Custodial account


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Custodial Account

An account at a bank, brokerage, or insurance company held by an adult guardian on behalf of a minor child. That is, the minor child owns the custodial account, but the parent or guardian manages it and makes all decisions related to it. The child takes control of the account at a certain age: 18, 21, or 25, depending on the jurisdiction. Importantly, the account is taxed at the guardian's marginal tax rate until the child turns 18, at which point it is taxed at the child's rate.

Custodial account.

If you want to make investments on a minor's behalf, or transfer property you own to that person, you can open a custodial account with a bank, brokerage firm, mutual fund company, or insurance company.

You name an adult custodian for the account -- either yourself or someone else -- who is responsible for managing the account until the child reaches the age of majority.

That age may be 18, 21, or 25 depending on the state and the type of account you choose. At majority, the child has the legal right to control the account and use the assets as he or she chooses.

There may be some tax advantages in transferring assets to a minor. If the child is under 18, investment earnings above a specific level that Congress sets each year are taxed at the parents' marginal tax rate.

But if the child is 18 or older, all investment earnings are taxed at the child's rate -- again, typically the lowest rate. In addition, gifts you make to the account are no longer part of your estate, which may reduce vulnerability to estate taxes. However, it's wise to review your plans with your legal and tax advisers.

One drawback of a custodial account is that the assets are considered the property of the child, and may reduce the amount of financial aid the child qualifies for when he or she enrolls in a college or university.

References in periodicals archive ?
For these reasons, the custodial account was long favored by parents and their advisors.
Halpern acknowledged Holmes' reading of the regulation for other types of custodial accounts, but wrote that because of an IRA'S special tax treatment, regarding it in such a fashion "utterly subverts the rationale for the attribution rule in the regulation."
Servicing custodial accounts have also afforded balance-adjusted pricing on their warehousing lines.
2, 2018, to pay a civil penalty of $2,000 and entered into a suspension period of seven days, and continuing until the custodial account shortage and solvency is corrected.
If your clients are employees of public schools or tax-exempt organizations and participate in a 403(b) plan with a custodial account, their retirement plan benefits may not be protected from creditors.
An MSA is a tax-deductible custodial account established to pay medical expenses in conjunction with a high-deductible health insurance plan.
The stipulation addressed shortages found to exist in Carolinas custodial account for shippers proceeds in February and March 2012.
Defendants did not disclose at the time that it would be virtually impossible for the Financial Services Firm to acquire any bonds to deliver, as nearly the entire supply was locked up in the Harbinger funds' custodial account and the Harbinger funds were not offering them for sale.
While parents will have to open a custodial account for children under 18, the process of doing it together exposes young people to investing.
All amounts deferred under an eligible governmental plan must be set aside in a trust, custodial account or annuity contract, for the exclusive benefit of participants and their beneficiaries.
A long-used vehicle for college savings has been the custodial account, which parents and grandparents used to shift assets and annual income into a child's name.
The Consent Decree, entered on July 12, 2018, by the United States District Court for the District of Kansas, permanently enjoins Plainville from: (1) engaging in business without properly maintaining its custodial account for shippers proceeds; (2) engaging in business without properly remitting sales proceeds before the close of the next business day following the sale; (3) issuing checks or any kind of payment instrument in purported payment of livestock purchases without having maintaining sufficient funds on deposit and available in the custodial account upon which the checks or instruments are drawn to pay the checks or instruments when presented for payment; and (4) engaging in business without properly maintaining all business records.