How to open a Charles Schwab custodial account for kids. Schwab UTMA investment assets in a brokerage account for teenagers and children.

Custodial Accounts at Schwab

Are you looking for a way to save money for a child or grandchild? If so, the brokerage custodial account is certainly worth considering, especially due to the tax breaks the account comes with.

Outline of UGMA and UTMA Accounts

The custodial account comes in two varieties: UTMA and UGMA. The state of residency of the minor, donor, or custodian determines the type of account. They both have the same tax breaks, which are given on the earnings in the account. The first $1,150 in annual earnings is taxed at 0%, which is a pretty good deal.

There is no contribution limit on either custodial account type, which is another advantage UGMA and UTMA accounts offer. Assets in a custodial account must be turned over to the minor once he reaches the age of majority, which varies by state. Also, funds can be withdrawn for any purpose, not just education.

How to Open a Schwab Custodial Account

Thanks to Schwab’s user-friendly software, a custodial account can be opened on either the broker’s website or mobile app. On the latter platform, tap on the More icon in the bottom row and then select the link to open an account. On the next page, scroll down to the custodial account icon. Tap on this to pull up the custodial account overview page. There is a link to open the custodial account type at the bottom. Tap on this to get a login button in case you already have a Schwab login. This will pre-fill some information to make the application a little easier. In case you don’t have a Schwab login, there is a second button to continue the application without logging in. Information on both the custodian and the minor must be filled in.

schwabcustodial account

On the website, the custodial application can be found by heading to the top of the site and clicking on the orange Open an Account button. On the next page, you’ll need to scroll through the available account types and select custodial. The application at this point is the same as the one on the mobile app.

Non-US residents are able to open a custodial account at Schwab. This is a generous policy as not all brokerage firms permit this. Non-US residents must fill out a paper form, though. It can be faxed in at 888-526-7252.

Custodial Account Pricing

Schwab doesn’t charge any extra fees or commissions on custodial accounts. This means they pay $0 commissions on equity trades that execute on the major US exchanges. Trades of over-the-counter and foreign securities will carry commissions.

Option trades also cost 65¢ per contract (some spreads aren’t tradable because custodial accounts aren’t eligible for margin). Futures cost $2.25 per contract, per side. Schwab has thousands of mutual funds without loads and without transaction fees.

There are no ongoing fees or minimums for custodial accounts at Schwab, which really adds to the value of these accounts. However, there is a $5,000 minimum deposit requirement if the custodial account is opened in robo form. This is certainly possible, although the automated system will only trade ETFs. The other asset classes mentioned here won’t be available.

Education for Beginning Investors

One of the great things about Schwab is the large amount of educational resources available to its clients. These materials, of course, will be of great value to young investors just starting out.

A good launching point to begin an investment education is under the Learn tab on Schwab’s website. There are some really good resources under this tab. Examples include:

  • Investing Insights
  • Market Commentary
  • Retirement
  • Trader Learning Center
  • Podcasts
  • Magazine
  • Tax Center
  • New Client Welcome Center

The trader learning center displays tiles for learning resources on specific topics, like ETFs and StreetSmart Edge (the broker’s desktop platform). Clicking on a link produces a new page with links to specific articles, some of which have embedded videos.

The podcast section contains links to a wide variety of podcasts (hosted by Spotify, Google Podcasts, and Apple Podcasts). These cover a lot of territory and would be good for newbies.

The magazine section is for Onward, Schwab’s digital magazine. Articles from recent publications are available, and they cover a lot of financial ground.

A second tab on the site, Research, is really useful for finding something to trade. The search engines would be especially helpful for self-directed investors.

Charles Schwab Customer Reviews

Read Reviews »

TD Ameritrade as Alternative

Although Schwab offers a pretty good custodial account service, TD Ameritrade is very competitive in this area, and in fact, offers something that Schwab doesn’t: forex trading. Currencies can be traded in a custodial account at TD Ameritrade, although a $2,000 account balance is required, and a supplementary application is also needed to add forex trading privileges to the account.

Another advantage TD Ameritrade has is thinkorswim, an advanced desktop platform that can trade currencies and securities. Although Schwab has its own desktop software that is pretty good in its own right, some traders will probably prefer thinkorswim, which is a little more advanced.

Like Schwab, TD Ameritrade has very good educational materials. These appear mostly on its website, although there are some resources on its mobile app and desktop system.

Also like Schwab, TD Ameritrade charges no ongoing fees for custodial accounts. The one primary downside, at least for some investors, will be the lack of investment advice at TD Ameritrade. Neither robo nor traditional management is available. Both are available at Schwab.

Learn more...

Open TD Ameritrade Account

Open TD Ameritrade Account

Updated on 9/13/2022.

Continue Reading