Custodial savings accounts are easy to open and perfect to build some savings for minor children. Usually opened by parents, grandparents, or another relative, these accounts can be opened for any minor under a custodian's name. You can open a custodial account at all banks or credit unions. Research local institutions to learn about their rates and terms. You can even open a custodial account online with a reputable institution.
Are you seeking high yield savings rates or convenience? Researching financial institution rules and rates for custodial savings accounts helps you make the best decision for the child. Investigating the offerings of banks and credit unions will lead you to the best custodial savings account options for you and your child. Your research should always include confirmation that a bank is FDIC-insured or a credit union is insured by NCUA, the credit union insurance fund.
Minimum Opening Deposit
Since there is no regulatory minimum opening deposit, the minimum dollars you'll need to open an account vary from bank-to-bank, typically based on the offered interest rate. Typically, the higher the interest rate, the larger the minimum opening deposit needed. For example, custodial savings accounts offering a rate of "X" may require only $200 as a beginning deposit. Another bank or account offering a rate of "X+Y percent" may require a minimum opening deposit of $1,000 to $2,000.
Social Security Numbers
To ensure that the child is properly registered as the current holder of the custodial account and to have the interest reported to the IRS on his or her behalf, you'll need the child's social security number. Since the minor will have little or no other income, the custodial child should encounter no tax consequences for some years. The child can also make his or her own deposits without facing tax issues, but the young person will learn financial responsibility lessons.
You might want to name a beneficiary for a custodial savings account, having another parent, grandparent or relative in position to become the custodian should a health issue or another disaster befall you. This is not required to open a custodial savings account but will provide some "custodial insurance" for the child.
State-sponsored 529 education savings plans are similar to custodial savings accounts, but are directed only to saving for college tuition and costs. You can open a 529 plan directly through a state's college savings program website or by contacting a financial adviser. However, if you want more flexibility for your child, a custodial savings account may be a better choice, as the minor can use the balance for any purpose when reaching the age of majority.
Gift Tax Exclusion
Open custodial savings accounts with IRS gift-tax exclusion limits in mind. As of 2013, the current gift-tax exclusion is $14,000 per year. Should you and your spouse give money or property that is jointly owned, you could gift up to $28,000 without tax consequences. However, keep in mind that the IRS can change the exclusion limit as frequently as annually. Stay current with gift tax-exclusion changes after you open a custodial account and plan your deposit amounts.
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