How to open an Ally Invest custodial account for kids. Ally bank UTMA investment assets in a brokerage account for teenagers and children.

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Custodial Accounts with Ally Invest

If you’re looking to open a securities account for a legal minor, Ally Invest (and Ally Bank) has some options for you. Here’s the rundown:

UTMA/UGMA Accounts at Ally Invest

There are several brokerage account types available at Ally Invest. For legal minors, the company offers both the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA) accounts. The exact one you would open depends on your state. Most states today use only UTMA accounts.

With either the UTMA or UGMA account, assets belong to the minor but are managed by a custodian. The custodian could be an investment company or an individual. Assets are turned over to the minor at the age of majority, which varies by state.

Benefits of UTMA/UGMA Accounts

One of the great benefits of UGMA/UTMA custodial accounts is that there are no contribution limits. Other custodial accounts, such as 529 plans, do have contribution limits.

Another strong point that UGMA/UTMA accounts have is no income limit for the custodian. Some custodial accounts, such as the Coverdell Education Savings Account, have income limits.

A final perk of UGMA/UTMA accounts is that withdrawals can be used for any purpose, not just education expenses. Although this is usually seen as an advantage, it also means the minor could withdraw all funds at age 18 and buy a Porsche. There’s nothing at that point that anybody could do to stop him. We did say funds could be used for any purpose, didn’t we?

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Taxation of UTMA/UGMA Accounts

Uncle Sam is nice enough to give some tax breaks on UGMA/UTMA accounts. Earnings (up to $1,050) are not taxed at all. Between $1,050 and $2,100, taxes are charged at the tax rate of the minor; while income above $2,100 gets taxed at the parents’ tax rate.

How to Open a UTMA/UGMA Account at Ally Invest

To open a custodial account at Ally Invest, click on their promotion link: Up to $3,000 cash bonus + $0 trades + transfer fee rebate. Then click on the "Open Account" button. When filling out the electronic form, make sure you choose "Custodial" as the account type.

Reasons to Choose Ally Invest

Custodial clients get the same investment lineup that other customers at Ally Invest get. This list includes stocks, bonds, options, mutual funds, ETFs, and closed-end funds. Although Ally Invest does offer forex trading inside a futures account, you won’t be able to open a custodial account with the forex arm of the company.

Self-directed securities accounts at Ally have an almost flawless pricing schedule. There are no account fees of any kind; and there is no minimum deposit requirement. The brokerage firm has eliminated commissions on most products, including stocks, ETFs, and options. The latter security does carry per-contract fees.

Ally Invest Custodial Account

For self-directed customers, Ally Invest offers a browser platform called LIVE. It has some very good option tools, good charting, and a user-friendly order ticket.

If you don’t have the time or desire to manage your investments, Ally Invest offers a robo-advisory service. You can start the program with just $100, and the service is free with a large cash position or just 0.30% without.

Other Custodial Accounts at Ally Bank

Besides the investment accounts already mentioned, Ally Invest offers Coverdell Education Savings Accounts for self-directed clients. This account offers tax-free growth, which is an advantage over the UGMA/UTMA custodial accounts that Ally Invest offers.

Ally Bank offers custodial accounts that come with FDIC insurance. Deposit options include savings, money market deposits, certificates of deposit, and interest-bearing checking accounts. However, there is no way to invest with these accounts.

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