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Custodial Accounts

Q: What are the tax advantages of a custodial account?

In 2022, the first $1,150 of a child's income generally is tax-exempt, the next $1,150 of unearned income generally is taxed at the child's tax rate, and unearned income over $2,300 generally is taxed at the parent's tax rate if the child is under 18, or the child is age 18 and does not have earned income that is more than half of his or her financial support, or is a full-time student who is at least age 19 and under age 24 and who does not have earned income that is more than half of his or her financial support if at least one parent is living at the end of the tax year and the child is not filing a joint return for the tax year.

Q: What are the investment choices for a custodial account?

Access a full range of investments choices, including: stocks , exchange-traded funds (ETFs) , bonds and thousands of well-known mutual funds .

Q: Who controls a custodial account?

The account is owned by a custodian until the child inherits the assets upon age of termination. The custodian has the responsibility to transfer the assets to the minor upon the attainment of the age of termination. Beneficiaries cannot be changed because contributions into the account are considered an irrevocable gift.

Q: How much can I contribute to a custodial account?

There's no limit to the amount you can contribute. And there's no age limit for making contributions and withdrawals, but account ownership will be transferred to the minor upon age of termination. You can contribute up to the annual gifting limits of $16,000 (or $32,000 for couples) annually gift taxfree.

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A custodial account allows you to invest on behalf of a minor for a college education or any other expense that benefits them.

Custodial Account Features

Choose how you want your account managed

Make contributions up to annual gift tax limits

Enjoy the flexibility of a cash management account

Manage the account until the minor is of age

Question:

Who can contribute to a custodial account?

Answer:

Anyone can contribute to a custodial account, including family members and friends.

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Frequently Asked Questions

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Custodial Accounts FAQs

What are some key features of a custodial account?

Funds in a custodial account can be used for any purpose as long as it benefits the minor (including college expenses)
Can be funded with cash or securities
Anyone can contribute on behalf of the minor
UGMA/UTMA accounts have unique features and requirements that are important to keep in mind. Of particular importance is the custodian's obligation to use the assets only for the benefit of the minor and to turn the assets over to the minor when they reach the termination age

How does investing in a UGMA/UTMA custodial account impact financial aid?

Assets in a UGMA/UTMA custodial account are treated as an asset of the beneficiary, which is weighted at 20% towards the federal financial aid calculation. This is based on current interpretation of federal financial aid rules. Financial aid rules may change, and the rules in effect at the time the beneficiary applies may be different. For more complete information, please go to the Department of Education's website at Go to third-party website www.ed.gov popup.

What are the tax advantages of a custodial account?

In 2023, the first $1,250 of a child's income generally is tax-exempt, the next $1,250 of unearned income generally is taxed at the child's tax rate, and unearned income over $2,500 generally is taxed at the parent's tax rate if the child is under 18, or the child is age 18 and does not have earned income that is more than half of his or her financial support, or is a full-time student who is at least age 19 and under age 24 and who does not have earned income that is more than half of his or her financial support if at least one parent is living at the end

What are the investment choices for a custodial account?

Who controls a custodial account?

How much can I contribute to a custodial account?

Can anyone else contribute to a custodial account?

Footnote

Certain banking and brokerage accounts may be ineligible for real-time money movement, including but not limited to transfers to/from bank IRAs (CD, Money Market), 529s, Bank of America Advantage SafeBalance Banking™, Credit Cards and transfers from IRAs, Loans (HELOC, LOC, Mortgage) and accounts held in the military bank. Accounts eligible for real-time transfers will be displayed online in the to/from drop down menu on the transfer screen.

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This material is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. Additional information is available in our Client Relationship Summary (PDF).

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Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.

Banking products are provided by Bank of America, N.A. and affiliated banks, Members FDIC and wholly owned subsidiaries of Bank of America Corporation ("BofA Corp.").

Merrill Lynch Life Agency Inc. (MLLA) is a licensed insurance agency and wholly owned subsidiary of BofA Corp.

Investment products offered through MLPF&S and insurance and annuity products offered through MLLA:

Are Not FDIC Insured

Are Not Bank Guaranteed

May Lose Value

Are Not Deposits

Are Not Insured by Any Federal Government Agency

Are Not a Condition to Any Banking Service or Activity