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

Saving money on custodial savings account pros does not need to be complicated. Here is a clear, no nonsense rundown of what works and how to make the most of it.

Key Takeaways

• So what are some aspects that you require to know when setting up a custodial savings account?  What are some of the pros and cons?
• Quick Navigation ToggleCustodial Savings Accounts - What Are They?
• Worth noting: 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 account setup at a bank that is controlled by an adult for a minor child.

Getting the Most From Custodial Savings Account Pros

SharePinTweetShare33 SharesThere are times where you may wish to assist a child to begin saving up for the future, saving for college or assist to teach them how to manage money.  Depending on your exact goals there are different methods to go about doing this, but one choice 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.

• 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.
• More importantly, with 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.

Tips That Make a Difference

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 typically 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.
• Remember that opening A Custodial Savings Account Setting up a custodial account is pretty straightforward.
• Let’s look at one example through a company I work with called CIT Bank, the process will be similar for most other banks.

Common Mistakes to Avoid

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 pick that you wish to open a custodial savings, it will ask for your personal information and information about the minor, including Social Security numbers (so have them handy).

• As a rule, once you’re done the account will be confirmed and setup.
• In short, setting up a custodial account is as straightforward 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 plenty of reasons why people open and contribute to custodial savings accounts.

Is Custodial Savings Account Pros Worth It?

First, plenty 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. In short, second, there are no income restrictions on custodial accounts so anyone from any income bracket can provide money to one of these accounts.

• Third, custodial accounts are a solid method to avoid the estate tax by giving the money as a gift while still living.  For people who wish to avoid the estate and gift taxes, you can provide up to $14,000 each year ($28,000 per couple) and put it into the custodial account.
• Custodial savings accounts can be a solid method to provide a small financial gift, especially if you wish to provide the child a taste of ownership in an account of some time, to assist instill some solid 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.

Where the Real Savings Hide

Worth noting: 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 upside 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.
• More importantly, third, the child might require to file taxes if they make enough income.

A Closer Look at Custodial Savings Account Pros

If the income from the accounts exceeds $950, a separate income tax return will require 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 greater rate.

• Fourth, if you provide 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.
• Remember that 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 each situation.  For instance, 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.

What to Know About Custodial Savings Account Pros

If, though, you’d like to make a small gift to a child or family member it might be a solid choice. As long as you’re only giving $13,000 or less per year to the account, you can avoid gift taxes.

• As a rule, it can also be a solid method to avoid estate taxes down the line if you’re looking to leave money to loved ones.
• Custodial accounts can also be a solid teaching tool, a method 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?

How Custodial Savings Account Pros Really Works

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Frequently Asked Questions

How can I save money on custodial savings account pros?

Compare prices across a few retailers, look for active coupon codes, and time bigger buys around sales events. 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 co....

Is it worth shopping around for custodial savings account pros?

Usually yes. 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.

Smart Ways to Save More on Custodial Savings Account Pros

• Leave items in your cart for a day; some stores send a follow up discount.
• Pair cashback with a coupon so you save twice on the same order.
• Stack a coupon code with an existing sale whenever the store allows it.
• Sign up for the retailer newsletter to catch first time and seasonal discounts.
• Compare the final price including shipping, not just the headline number.

Final Thoughts

The bottom line on custodial savings account pros: a little research goes a long way. Compare your options, watch for seasonal offers, and never pay full price when a better deal is a click away.

Originally published at biblemoneymatters.com.