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

Custodial Accounts with Charles Schwab

If you need to open a custodial account, Charles Schwab offers one with many resources. Here’s everything you need to know:

Opening a Custodial Account at Schwab

When you’re ready to open a custodial account, point your browser to At the top of the site is an orange button that says Open An Account. Click on this and you’ll get the broker’s account opening form.

A list of account choices is displayed at the top of the form. The custodial account isn’t one of the options; so scroll down a little further to where it says All Accounts. Click on this link and you’ll get the full list. You’ll see several icons at the top of this list for the various account types that are available at Schwab. The broker-dealer has many.

Charles Schwab Custodial Account

Click on the icon for Education & Custodial. Doing so will bring you down to the section for these types of accounts. Click on the link that says Open a Custodial Account.

This will generate the company’s online application form. You’ll need to input information on both the account creator and the minor. Lastly, you’ll need to specify how you want to fund the account if you want to do so at this point.

If you have any questions during the account opening process, Schwab’s online application form has a Live Chat feature at the top of the screen. Just click on it to get a pop-up chat window. You’ll be able to text message a Schwab representative with your questions. Alternatively, you can call the broker at 866-232-9890.

Legal Structure of the Custodial Account

A custodial account has no annual contribution limit, which is one of its greatest strengths. However, contributions aren’t tax deductible, which is one of the drawbacks.

There are no gift taxes for contributions of up to $15,000 per year for each beneficiary. This amount is $30,000 for married couples who file taxes jointly.

As for earnings in a custodial account, they are tax exempt up to certain annual limits. The first $1,050 per year is exempt from taxation, while the next $1,050 is taxed at the minor’s rate. This is advantageous in most situations as the guardian’s tax rate will probably be higher. Any earnings above $2,100 are taxed at the parents’ or grandparents’ rate. It will take a lot of contributions to generate annual earnings above that level, though.

Once the minor reaches the age of minority in his state, he can withdraw it regardless of what the parents or grandparents wish. This framework is another risk inherent in custodial accounts.

Custodial Account Fees at Schwab

Custodial account holders at Schwab pay nothing to open, maintain, or close an account. There is no required deposit to get started, either.

Another great feature is that Schwab’s $0 commission schedule applies to custodial accounts. Trades of stocks, ETFs, closed-end funds, and options have zero base charge. Option contracts do have a per-contract fee of 65¢.

Better Custodial Account

A brokerage firm called TD Ameritrade offers $0 commission on stocks, ETFs, and $49.95 on all mutual funds. There are no custodial account fees whatsoever. TD Ameritrade has a richer selection of mutual funds, and the best trading and research tools. Learn more...

Open TD Ameritrade Account

Open TD Ameritrade Account

Other Accounts at Schwab for Minors

If the custodial account’s policies don’t quite meet your expectations, Schwab offers other securities accounts for minors. One is the Coverdell Education Savings Account. With this account, earnings grow tax-deferred and will be tax free if they are withdrawn for qualified education expenses. Funds can be used to pay for elementary school and higher.

With a 529 Plan at Schwab, you can save for post-secondary education (post-secondary education only) with much higher contribution limits than the Coverdell account has. The Coverdell’s maximum is $2,000 per year, while 529 Plans have lifetime limits between $200,000 and $500,000, depending on the state.

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