Custodial accounts come in a number of forms, one being an account set up for a minor, since the minor is under the legal age of majority. The custodian is often the minor’s parent.
Who is liable for taxes on custodial accounts?
What are the tax considerations for custodial accounts? Any investment income—such as dividends, interest, or earnings—generated by account assets is considered the child’s income and taxed at the child’s tax rate once the child reaches age 18.
Can a custodial account be transferred to an IRA?
You may be able to move money from an UTMA account to a Roth IRA by first selling your UTMA mutual fund, withdrawing the proceeds from the account, contributing it to the Roth account, and purchasing shares of a mutual fund. You can only do this to the extent that the child has taxable income.
Can a custodian of a Childs account use the money?
Secondly, as the custodian of the account, you owe what is known as a fiduciary duty to your child. This means you can only use the money in their best interest. You must invest it in a manner consistent with the prudent man rule .
What happens to a custodial account when the transferor dies?
Alternatively, the transferor can appoint a new custodian at that time. If the transferor was the custodian and the transferor dies, some states allow the legal guardian of the child to become the new custodian of the account.
How to handle a capital loss in a custodial account?
One of the frequent questions on our message board is how to handle a capital loss in a custodial account under the Uniform Transfers to Minors Act (UTMA). In the typical situation, a parent or other relative set up the account and contributed money that was invested in stocks or mutual funds.
Who is the owner of a custodial account?
Your child is legally the owner of the account. Her Social Security number is associated with it – not yours. Your only role is to manage the account for her until she reaches the age of majority. At that point, you relinquish all control and she takes over.
