Invest in your child's future with an online custodial brokerage account. Whether you are a parent or guardian, you can open an investment account for your kids and start saving and investing toward their future education.
But what is the best custodial account? What investing apps have custodial accounts? What are the best investments for custodial accounts?
Here are some of the best custodial Roth IRAs for your child and other popular brokers who offer custodial accounts.
Best Custodial Accounts
- Charles Schwab: Best overall
- Merrill Edge: Best for Bank of America clients
- Vanguard: Best investment selection
- Fidelity Investments: Best for low fees
- E*TRADE: Best robo-advisor
- Acorns Invest: Best for mobile
Open a Custodial Account
$5
Monthly plans start at $3 for Bronze, $6 for Silver, and $12 for Gold
- Low fees
- Helpful automatic saving and investing tools
- Portfolio suggestions built to match your risk level
- "Acorns Earn" invests a percentage of your purchases from certain companies
- Flat monthly fee is on the high side, especially for smaller accounts
- The option to choose individual investments requires a Premium plan
Acorns is one of the best investment apps for beginners and hand-off investors who want to start investing but are overwhelmed by the choices with other investing apps. This simple and easy-to-use platform offers a low investment minimum, portfolio diversification, and beginner-friendly charting tools. Acorns is more expensive than other zero-fee apps out there, but the ease of use may make it worthwhile for certain users.
Acorns- Get started in under 5 minutes
- $3/month gets you a full financial wellness system with connected investment, retirement, and saving accounts.
- Invest in a diversified, expert-built portfolio
- No expertise required
- Invest your spare change with Round-Ups (nearly $5,750,000,000 in Round-Ups invested and counting)
- Set easy, automatic Recurring Investments
- See your account performance right in the app and play with the interactive Potential screen
- All you need to start investing is $3
- 14M all-time customers served. Everyday Americans have invested over $25 billion with Acorns, much of it in spare change
Charles Schwab Custodial Account: Best Overall
Charles Schwab One Custodial Account is our top pick for the best custodial account for it's low-fees, commission-free trades, educational resources, and strong reputation of trustworthiness and customer support.
You won't have to worry about contribution limits with Charles Schwab's custodial accounts. Parents may also consider Schwab's custodial IRAs, 529 college savings plans, and education savings accounts (ESA).
Another advantage of Schwab's custodial account is that it isn't just for self-directed investors. You can automate your investments by setting up an account through the Schwab Intelligent Portfolios Premium robo-advisors.
But if you decide to automate investing for your Charles Schwab minor account, you'll need at least $5,000 for Schwab Intelligent Portfolios and $25,000 for Schwab Intelligent Portfolios Premium.
Charles Schwab has a rating of 4.8/5 on the Apple Store and 2.5/5 on Google Play.
Pros:
- Commission-free trading options
- Large library of educational tools and resources
- Multiple account and portfolio options
Cons:
- Schwab Intelligent Portfolio requires high $5,000 minimum ($25,000 for Premium)
Schwab Intelligent Portfolios review
Merrill Edge Custodial Account: Best for Bank of American Clients
Merrill Edge's custodial accounts let you invest for your minor free of balance minimums, annual fees, or account maintenance fees. You can trade commission-free stocks, ETFs, and options, but contract fees may apply.
You can also choose the robo-advisor route with Merrill Guided Investing or Merrill Guided Investing with an Advisor (higher minimums and fees apply). Merrill Edge also offers 24/7 phone support and live chat.
If you're already a Bank of America client, you can fund the account by linking your existing Bank of America account. Merrill Edge's custodial account allows checks, wire transfers, and transfers or rollovers from existing accounts.
Merill Edge has a rating of 4.6/5 on the Apple Store and 3.2/5 on Google Play.
Pros:
- Can link to BoA account
- No minimum, annual fees, or maintenance fees
- Commission-free stocks, ETFs, and options
Cons:
- Annual fees for Merrill Edge's automated accounts — Merrill Guided Investing and Merrill Guided Investing with an Advisor — are higher.
Vanguard Custodial Account: Best for Mutual Funds
A behemoth in the retirement investing and mutual funds space, Vanguard offers some competitive features with its custodial accounts.
Vanguard custodial accounts don't require an opening deposit, nor does it charge maintenance or account transfer fees.
It invests in a blend of stocks, bonds, Vanguard mutual funds, non-Vanguard funds, and more. Plus, with Vanguard Personal Advisor, you can skip the self-directed investing route and use robo-advice paired with ongoing financial advisor guidance.
Vanguard's suite of investment products also features 529 plans and trusts. And if you're looking to deepen your investing knowledge before and/or after you set up a custodial account, it offers an extensive selection of resources (investing tools and calculators, market news and perspectives, and more) to help you do so.
Vanguard has a rating of 4.7/5 on the Apple Store and 3.5/5 on Google Play.
Pros:
- No minimum or charge maintenance or account transfer fees
- Ongoing financial advisor guidance available
- Investing tools and market research available
Cons:
- Doesn't offer fractional shares
- Robo-advisor is on more expensive
Fidelity Custodial Account: Best for Low Fees
Fidelity's custodial account lets you build wealth through stocks, ETFs, options, bonds, mutual funds, and more. The account has no minimum opening requirements or fees, and any stocks, ETFs, or options the account holder invests in are commission-free.
Its custodial offerings are supplemented with account perks like Fidelity Viewpoints, an online center with expert commentary on investing strategies, markets, and much more.
In addition, Fidelity's Planning & Guidance Center offers tools to help you meet investing goals.
Fidelity Investments offers other minor investment account options beyond UGMA/UTMA custodial accounts. These include its Roth IRA for Kids account, 529 plan, Fidelity Youth Account (which lets children between the ages of 13 and 17 invest independently), and trust accounts.
Fidelity has a rating of 4.8/5 on the Apple Store and 4.6/5 on Google Play.
Pros:
- No minimum or account fees
- Commission-free stocks, ETFs, and options
- Access to Fidelity's Planning & Guidance Center
Cons:
- Fidelity Go doesn't support custodial accounts
E*TRADE Custodial Account: Best for Automated Investing
An E*TRADE account for minors provides a particularly competitive suite of custodial products. These include its standard UGMA/UTMA custodial account, IRA for Minors, and Coverdell ESA accounts.
E*TRADE custodial accounts allow for commission-free stocks, ETFs, and options.
Fees for funds vary, but E*TRADE offers thousands of no-load, no-transaction-fee mutual funds. Those who prefer robo-advice can build wealth through its expert-managed automated investing account, E*TRADE E*TRADE Core Portfolios.
An E*TRADE minor account has no income or contribution limits, and it comes with a free debit card, checking perks, and online bill pay.
E*TRADE has a rating of 4.7/5 on the Apple Store and 4.7/5 on Google Play.
Pros:
- No minimum requirement (robo-advisor has a $500 requirement)
- Commission-free stocks, ETFs, and options
- Thousands of no-load, no-transaction-fee mutual funds
- Large selection of educational resources
Cons:
- E*TRADE doesn't offer fractional share trading.
Acorns Custodial Account: Best for Mobile
Open a UTMA/UGMA custodial account with Acorns Early, but you must be an Acorns Gold user. Unlock simplified trading on the go with one of the most popular robo-advisors.
Acorns Invest creates a personalized portfolio of low-cost ETFs based on your risk tolerance, time horizon, and investment goals.
If you already have an Acorns Invest account, you can open a custodial account for your kid for no extra cost. You can even open multiple kid's accounts for the price of one.
Signing up with Acorn's Early gets you full access to Acorn's suite of investing tools, like automatic portfolio rebalancing and round-ups.
Acorns Smart Deposit feature will automatically invest a portion of your paycheck into an Acorns Early account. When you sign up, Acorns will gift you a free copy of the platform's new children's book, "Grow Your Oak."
Acorns Early accounts automatically default to an "aggressive portfolio," but they can be rebalanced over time to match your preferences.
Acorns has a rating of 4.7/5 on the Apple Store and a 4.7/5 on Google Play.
Pros:
- Mobile-forward trading platform
- Custodial accounts are free with existing Acorns Invest account
Cons:
- Acorns Gold costs $12 per month
Introduction to Custodial Accounts
Custodial brokerage accounts are savings accounts for parents or guardians to invest on behalf of their children or dependents. Ownership of these accounts transfers to the minors once they reach legal age (typically 18 or 21, depending on the state).
Other savings accounts for minors are 529 college savings plans, custodial IRAs, and trusts. Depending on the purpose of your savings and how you want your money distributed, consider opening a custodial account for minors to unlock tax benefits and compound growth.
Types of Custodial Accounts
There are two main types of custodial accounts:
- Uniform Gifts to Minors Act (UGMA): UGMAs hold traditional investable securities, including cash, stocks, bonds, ETFs, and mutual funds. UGMAs can not hold real assets like real estate.
- Uniform Transfers to Minors Act (UTMA): UTMAs can hold traditional assets in addition to real assets such as real estate, art, land, and cars.
UTMAs/UGMAs accounts are taxable custodial accounts set up by parents or guardians to benefit a minor. Assets in these accounts are considered "irrevocable gifts," meaning the account technically belongs to the child, not the adult who set it up.
Therefore, any contributions and earnings are considered gifts to the child that can't be taken away.
Opening a Custodial Account
A custodial account is a tax-advantaged investment account that allows parents or guardians to invest on behalf of children and/or dependents until those minors reach their state's age of majority.
These accounts also have no income or contribution limits, and you can make early withdrawals without racking up any penalties.
By opening a custodial account on behalf of a child/dependent, you're building a nest egg for a kid's future education expenses. To build long-term wealth, you can contribute gifts like money or other assets into a custodial account.
Custodial accounts are similar to 529 plans. However, a custodial account offers more flexibility, making these accounts easier and cheaper than trusts. However, opening a custodial account may affect your child's ability to get financial aid.
Managing and Contributing to a Custodial Account
Like any other brokerage account, custodial accounts can be opened with a bank, credit union, or other investment platform that offers these accounts as an investment option. Both traditional brokers and online brokers offer custodial account options.
You don't have to be a parent or legal guardian to open a custodial account on behalf of a child/dependent. Other relatives and friends can also open an account.
Custodial accounts no longer have contribution limits, so you can invest as much as you want toward your child's future.
Why You Should Trust Us: Our Expert Panel For The Best Custodial Accounts
We interviewed the following investing experts to see what they had to say about custodial accounts.
- Sandra Cho, RIA, wealth manager, and CEO of Pointwealth Capital Management
- Tessa Campbell, Investment and retirement reporter at Personal Finance Insider
What are the advantages/disadvantages of opening a custodial account?
Sandra Cho:
"One disadvantage is that 20% of custodial assets count as available to be used to pay for higher education, while only 5.64% of assets held in a 529 plan count when determining qualification for financial aid with FAFSA. Another disadvantage is that the account must be turned over to the child when they reach the age of majority (18-25, depending on the state.)
"The advantages are that the accounts have flexibility in that there are no income or contribution limits. There are also no requirements to make regular distributions at any point. There are also some limited tax advantages."
Tessa Campbell:
"The advantage of custodial accounts like a UGMA or UTMA is that you can easily save and invest toward your child's future. Plus, custodial accounts are easy to set up and more flexible than 529 plans.
"However, custodial accounts don't have as many tax advantages, and contributions may not be tax deductible. Another disadvantage of custodial accounts is that it may affect your child's ability to qualify for financial aid."
Who should consider opening a custodial account?
Sandra Cho:
"Those that have children and want to provide a financial cushion for them should consider opening an account. Custodial accounts can be a very beneficial way to ensure your children are financially provided for once they have become legal adults and can give them stability once they are out from under your watch."
Tessa Campbell:
"Parents or guardians with children under the age of 18 should consider opening a custodial account. Compared to a trust, custodial accounts are simple to set up. Moreover, custodial accounts allow friends and family to gift money toward your kid's future.
"It's also the best option if you're not sure whether or not your child will go to college since money in a custodial account can be used for essentially anything as long as it directly benefits the child."
Is there any advice you'd offer someone who's considering opening a custodial account?
Sandra Cho:
"My main advice would be to have a conversation with your child for who the account is set up for. This conversation should be ongoing and should ensure that they understand what the purpose of this account is for. This transparency is needed as they will eventually be the beneficiary and controller of the account."
Tessa Campbell:
"You can open a custodial account with a bank, online investment platform, or brokerage firm that offers a custodial account option. But make sure to compare rates, perks, fees, and other resources to ensure you're opening the best account option for you."
Custodial Accounts FAQs
Are contributions to a custodial account tax-deductible?
Contributions to a custodial account are not tax-deductible. Still, some custodial accounts may offer tax benefits like tax-free growth or lower tax rates on the minor's unearned income (within limits). 529 plans are a better alternative for custodial accounts that offer more substantial tax advantages.
Can you withdraw money from a custodial account?
You can withdraw money from a custodial account at any point without penalty as long as it is for the child's benefit. But once your child becomes the legal account owner (18 or 21, depending on the state), they get full control over the assets in the account.
How do I choose between a UGMA and UTMA account?
To choose between a UGMA or UTMA, consider the types of assets you want to invest in. UTMA accounts are better for investing in assets like real estate. UGMA accounts are more limited and generally offer assets like stocks and bonds.
Why You Should Trust Us: Our Methodology
We reviewed over a dozen custodial accounts using Business Insider's rating methodology for investing products to find the best options for the lowest fees, ease of use, flexible investment choices, and customer service availability. We also sifted through multiple investment platforms to find the best options for self-directed traders and hands-off investors.
You'll notice that many of the platforms mentioned in our guide offer the option to trade on your own or automate your custodial account's investments. Investment platforms are given a rating between 1 and 5.
