The information contained in BibleMoneyMatters.com is for general information or entertainment purposes only and does not constitute professional financial advice. Please contact an independent financial professional for advice regarding your specific situation.

In accordance with FTC guidelines, we state that we have a financial relationship with some of the companies mentioned in this website. This may include receiving access to free products and services for product and service reviews and giveaways.

Any references to third party products, rates, or websites are subject to change without notice. We do our best to maintain current information, but due to the rapidly changing environment, some information may have changed since it was published. Please do the appropriate research before participating in any third party offers.

Amazon and the Amazon logo are trademarks of Amazon.com, Inc. or its affiliates.

We respect your privacy: Privacy Policy.

Thanks for visiting!

Bible Money Matters - Seen On These Sites and more..
Bible Money Matters is a personal finance, entrepreneurship and investing community. Give more, save more and live more.

Copyright © 2023 · Bible Money Matters | Sitemap | Advertise | Privacy Policy