Top 6 Options for a Custodial Account

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Updated on Friday, June 3, 2016

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If you want to invest on behalf of your child, one way to do it is through a UGMA or UTMA. These custodial accounts are taxable investments that function like any other taxable account once you have the beneficiary and custodian established.

What to consider first

Before committing to a custodial account, you should take some time to reflect on both the goal of the account and your financial goals when saving for your child. Custodial accounts, by law, will be handed over to your child when he or she reaches the age of majority as defined by your state, probably 18 to 21. Your child will be able to determine how and when the money is spent, which could be reason enough for you to to choose other investment vehicles. You also will only be able to use the funds in the account for the benefit of the child while he or she is a minor. There are no take backs with custodial accounts.

These accounts no longer provide a tax advantage, so opening a UGMA or UTMA should no longer be considered a way to dodge a tax obligation. A 529 Savings Plan for college may provide more of an advantage if you’re looking for tax breaks.

A UGMA or UTMA will also be counted towards your child’s federal financial aid for college. The money in the account will be counted towards your child’s assets and must be included on FAFSA forms. This could be restricting the amount of financial aid your child gets if your household income doesn’t already preclude him or her from being eligible. 529 Plans on the other hand have minimal impact on financial aid eligibility.

Once you decide to use a custodial account

As the custodian, you will want to pick the best brokerage when opening the account, and as with any other investment account, that means finding the one with the lowest fees.


When it comes to low fees, Vanguard is the cream of the crop. Its funds have notoriously low expense ratios, and its accounts boast zero transfer, advisor or enrollment fees.



  • The minimum investment options will depend on the mutual fund in which you are interested.


Schwab makes a concerted effort to stay competitive with Vanguard. Its funds also carry low expense ratios. It also includes some other outside ETFs in this no-fee category regardless of the size of your account, but the trades you do have to pay for are slightly more expensive than Vanguard.


  • Trading fees on Schwab funds from within a Schwab investment account are zero. $8.95 per online trade; $0 per Schwab ETF online trade in your Schwab account
  • No account service, transfer or advisor fees unless you start moving into managed portfolios.


  • There is a $100 minimum required to open an account.


Fidelity’s custodial account tends to have higher expense ratios, but you can trade Fidelity funds at zero cost like the previously mentioned options.  It does have some other options in the no-trade-fee category, and the funds that do require fees carry a slightly lower fee schedule than Schwab.


  • No annual account fees
  • No trading fees for most Fidelity mutual funds
  • Trading fee on non-Fidelity accounts is $7.95, which is lower than Schwab and TD Ameritrade


  • $2,500 minimum investment

TD Ameritrade

TD Ameritrade’s custodial account is largely not as cost-effective as Vanguard, Schwab and Fidelity, but fees are few, and when they exist they are still low compared to some other options on the market.


  • No annual account, enrollment or advisor fees
  • No trading fees for most TD Ameritrade mutual funds
  • $75 fee to transfer away from TD Ameritrade
  • 100+ ETFs with no trading fee, but $9.99 per trade fee on other investments


  • No minimums to open an account


TradeKing comes in strong with an offer to lure you away from other brokerages, but once you get there, it doesn’t really stack up.

Special Offer:

  • TradeKing covers up to $150 in transfer fees if you want to move from another brokerage.


  • No annual account fees
  • No trading fees for TradeKing mutual funds
  • $50 fee to transfer away from TradeKing
  • $4.95 per trade fee on the lowest ETFs or $9.95 for the lowest mutual funds. While both are cheaper than TD Ameritrade, it and others offers some zero trade fee options on other investments


  • No minimums to open an account


USAA’s custodial account and brokerage services don’t compare to the big three at the top of this list, and the expense ratios on its own funds are much higher. It does have low fees, though.


  • No annual account fees or maintenance fees
  • No trading fees for TradeKing mutual funds
  • $20 to $70 fee to transfer away from USAA depending on whether or not it’s a partial transfer or leaving entirely
  • Trade commissions for the lowest-level members are $8.95 for ETFs and can be as low as $0 on mutual funds for “No-Load No Transaction Fee Funds”, though the next tier of “No-Load Transaction Fee Funds” jumps up to $45.

Investment Options by State

The vast majority of states have implemented UTMA, the law that says custodial accounts can include investments in physical assets such as real estate or fine art. If you live in any state except for South Carolina, you will be able to open a UTMA account. Residents of Washington, D.C. can also open this type of account.

Those in South Carolina can still open a custodial account. They will just have to do so under the older law: UGMA. The UGMA allows for investments in securities only. While South Carolina is the only state still operating under the UGMA, the territories of Guam and the Virgin Islands also operate under their own versions of the older statute.

When you sign up for a custodial account with your brokerage, they will be able to confirm which statute you fall under based on your residence, along with the state-specific age that your child will take control of account funds.

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