The custodial account does not have to be utilized by a parent to save for their child. Grandparents, guardians, aunts, uncles, and other relatives can use custodial accounts to assist a child in saving money.
The Uniform Transfers to Minors Act (UTMA) and the Uniform Gift to Minors Act (UGMA) are the two types of custodial accounts. The form of adult-controlled investment account you provide is the crucial distinction between them.
Custodial accounts provide certain tax advantages; however, they are not tax-deferred like IRAs. The gains are taxed at the minor’s rate up to a particular level since the IRS considers the young child the account’s owner.
Because the holdings are considered investments, they may lower a child’s qualification for financial assistance when applying for funds for college. It might also make it more difficult for them to receive other federal support.