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

Custodial Accounts with Fidelity

If you’re searching for a brokerage firm that offers custodial accounts, search no more. Fidelity has them, and we’re going to show you how to open one, what the advantages and disadvantages of the custodial account are, and what your alternatives at Fidelity are.

Fees and Minimums for Fidelity’s Custodial Account

Fidelity does not charge any fees for its custodial account, which is a UGMA or UTMA account, depending on your state of residency. There are no low-balance, annual, inactivity, or maintenance fees.

On top of this really generous policy, the brokerage house also doesn’t require any deposit to open an account. But if you do open a custodial account at Fidelity, you will eventually want to put some money in it so that you can take advantage of the firm’s $0 commission schedule.

Fidelity’s Custodial Account

When you’re ready to open a UGMA/UTMA account at Fidelity, just head over to the broker’s site. At the top, there’s a link that says Open an Account. Click on this and you’ll get Fidelity’s list of account choices. The custodial account isn’t linked on this page, so you’ll need to go to the bottom of the page where it says See all accounts. Click on this link and you’ll get the full list.

About half-way down the list is a section entitled Saving for education. Here you’ll find the link to open the custodial account. You’ll need details on the minor and the adult opening the account. If you already have a Fidelity account, you can log in and have some details pre-filled.

If you need any help during the account opening process, feel free to give Fidelity a call at 800-343-3548.

Fidelity Custodial Account

Laws Governing Custodial Accounts

The rules surrounding U.S.-based custodial accounts create various upsides and downsides. On the plus side is the fact that the first $1,050 in earnings is tax free for children under the age of 19. This age limit is extended to 24 for full-time students assuming their unearned income provides less than 50% of their support.

The next $1,050 is taxed as the minor’s tax rate. Because the adult’s tax rate is usually higher, this is a generous policy. Earnings above $2,100 get taxed at the custodian’s tax rate.

The most notable advantage of custodial accounts is that they have no contribution limits. Most accounts designed for minors do.

A disadvantage of custodial accounts is that assets can reduce a minor’s eligibility for student aid, which of course would sort of defeat the purpose of saving money for college.

Perhaps the biggest downside of UTMA and UGMA accounts is that they don’t offer tax deductions on contributions.

Other issues could be considered advantages or disadvantages, depending on the situation. For example, assets in a UTMA or UGMA account can be used for any purpose, not just education. Since assets are handed over to the minor at the age of majority, there’s nothing to stop them from dropping out of school and spending it all on a vacation to Hawaii. The parents and grandparents in the picture have no control over the account assets after the kid hits 18 or 21 (or 25 in a few states).

Better Custodial Account

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Alternatives at Fidelity

If the custodial account’s policies don’t appeal to you, you could instead open a 529 plan at Fidelity. The brokerage firm’s 529 plan comes with multiple investment strategies and has no state residency restrictions. There is an expense ratio on a 529 plan, however, which makes it a more expensive option than a UTMA or UGMA account.

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