M1 Custodial Account: Sharing the Wealth (2024)

FAQs

Is M1 Finance good for a custodial account? ›

M1 clients can open M1 Custodial Accounts for a minor. Each contribution to the Custodial Account is considered an irreversible gift to the minor (Custodial Account beneficiary). The assets in the account are owned by the minor but are managed by the custodian.

Yes, money can be withdrawn from custodial accounts, as long as it is used "for the benefit of the minor," a vague term that includes, but isn't limited to, educational costs.

The drawbacks: You can't change the beneficiary of a custodial account once it's established. Your child can use the money however they want after reaching a certain age, and investment income in custodial accounts may trigger the kiddie tax. The account can impact financial aid eligibility.

Assets and income in a custodial account belong to the minor beneficiary (the child). Minors with unearned income such as interest, dividends, and capital gains, generally have to file an income tax return if, among other things, their unearned income is over $1,300 (in 2024).

Yes, M1 is a reputable company. It is licensed in 53 U.S. States and Territories and registered with the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA).

Tax Limitations: Custodial accounts have some tax advantages (and no penalties), but 529 plans offer more tax savings overall. Gifts Are Irrevocable: There are no takebacks—even if you need the money or want other children to share in the account assets.

How Do Taxes Work with a Custodial Account? The child beneficiary technically owns the custodial account — not the custodian. It's the beneficiary's Social Security number that is attached to the account. Thus, the child is the one who technically needs to pay taxes.

When the custodianship ends, the account holder (formerly a child, now legally an adult) will have complete control over the account, and the custodian's access to the account may be restricted.

Under the laws that govern custodial accounts, including the Uniform Transfers to Minors Act (UTMA), account custodianship ends and the beneficiary becomes eligible to assume control of the account at a specified age—typically 18 or 21, depending on the state.

What are the pros and cons of custodian? ›

A custodian is responsible for cleaning and maintaining a building, but it's important to weigh out the pros and cons, including the physically demanding work, potential for exposure to hazardous materials, and low pay, against the opportunity for job security and a stress-free work environment without any drama or ...

With a trust or fiduciary account, the bank acts as trustee or fiduciary to the account, providing investment management, investment advice and other services. With a custodial account, the bank's role is to keep the assets safe, collect dividends and interest and provide other similar services.

As the custodian, you can withdraw money from a custodial account if you need to use it to pay for something that will benefit the minor. You can't take the money back yourself, or give it to someone else.

Only one custodian and minor are allowed per custodial account. If you want to open a custodial account for a child, all you need is their social security number (SSN), as all of the taxes are reported under the minor's SSN. Reporting taxes under the minor's SSN is a big benefit.

In the event of a bank failure or takeover, custodial accounts are FDIC insured. This means that if anything happens to Stash, our custodian Apex, or the wider banking system, your custodial account is safe from creditors. A custodial account is a kind of irrevocable trust.

Bottom line. A custodial account is a great way to give minors cash, securities and other investments. That said, keep in mind the tax and financial aid implications and the fact that withdrawals must be used for the benefit of the minor.

What are the investment choices for a custodial account? Custodians have access to our full range of investments, including stocks, options, mutual funds, bonds, CDs, and fractional shares. (Note: The child the account was established for cannot invest in the account until the account is transferred to them.)

Yes. Assets held by banks in a custodial capacity do not become assets or liabilities owned by the bank. If a bank is bought or fails, custody assets remain the property of the account owner.

Anyone can contribute to a custodial account—parents, grandparents, friends, other family—with no contribution limits, making them valuable gift opportunities for major milestones and celebrations. Individuals can contribute up to $18,000 free of gift tax in 2024 ($36,000 for a married couple).