Custodial College Savings Accounts

In many ways, custodial savings accounts are similar trust accounts. In both, a person who is not the beneficial owner controls the account for beneficiary. Custodial accounts are not trusts however.

UTMA Custodial Accounts

The whole point of UTMA custodial accounts is to allow the transfer of property to a minor (once they have reached the age of majority) without establishing a trust. Trusts do have their reasons for use. They provide more protection and flexibility but can be costly.

The trouble with custodial savings accounts under UTMA laws is that the assets must be transferred to the child when they reach the age of majority. The custodian manages the assets and makes decisions for the benefit of the child. Once that child is old enough, they have the right to use the funds however they choose.

Custodial Account: No Return Policy

It is imperative that the following is completely understood: the owner of a custodial account is the child. The minor may not have control of the property, but the child is the owner as soon as it is transferred to the account. This fact has important consequences:

• Gifts are legally complete when the asset is transferred to a custodial account, not when the account terminates. The property can not be taken back by the person giving the gift.
• All income generated by assets in a custodial savings account is the child's income.

529 College Savings Plans

One other type of custodial account is a 529 Plan account. 529 Plans are administered by a state or financial institution designed to help families save for future college costs. These accounts have an annual contributory maximum and may be tax deductible. All earnings in these accounts are tax free if used for educational purposes.

Custodial College Savings Account Financial Planner Help

Other taxable custodial accounts may be transferred into 529 plans, but you must speak with an experienced custodial college savings financial professional in order to make sure you choose the right plan that will give you the best opportunity for tax efficiency and investments.