If you're like most parents, you want to do everything you can to help your child succeed in life. One of the best ways to do that is to start investing early - even if a small recurring amount - as it adds up fast. We believe custodial accounts are an easy and secure way to get you going.
Custodial accounts are accounts that are held by an adult (usually a parent or guardian) for the benefit of a minor. The adult is the custodian of the account and has control over it, but the child is the owner of the account and will eventually receive the money in it when they become an adult (18 or 21, depending on the state). It is the best way in our view of protecting and growing a child’s assets.
Types of custodial accounts
Any parent or guardian looking to set up a custodial account for a minor child has two primary options: the Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA). Both types of accounts have their own distinct benefits and drawbacks, so it's important to understand the difference between them before making a decision.
A UGMA account is limited to only financial products like stocks, bonds, and other securitized instruments and insurance policies. Alternatively, A UTMA account can own or hold just about any form of assets like real estate or even a car.
How to set up an account for your child
The sooner you open a custodial account for your child, the more time the money has to grow. The first step is to find a place that offers custodial accounts along with the products you want. Once you've found an institution, you'll need to open an account and name a custodian. The custodian is the person who will manage the account on behalf of the child, generally, this will be the child's parent or guardian. Finally, once the account is open, you can start making deposits!
How are they taxed?
Both types of accounts offer tax benefits and allow money to grow over time, but there are some key differences to be aware of. With a UGMA account, the money is considered the property of the child once they reach the age of majority. However, it also means that the money is subject to income taxes. With a UTMA account, on the other hand, the money remains in the control of the account manager until the child reaches a specified age (typically 25). This can provide some peace of mind for parents, but it also means that the money may be subject to estate taxes.
How can the funds be used?
A custodial account is a great way to save for a child's future, whatever that may look like - college, vocational training, starting a business, or buying a house. Unlike 529 plans and other education-specific savings plans, the money in a custodial account can be used for anything that benefits the child when they turn 18, including education, medical expenses, or living expenses.
Can it hold Bitcoin?
Although it's still early days for most institutions, the answer is yes. While most custodial accounts are limited to stocks, bonds, and mutual funds, some may also allow for the holding of cryptocurrencies like Bitcoin.
That’s exactly what we have done at Village, where we created a simple and secure way for parents to open a Bitcoin custodial account for kids. Bitcoin offers a lot of advantages and opportunities for kids. For starters, it can help them learn about responsible money management and emerging technologies.
What age is appropriate to open a custodial account for a child?
When it comes to saving for your child's future, there is no such thing as too early. There is no minimum age for opening a custodial account, so you can start one as soon as your child is born. A custodial account is a great way to start building your child's nest egg, and the sooner you open one, the more time the money has to grow.
Opening a custodial account for your child is a great way to start saving for their future. There are two primary types of custodial accounts available, so it's important to understand the differences between them before making a decision. The funds can be used for anything that benefits the child when they turn 18, and some institutions, like Village, even allow for the holding of Bitcoin.