What Is a Custodial Brokerage Account? A Flexible Way to Invest for Kids

If you want to invest for your child, but don’t want restrictions on how the money is used, a custodial brokerage account may be worth considering.

Also known as UGMA or UTMA accounts, these are investment accounts held in a child’s name and managed by an adult until the child reaches the age of majority. The funds can be invested in stocks, bonds, mutual funds, and ETFs, and once the child becomes an adult, they gain full control over how the money is used.

The primary advantage of custodial accounts is flexibility. Unlike a 529 plan, the money doesn’t have to be used for education. It can be used for anything that benefits the child, whether that’s school, a first home, or starting a business.

However, that flexibility comes with tradeoffs. These accounts do not offer the same tax advantages as 529 plans. Investment earnings are taxable each year, and the account may also have a greater impact on financial aid eligibility.

In this video, we cover:

• How UGMA and UTMA accounts work
• The key benefits and limitations
• Tax considerations and the “kiddie tax”
• How they compare to 529 plans

There’s no one-size-fits-all solution. The right approach depends on your goals, tax considerations, and how much control you want to retain over the funds.