Aug 23, 2020
Custodial accounts and 529s help you plan and achieve for your child's future.
529s often limit flexibility which is why custodial accounts are often used.
Custodial accounts can be used in any way you wish for your child.
As parents, we all want to be doing the best for our kids. Getting started saving and investing for your kids early is one of the best things you can do for them. Your kids will certainly be thanking you when they realize the extra opportunities you were able to unlock by investing early.
For those parents that want to get started in investing, it can be confusing and we want to be with you in providing the right information. We're going to start with Loved's account option, the custodial account. A custodial account is a type of account designed with flexible investment options and a number of tax advantages.
A 529 is a little more rigid than a custodial account, limiting how you can invest and locking you into using the money for education. Whilst education is important, people often prefer the flexibility of a custodial account where one can use the balance for anything they'd like, whether that be education, a first car, to start a business or towards a home.
On the other hand, a 529 must be used towards education and educational related expenses - think tuition costs, books, campus living and computers.
Loved's custodial account gives you the choice to save and invest for any expense in their future, and at the same time choose investments in things you're familiar with - think Apple, Disney and Facebook - Warren Buffett's Berkshire Hathaway or Tech companies. There's many options.
Custodial accounts can also be called Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA) accounts. UTMAs are the ones we use with Loved because they allow more flexible investment options than a UGMA, providing the most benefit to Loved kids.
Whilst banks and brokerage companies usually offer custodial accounts, you can open one right away with Loved. Anyone over 18 can open a custodial account for a child - whether that's a parent, uncle, aunt or grandparent. At this point in time, you'll need to be the custodian of the account to deposit funds into the account.
Custodial Accounts get to take advantage of the zero tax rate on your child's first $1,050 of unearned income. After that they get a reduced tax rate up to $2,100, after which they're taxed at the custodian's tax rate.