Financial Literacy Month: Custodial Brokerage Accounts

April is Financial Literacy month and I have decided I will make Fridays, Financial Friday. Today I want to discuss custodial brokerage accounts, the accounts we set up for our kids to begin investing in the stock market. These can be a great tool in financial education as well as wealth building. You can open an account on your own with a brokerage and make the investment decisions yourself. You can also find a broker who will guide you and make these decisions for you.

My son turned 13 last month and this is something I gifted him. He was not happy with it because in his mind there were a million things he could have done with that money. I assured him he will thank me later, hopefully. As parents we tend to want more for our kids and give them things we didn’t have. I was not educated on  the stock market at a young age so this was something I wanted to give my son a jumpstart on. I want him to have an opportunity at wealth building that was not afforded to me.

April is Financial Literacy Month

I wanted to get him involved so I attempted to teach him about the stock market and how to look at a company’s financials to decide on whether to invest or not. I’m almost positive it went over his head, but I won’t give up, we’ll keep working on it. I do plan on contributing regularly and will have him sit with me and go over the statements. I want him to be prepared when he does take over the account and continue investing wisely. Since he did not grasp the education on it I told him let’s start with companies he’s familiar with and like to shop with. His choices were okay, I believe we ended up with 5 stocks in his portfolio.

You can open an account on your own and make the investment decisions. You can also find a broker who will guide you and make these decisions for you. One thing to keep in mind with these accounts are the tax considerations. A tax return will need to be filed on the investment earnings. The first $1050 is free, the next $1050 is taxed at the kiddie rate, and starting $2100 it’s taxed at the parent’s rate. The account must be turned over to the child once the child reaches 18 or 21, depending on the state. Whether they are responsible or not, the money becomes theirs. Do they make 18 and 21 year olds who are responsible?  

I have links below for options on opening an account.

http://www.schwab.com/public/schwab/investing/accounts_products/accounts/college_savings/custodial_account

https://www.tdameritrade.com/account-types/education.page

https://www.fidelity.com/open-account/all-accounts

https://us.etrade.com/what-we-offer/our-accounts/custodial-account

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