Posted: 6/2/2026 4:51:43 PM EDT
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Friend of mine wants to open an account for her grand daughter and put $100 in monthly invested in VOO. I told them about a Custodial Account and it sounds like that's the way they want to go. Few questions Is this like any other brokerage account? Buy stocks, pay taxes when you sell? What if you sell a stock and buy another before the person turns 18? Who pays the capital gains? At 18 does the person get alerted about the account? I think they want to wait and tell them when they are25ish when they are more mature Does the parents have to know or have access? Mom and dad might try to get their hands on the money so they want to make sure it's safe from them. They have the kids SS# so it's my understanding no one else needs to know from there? Anything else we are missing? I dont have kids so I didn't know about this type of an account until recently so im still learning myself |
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All depends on the institution where the account is. Have fidelity utma accounts, kids can’t see them until they reach the age (which varies by state). The account is taxable, I get a 1099 addressed to me with kids name on it. I put it on my tax return, not sure if that is required or not but I haven’t gotten audited! Kids have never gotten anything in mail/email about it. |
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I opened one up with my oldest in HS when he was a sophmore. He had a 529 that he regularly put small sums into and we contributed a fair amount. He wanted to get a real brokerage account though, so we opened one. He has control over it, made contributions from summer job money. He had to get a checking account for direct deposit, then linked his brokerage account to it. Got paycheck deposited into checking, moved it over to Fidelity, then purchased a mutual fund we both agreed on. Kid was killing it in HS. Put about 90% of his summer money into mutual funds and he had a significant gain. Yes you have to pay taxes on it when you sell. The education is more valuable than the money he put into it. I've been trying to get him to purchase some dividend stocks, but he likes his mutual funds. |
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Originally Posted By JMichael99: Friend of mine wants to open an account for her grand daughter and put $100 in monthly invested in VOO. I told them about a Custodial Account and it sounds like that's the way they want to go. Few questions Is this like any other brokerage account? Buy stocks, pay taxes when you sell? What if you sell a stock and buy another before the person turns 18? Who pays the capital gains? At 18 does the person get alerted about the account? I think they want to wait and tell them when they are25ish when they are more mature Does the parents have to know or have access? Mom and dad might try to get their hands on the money so they want to make sure it's safe from them. They have the kids SS# so it's my understanding no one else needs to know from there? Anything else we are missing? I dont have kids so I didn't know about this type of an account until recently so im still learning myself A 529 account is generally a much better option that UTMA/UGMA account. Both are useful for saving for a child, but they serve different purposes. Here's how 529s compare: **Tax advantages (529 wins clearly)** A 529's earnings grow tax-free and withdrawals are tax-free when used for qualified education expenses. UTMA/UGMA earnings are subject to the "kiddie tax" — unearned income above ~$2,500/year is taxed at the parent's marginal rate until the child is 19 (or 24 if a full-time student). **Financial aid impact (529 wins)** A 529 owned by a parent counts as a parental asset on the FAFSA, reducing aid eligibility by at most 5.64% of its value. A UTMA/UGMA is a student asset and reduces aid eligibility by up to 20% of its value — nearly 4x the hit. **Control (529 wins)** You remain the account owner of a 529 indefinitely and can change the beneficiary or reclaim funds (with taxes + 10% penalty on earnings). With a UTMA/UGMA, the assets irrevocably belong to the child and they get full control at age 18 or 21 — no restrictions on how they spend it. **Flexibility of the 529** - Unused funds can be rolled to a Roth IRA for the beneficiary (up to $35,000 lifetime, subject to annual limits, after a 15-year holding period) - Can change beneficiary to another family member - Can be used for K–12 tuition ($10,000/year), apprenticeships, and student loan repayment ($10,000 lifetime) in addition to college **Where UTMA/UGMA has the edge** - No restrictions on how funds are used — not locked to education - Can hold almost any asset (stocks, ETFs, real estate, etc.), not just the investment options in a 529 plan - No contribution limits (529s have per-beneficiary limits, though they're very high — $500K+ in most states) - Simpler if the child may not pursue higher education at all **Bottom line:** If the goal is education savings, the 529 is almost always superior due to the tax-free growth, better financial aid treatment, and retained parental control. UTMA/UGMA makes more sense when you want flexibility for non-education uses or want to gift broader asset types to a child. |
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Originally Posted By hammer1995: A 529 account is generally a much better option that UTMA/UGMA account. Both are useful for saving for a child, but they serve different purposes. Here's how 529s compare: **Tax advantages (529 wins clearly)** A 529's earnings grow tax-free and withdrawals are tax-free when used for qualified education expenses. UTMA/UGMA earnings are subject to the "kiddie tax" — unearned income above ~$2,500/year is taxed at the parent's marginal rate until the child is 19 (or 24 if a full-time student). **Financial aid impact (529 wins)** A 529 owned by a parent counts as a parental asset on the FAFSA, reducing aid eligibility by at most 5.64% of its value. A UTMA/UGMA is a student asset and reduces aid eligibility by up to 20% of its value — nearly 4x the hit. **Control (529 wins)** You remain the account owner of a 529 indefinitely and can change the beneficiary or reclaim funds (with taxes + 10% penalty on earnings). With a UTMA/UGMA, the assets irrevocably belong to the child and they get full control at age 18 or 21 — no restrictions on how they spend it. **Flexibility of the 529** - Unused funds can be rolled to a Roth IRA for the beneficiary (up to $35,000 lifetime, subject to annual limits, after a 15-year holding period) - Can change beneficiary to another family member - Can be used for K–12 tuition ($10,000/year), apprenticeships, and student loan repayment ($10,000 lifetime) in addition to college **Where UTMA/UGMA has the edge** - No restrictions on how funds are used — not locked to education - Can hold almost any asset (stocks, ETFs, real estate, etc.), not just the investment options in a 529 plan - No contribution limits (529s have per-beneficiary limits, though they're very high — $500K+ in most states) - Simpler if the child may not pursue higher education at all **Bottom line:** If the goal is education savings, the 529 is almost always superior due to the tax-free growth, better financial aid treatment, and retained parental control. UTMA/UGMA makes more sense when you want flexibility for non-education uses or want to gift broader asset types to a child. this isn't a parent. its a grand parent and they dont want the parent to know |
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Originally Posted By JMichael99: this isn't a parent. its a grand parent and they dont want the parent to know If they don’t want the parent to know, they should open a UTMA account in their own brokerage for the child. There will be a 1099 issued to the Social Security number of the child, but as long as the interest, dividends, and capital gains are less than $1300 a year a child is not required to file a tax return. I don't like 529 accounts because of their restrictions. If you ONLY want to contribute to their education, and know it will be used for such, they are great. The pro/con is pretty well listed above. WORST case scenario, you just open a standard brokerage account under your name, invest in what you want to invest in, and just gift them the balance when you want to. This is also the best way to keep the account a "secret". |
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Originally Posted By JMichael99: this isn't a parent. its a grand parent and they dont want the parent to know I am the owner of my grandchildren’s 529 accounts and they are the beneficiaries. My children are aware of the accounts but I could have opened them without their knowledge. |
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Originally Posted By JMichael99: this isn't a parent. its a grand parent and they dont want the parent to know My dad opened a 529 for my daughter. I have zero access to the account and if he hadn't told me about it there would have been no way for me to find out. I forward the invoice from the college to my dad and he initiates the transfer of funds from the 529 account directly to the university. The one time that he accidentally sent too much the $10 refund went to my daughter not to me. A grandparent 529 to a grandchild beneficiary does not show up on FAFSA. Just be mindful of the Roth IRA $35k conversion cap for a 529 plan in case the granddaughter doesn't go to college or she gets grants and scholarships. My daughter got some scholarships and her last two years of college are only offered online for her major, which means there are no dorm room and meal plan fees. There's going to be quite a bit more than $35k in her 529 plan after she graduates and we're trying to figure out how to spend it without incurring taxes & penalties. There's no reason that your friend can't set up both a 529 and custodial account. |
Heller II - Challenging DC's bans on semi-automatic rifles, large-capacity ammunition feeding devices, and its onerous and expensive handgun registration process. http://www.HellerFoundation.org/
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Originally Posted By FALARAK: If they don’t want the parent to know, they should open a UTMA account in their own brokerage for the child. I don't like 529 accounts because of their restrictions. If you ONLY want to contribute to their education, and know it will be used for such, they are great. Originally Posted By FALARAK: Originally Posted By JMichael99: this isn't a parent. its a grand parent and they dont want the parent to know If they don’t want the parent to know, they should open a UTMA account in their own brokerage for the child. I don't like 529 accounts because of their restrictions. If you ONLY want to contribute to their education, and know it will be used for such, they are great. 529 are great for small amounts of money or if you have multiple kids who are likely to need money for education. Having a ton of money in a 529 when an only kid dies, doesn't go to college, etc. would be a major financial headache. There are other ways to invest money tax-free for college that don't lock the cash away. |
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I just went through this with my grandkids and went the 529 plan and Vanguards accounts with the grandkids as the beneficiaries. This way if they choose to go to college or schooling it wont interfere with aid and , God forbid they turn out to be shit birds, I can change the beneficiaries on the accounts. Right now I add into their Vanguard accounts and 529 about $500 a month. |
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Originally Posted By Morgan321: Seems sort of weird to not tell your kid about something to do with their kid (your grandkid) unless they're a dirtbag. 529 are great for small amounts of money or if you have multiple kids who are likely to need money for education. Having a ton of money in a 529 when an only kid dies, doesn't go to college, etc. would be a major financial headache. There are other ways to invest money tax-free for college that don't lock the cash away. She is afraid the Dad(in-law) will pressure the kid later in life to give him the money.. I wouldn't consider him a "dirtbag", he is a deadbeat that is jobless and "holding out for a management position" And that's not a joke those were his words. She isn't telling the daughter just incase she lets it slip. She just wants to make sure her granddaughter is setup later in life, because they dont see much financial support from the parents. whichever they do im going to help them setup auto deposit of $100 monthly and auto buy of VOO with drip and just let it go forever |
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Originally Posted By JMichael99: She is afraid the Dad(in-law) will pressure the kid later in life to give him the money.. whichever they do im going to help them setup auto deposit of $100 monthly and auto buy of VOO with drip and just let it go forever I would do fidelity. They have 529 and utma accounts and anything else you could want, their app and website are the best I’ve ever used, and when you call an American answers the phone and fixes your problem quickly. |
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Originally Posted By Morgan321: I would do fidelity. They have 529 and utma accounts and anything else you could want, their app and website are the best I’ve ever used, and when you call an American answers the phone and fixes your problem quickly. Agree 100% on Fidelity. I have accounts at Vanguard, Fidelity and Schwab. Fidelity definitely has the best app/website. |
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Assuming it's a UTMA in WV, the granddaughter will get the funds when she's 21. Does grandma think granddaughter will have enough of a spine by then to say "No" to her dad? |
Heller II - Challenging DC's bans on semi-automatic rifles, large-capacity ammunition feeding devices, and its onerous and expensive handgun registration process. http://www.HellerFoundation.org/
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Originally Posted By bpm990d: The real value of having a 529 or investing account for a youth, is that they learn to understand money and how that aspect of finance works. I started brokerage accounts for my kids when they turned 8. Under my name, but separate accounts for each of them. Every birthday, Christmas, tooth fairy, lemonade stand, and especially earned income we pay them for extra chores around the house - gets divided into "Give, Save, Spend". 10% goes to whatever charity they choose. The remainder is split evenly, between save and spend. Save goes into their Fidelity account, and invested in whatever they want. Spend goes on their Chase Kids account, where they have a debit card, to use on whatever they want. They have seen their Fidelity accounts grow over time, and get excited about hitting goals... (First $500, First $1000, etc.) It also gives us the chance to talk about the stock market, growing your money while you sleep, and the importance of learning to live on half what you make. Also, the importance of growing your earnings to hit your goals much faster. (Don't work? No money) When they turn 13, we will ditch Chase Kids and they get their own Fidelity Youth account, and will set up their Roth IRA accounts then, as well as their cash management/debit card accounts, and brokerage investment account, all under one roof. |
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Originally Posted By Bubbles: My dad opened a 529 for my daughter. I have zero access to the account and if he hadn't told me about it there would have been no way for me to find out. I forward the invoice from the college to my dad and he initiates the transfer of funds from the 529 account directly to the university. The one time that he accidentally sent too much the $10 refund went to my daughter not to me. A grandparent 529 to a grandchild beneficiary does not show up on FAFSA. Just be mindful of the Roth IRA $35k conversion cap for a 529 plan in case the granddaughter doesn't go to college or she gets grants and scholarships. My daughter got some scholarships and her last two years of college are only offered online for her major, which means there are no dorm room and meal plan fees. There's going to be quite a bit more than $35k in her 529 plan after she graduates and we're trying to figure out how to spend it without incurring taxes & penalties. There's no reason that your friend can't set up both a 529 and custodial account. I am no 529 pro but, from what I have read about the 529 plan; cars, computers, rent - (all while in school) are considered valid withdrawal reasons (and can chew up a bunch of money). Before she graduates, might want to look into that. |
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Originally Posted By JMichael99: this isn't a parent. its a grand parent and they dont want the parent to know This is allowed in every state’s 529 plan. Almost anyone (including grandparents, other relatives, or even non-family members) can open and own a 529 account with a grandchild (or any eligible beneficiary) named as the recipient. As the account owner, grandparents can control investments, contributions, and withdrawals. They can also name a successor owner if needed. Grandchildren can have multiple 529 accounts (e.g., one from parents and one from grandparents). Earnings grow tax-deferred, and qualified withdrawals for higher education expenses (tuition, room/board, books, etc.) are tax-free federally (and often at the state level). Given your comments about daddy being unemployed go 529 the grandmother will maintain control of distributions. It doesn’t need to be for education but would then be taxable. The custodial account will generate tax liability as well. |
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Originally Posted By bowmanch: I am no 529 pro but, from what I have read about the 529 plan; cars, computers, rent - (all while in school) are considered valid withdrawal reasons (and can chew up a bunch of money). Before she graduates, might want to look into that. Originally Posted By bowmanch: Originally Posted By Bubbles: My dad opened a 529 for my daughter. I have zero access to the account and if he hadn't told me about it there would have been no way for me to find out. I forward the invoice from the college to my dad and he initiates the transfer of funds from the 529 account directly to the university. The one time that he accidentally sent too much the $10 refund went to my daughter not to me. A grandparent 529 to a grandchild beneficiary does not show up on FAFSA. Just be mindful of the Roth IRA $35k conversion cap for a 529 plan in case the granddaughter doesn't go to college or she gets grants and scholarships. My daughter got some scholarships and her last two years of college are only offered online for her major, which means there are no dorm room and meal plan fees. There's going to be quite a bit more than $35k in her 529 plan after she graduates and we're trying to figure out how to spend it without incurring taxes & penalties. There's no reason that your friend can't set up both a 529 and custodial account. I am no 529 pro but, from what I have read about the 529 plan; cars, computers, rent - (all while in school) are considered valid withdrawal reasons (and can chew up a bunch of money). Before she graduates, might want to look into that. @Bubbles The above is correct from my understanding, we were in a similar situation with kid #2 due to scholarships, with her living at home. Believe what we did was charge rent based on what the college said the on campus cost would be, so we could pull money from the 529 for that. Then we gave her the money back, as a reward for getting the scholarships. Between tuition, books, rent, etc we were able to deplete the 529 eventually, only kid I know who basically made a profit by going to college since about 2/3 was covered by various scholarships. Kid #1 graduated with zero debt, and I had to kick in some extra money when his 529 was depleted before he was done as he had to retake a few classes for his major, but each kid got the same level of assistance from us. Pretty good leg up in life to have a degree in hand and no debt. Kid #1 is now 6 years out of school, we helped with a down payment on a starter home for him and DIL, he has an OK job with 80k in his 401k so far. Kid #2 is about 1 1/2 yrs out of school and had job offers 2 years before graduating, and is halfway thru CPA certifications while working, with about 17k in her 401k so far, plus a good chunk in her HYSA from those 529 funds, We didn’t start investment accounts beyond the 529’s for them, but I did discuss it in good detail when I was retiring, so they listened and can now see the advantage in investing, so I think they will be OK. My brother saved a bunch for his kids as well, but his oldest had no desire to do college, while the younger wants to do medical school, so it may work out anyhow, but the 529 does make things a bit less flexible if the kid doesn’t want to go to college or trade school. |
a loaded gun won’t set you free, so you say…
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Originally Posted By tac556: The above is correct from my understanding, we were in a similar situation with kid #2 due to scholarships, with her living at home. Believe what we did was charge rent based on what the college said the on campus cost would be, so we could pull money from the 529 for that. Then we gave her the money back, as a reward for getting the scholarships. Between tuition, books, rent, etc we were able to deplete the 529 eventually, only kid I know who basically made a profit by going to college since about 2/3 was covered by various scholarships.   Off to do some research! |
Heller II - Challenging DC's bans on semi-automatic rifles, large-capacity ammunition feeding devices, and its onerous and expensive handgun registration process. http://www.HellerFoundation.org/
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Originally Posted By tac556: .....kid #2 .... living at home. Believe what we did was charge rent based on what the college said the on campus cost would be, so we could pull money from the 529 for that. I tell people to make a custodial account for the kid, invest the cash, and once it transfers to the kid they can take long term profits at 0% long term capital gains rate. The benefit is that the tax-free profits are not dependent on education after high school and if an only kid dies the cash isn't tied up in a 529 account. If they are in college, the kid can give you the cash to deposit into your state 529 to get the state tax deduction (on the after-profit amount, not just on the principal), then immediately withdraw the cash to pay the college bill. The only downside to this method is that if the kid turns out to be a dirtbag they still get the cash once the custodial account becomes theirs. |