6 Best Custodial Accounts Of April 2024 (2024)

The Best Custodial Accounts of April 2024

Custodial Account	Investing Strategy	Fees
Fidelity Custodial Account	Self-directed investors	None
Schwab One Custodial Account	Self-directed investors	None
Vanguard Custodial Account	Self-directed investors	None
M1 Plus Custodial Account	Hands-off investors	$125/year
Acorns Early Custodial Account	Hands-off investors	$9/month
UNest Custodial Account	Hands-off investors	$4.99/month

Fidelity Custodial Account

Recurring Fees

None

Minimum Opening Deposit

None

Investing Strategy

Best for self-directed investors

None

Best for self-directed investors

Why We Picked It

Fidelity is our pick for the best online broker, which means it’s also an outstanding choice for a custodial account. This financial industry stalwart is very well regarded for low fees, stellar customer service and in-depth research resources, as well as a vast range of investment options.

A Fidelity custodial account requires no minimum opening deposit and charges no recurring maintenance fees. Custodians have access to the full range of investment options available in a Fidelity taxable brokerage account, including stocks, bonds, mutual funds, options and fractional shares. Best of all, Fidelity charges no commissions for online stock trades.

Schwab One Custodial Account

Recurring Fees

None

Minimum Opening Deposit

None

Investing Strategy

Best for self-directed investors

None

Vanguard Custodial Account

Recurring Fees

None*

Minimum Opening Deposit

None

Investing Strategy

Best for self-directed investors

None*

None

Best for self-directed investors

Why We Picked It

Vanguard founder Jack Bogle created the index fund in the 1970s. Today, the company he built is a giant of the mutual fund industry. Vanguard offers hundreds of low-fee funds tailored to the needs of every kind of investor.

Custodial account holders can own the full gamut of Vanguard’s fund line-up, including index funds, actively managed mutual funds and ETFs. While there is no minimum requirement to open an account, customers should be aware that some Vanguard funds have minimum purchase requirements.

Vanguard custodial account customers pay no fees, transaction costs or commissions, and there are plenty of investment assets to buy beyond only the Vanguard fund family. There are a very wide variety of individual stocks and bonds available for trading, although fractional shares are not available.

Note that Vanguard charges a $20 annual account service fee, but it’s easy to waive the fee by opting into email delivery of account statements and other notices. Alternatively, you can have at least $1 million in assets under management, but that’s not nearly as simple.

M1 Plus Custodial Account

Fees

$125 per year

Minimum Opening Deposit

Acorns Early Custodial Account

Fees

$9 per month

Minimum Opening Deposit

None

Investing Strategy

Best for hands-off investors

$9 per month

None

Best for hands-off investors

Why We Picked It

The Acorns app was created with the goal of making the process of investing as simple and accessible as possible. In addition to a handy custodial account, the app offers an integrated suite of financial accounts, including a taxable investment account, an individual retirement account, an emergency fund and a checking account.

Acorns Early, the custodial account feature, is available under the Acorns Premium service tier, which charges a $9 per month fee. The account is easy to open, and accounts for multiple children can be added at no additional charge. There is no minimum deposit required to open an Acorns account.

Unlike most of the custodial accounts profiled above, Acorns Early builds a portfolio of assets for you, making it a great choice for hands-off investors. Your investment portfolio is built from a range of ETFs, mostly stock funds for custodial accounts.

Since the custodial account is part of a larger financial platform, it can easily be integrated with other accounts to set up automatic investments.

UNest Custodial Account

Fees

$4.99 per month

Minimum Opening Deposit

$25

Investing Strategy

Best for hands-off investors

$4.99 per month

$25

Best for hands-off investors

Why We Picked It

UNest is unique among the options on our list as its sole business is providing custodial accounts. Like M1 and Acorns, UNest offers managed investment portfolios. They hold low-cost Vanguard ETFs and are tailored to different risk tolerance levels, from conservative to aggressive.

There is an investment minimum of $25 per month plus a monthly fee for UNest’s custodial accounts. Based on your input, UNest chooses the most appropriate investment portfolio. There are also socially responsible investing portfolio options.

For families with more than one child, UNest makes it easy to create multiple accounts and set a monthly contribution limit for each. The app also features a savings calculator to help you understand what you need to contribute monthly to achieve your savings goals.

Methodology

To build our list, Forbes Advisor surveyed the landscape of investment platforms that offer online access to custodial accounts. There are more than 30 firms that offer online custodial accounts, and the vast majority of them are online brokers, investing apps or robo-advisors that support a wide range of account options.

Our curated selection focused on firms that have built tailored custodial account services that aim to support people who are new to investing in custodial accounts with additional customer service and educational resources.

The list includes brokerage accounts that are best for hands-on investors who are ready and willing to pick their own assets and manage their own portfolio. It also features managed portfolios that are best for hands-off investors who are comfortable paying a small fee to let the platform manage their investments.

What Is a Custodial Account?

A custodial account is a type of taxable investment account that is opened by an adult for the benefit of a minor child. With this type of account, the adult is referred to as the custodian and the child is referred to as the beneficiary.

The adult manages the account on behalf of the child until they are 18 to 21 years old—the so-called age of majority, depending on the state where you live and the type of account. While the adult manages the account, the assets are legally owned by the child. Once the minor reaches the age of majority, they assume control of the account and can use the assets however they want.

Custodial accounts may be established for a variety of purposes, including to save for education expenses, build up an investment portfolio and hold gift assets for a child. The assets held in a custodial account may include cash, stocks, bonds, real estate and other types of property.

UTMA vs. UGMA Accounts

There are two types of custodial account options: Uniform Transfers to Minors Act (UTMA) accounts and Uniform Gifts to Minors (UGMA) accounts. The primary difference between them comes down to the type of assets you can keep in the account.

UGMA accounts may hold cash, stocks and bonds, annuities, insurance policies and other types of investment securities. UTMA accounts may hold any type of asset, not just investment products. It’s possible to contribute real estate, art or other tangible assets to a UTMA account, making it a more flexible choice.

Another difference between UTMA and UGMA accounts is the age at which the minor gains control of the account. In most states, minors can assume control of a UGMA account at the age of 18, while they must wait until age 21 to gain control of a UTMA account.

In addition, some states have different laws governing UTMA and UGMA accounts, so it’s important to consult with a financial advisor or attorney to determine which type of account is best suited for your needs.

How Does a Custodial Account Work?

Custodial accounts are established by an adult, typically a parent, for the benefit of a child who is younger than 18 or 21 years old (depending on the account type). Financial institutions like brokers, investment platforms and banks offer custodial accounts, and financial advisors can help you set them up.

Anyone can make contributions to a custodial account, but only the custodian can make investment decisions or conduct transactions. The custodian has a fiduciary duty to manage the assets held in a custodial account in the best interest of the child.

There are no income or contribution limitations for this type of account. Cash and assets in the account are transferred to the beneficiary when they come of age. In some states, the custodian is allowed to specify the age after 18 or 21 when legal control of the account is transferred to the beneficiary.

Custodial accounts function like any other type of brokerage account. Custodians can buy and sell stocks, bonds, different types of funds, annuities and other investment securities. UTMA accounts can hold other types of tangible assets.

However, the financial institution that holds your account may impose certain restrictions on available investment options, so always read the fine print.

Custodial Accounts Are Taxable Investment Accounts

Custodial accounts are taxable investment accounts. Any income from the investment assets held in an account—from dividend payments and interest income to capital gains—is subject to taxation.

For tax year 2023, the first $1,250 in investment income is exempt from federal taxes. The next $1,250 in income is taxed at the child’s tax rate—the so-called kiddie tax rate. All investment income above $2,500 is taxed at the parent’s marginal income tax rate.

While contributions to custodial accounts are unlimited, the gift tax may be applicable for contributions above a certain threshold. In 2023, gifts to any individual exceeding $17,000 per individual or $34,000 per married couple must be reported to the IRS.

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