Custodial Accounts: Planning For Your Child’s Future

As parents, we want the best for our children. We want to give them the tools they need to succeed in life, including financial security. One way to help your child build a strong financial future is to open custodial accounts for them. 

A custodial account, commonly referred to as a UGMA/UTMA account, presents an excellent avenue for saving on behalf of a child or making a financial gift. With no income or contribution limits and without early withdrawal penalties, there are no restrictions on how the funds can be utilized for the child’s benefit.

Why Open a Custodial Account for Your Child?

One of the key advantages of custodial savings accounts centers on accessibility. Whether it’s a parent, grandparent, aunt, or another cherished individual, anyone can open a custodial account. The account holder can contribute up to $17,000 per year (as of 2023) without triggering the federal gift tax. 

  • Tax Advantages: Tax advantages come into play with custodial accounts as investment income is categorized as “unearned income” by the government. The proceeds from a custodial account might enjoy a lower tax rate until your child begins filing taxes. In 2023, any amount exceeding $2,500 will be taxed at the parents’ rate until the child reaches the age of maturity. At that juncture, the assets legally transfer to the child, and the proceeds are taxed at their own rate, typically at the age of 24 or as early as 19 if they are no longer a full-time student.
  • Long-Term Appreciation: Another significant benefit is the potential for long-term appreciation. Contributing to a custodial account allows your money to grow significantly over time. According to McKinsey‘s findings, stocks, on average, yield a return of 6.5 to 7 percent annually, enabling them to keep pace with inflation and outperform it.

Moreover, the flexibility of custodial accounts stands out as a significant advantage. Your child can utilize the proceeds for various purposes, such as education, rent, a down payment on a house, or even a wedding. 

What Are the Different Types of Custodial Accounts?

There are two main types of custodial accounts:

  • UGMA (Uniform Gifts to Minors Act) Accounts: UGMA accounts are the most common type of custodial account. They allow you to gift any type of asset to your child, including cash, stocks, bonds, and mutual funds. When your child reaches the age of majority (usually 18 or 21), they will have full control over the account.
  • UTMA (Uniform Transfers To Minors Act) Accounts: UTMA accounts are similar to UGMA accounts but can only be used to gift cash or securities. When your child reaches the age of majority, they will have full control over the account.

Custodial Account Rules

To open a custodial account, you’ll need basic information about your child, including their name, birthdate, and Social Security number. Once the account is created, you’ll have complete control over its management, including making deposits and selecting investments. You can also withdraw cash at any time, but these funds must be used solely for the benefit of your child. Be mindful of potential fees associated with withdrawing money from certain investments, and remember that capital gains earned from liquidated funds are subject to taxation.

How to Choose a Custodial Account Provider

When choosing a custodial account provider, there are a few things to keep in mind.

  • Fees: Make sure to compare the fees of different providers. Some providers charge monthly fees, while others charge transaction fees.
  • Investment Options: Make sure the provider offers a variety of investment options that meet your child’s needs and risk tolerance.
  • Customer Service: Make sure the provider has a good reputation for customer service. You should be able to get help easily if you have any questions or concerns.
  • Compare Interest Rates And Returns: Research interest rates offered on savings accounts and potential returns on investment options. Choose a provider that consistently offers competitive rates and demonstrates a solid track record of performance.

Remember, the best custodial account provider for your child will depend on your specific needs, preferences, and financial goals. Take the time to research and compare options carefully to make the most informed decision for your child’s financial future.

Choosing Heritage Financial Credit Union for Custodial Accounts 

Heritage Financial Credit Union is a great option for custodial accounts. They offer a variety of savings and investment accounts for minors, as well as competitive rates and low fees. They also have a team of experienced team members who can help you choose the right account for your child.

Here are some of the benefits of opening a custodial account with Heritage Financial Credit Union:

  • Competitive Interest Rates: Heritage Financial Credit Union offers competitive interest rates on its savings accounts, so you can be sure your child’s money is growing as fast as possible.
  • Low Fees: Heritage Financial Credit Union charges low fees on its custodial accounts, so you can keep more of your child’s money working for them.
  • A variety of Investment Options: Heritage Financial Credit Union offers a variety of investment options for custodial accounts, so you can choose the right mix of investments for your child’s risk tolerance and goals.
  • Experienced Financial Advisors: Heritage Financial Credit Union has a team of experienced financial advisors who can help you choose the right custodial account for your child and answer any questions you have.

Opening a custodial account with Heritage Financial Credit Union is easy. You can open an account online. You will need to provide your child’s birth certificate and Social Security number to open an account.


Opening a custodial account for your child is a great way to help them build a strong financial future. Heritage Financial Credit Union is a great option for custodial accounts, thanks to their competitive rates, low fees, and variety of investment options.

In addition to the benefits listed above, Heritage Financial Credit Union is also a member-owned financial cooperative, which means they are committed to putting their members first.