What is a Custodial Account? A Complete Guide to Custodial Accounts at Ally Bank

What is a Custodial Account?

Opening a custodial account can help launch your child off on a sound financial footing. It's a great way to introduce them to the world of investing and teach them valuable money management skills. In this comprehensive guide, we'll cover everything you need to know about custodial accounts at Ally Bank.

Investment accounts for kids

Before we dive into the details, let's start with the basics. A custodial account is a financial account that is set up and managed by a parent or guardian on behalf of a minor. It allows you to save and invest money for your child's future.

What we'll cover

In this guide, we'll cover the following topics:

• What is a custodial brokerage account?
• How does a custodial brokerage account work?
• Two types of custodial accounts
• The Uniform Transfers to Minors Act (UTMA)
• The Uniform Gift to Minors Act (UGMA)
• What are the pros and cons of a custodial account?
• Benefits of a custodial account
• Cons of a custodial account
• What are the tax benefits of a custodial account?
• Who pays taxes on custodial brokerage accounts?
• What happens to a custodial account when the minor turns 18?
• Can you withdraw money from a custodial account?
• How to open a custodial account at Ally Invest
• It's never too early to start investing
• Explore more
• Read next
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How to Open a Kids Bank Account with Ally

One part of generational wealth is financial literacy! Teach your child to save when you open a kids bank account with Ally in 7 easy steps!

Step One – Go to the Ally website

The first step to open a kids bank account with Ally is to visit their website. You can easily navigate to the account opening page and start the process.

Step Two – Select Your Account Type

Once you're on the account opening page, you'll need to select the account type. Choose the option for a kids bank account.

Step Three – Review Your Account

After selecting the account type, you'll be presented with an overview of the account. Take the time to review the details and make sure it aligns with your needs.

Step Four – Enter Your Information

In this step, you'll need to enter your personal information, including your name, address, and social security number.

Step Five – Enter The Custodial Information

Next, you'll need to provide the custodial information, which includes the child's name, date of birth, and social security number.

Step Six – Submit Your Application

Once you've entered all the required information, you can submit your application. Ally will review your application and notify you once it's been approved.

Step Seven – Deposit Money

After your account is approved, you can make an initial deposit into the kids bank account. This will get your child's financial journey started!

Does Ally have a kid's debit card?

Yes, Ally offers a kid's debit card that can be linked to the kids bank account. This allows your child to learn about responsible spending and money management.

How old do you have to be to get an Ally bank account?

Ally requires the account holder to be at least 18 years old. However, for a kids bank account, the custodian can open the account on behalf of a minor.

Savings vs. Brokerage – What's the difference when you open a kids bank account with Ally?

When opening a kids bank account with Ally, you have the option to choose between a savings account or a brokerage account. A savings account is a safe and secure way to save money, while a brokerage account allows you to invest in stocks, bonds, and other securities.

Are Ally bank accounts free?

Yes, Ally bank accounts are free to open and maintain. They don't charge monthly maintenance fees or require a minimum balance.

Best Custodial Accounts for May 2024

If you're looking for the best custodial accounts, we've evaluated the top options in the market. Our expert-rated picks include Charles Schwab, Vanguard, Acorns, and Ally Bank.

Best Overall – Charles Schwab

Charles Schwab offers a comprehensive custodial account with a wide range of investment options and competitive fees.

Best for Mutual Funds – Vanguard

Vanguard is known for its low-cost mutual funds, making it an excellent choice for custodial accounts focused on long-term growth.

Best Robo Advisor – Acorns

Acorns provides a user-friendly platform and automated investment options, perfect for custodial accounts that want a hands-off approach to investing.

Best Custodial Bank Account – Ally Bank

Ally Bank offers custodial accounts that combine the benefits of traditional banking with investment opportunities.

Why You Should Trust Us

When choosing the best custodial accounts, we conducted extensive research and analysis. We evaluated account features, fees, customer experience, and more to provide you with reliable recommendations.

How Does a Custodial Account Work?

A custodial account is a financial account that is established and managed by a parent or guardian on behalf of a minor. The custodian has the legal authority to manage and invest the funds in the account until the minor reaches the age of majority.

When Can You Withdraw Money From a Custodial Account?

Withdrawals from a custodial account can only be made for the benefit of the minor. The custodian must use the funds for the minor's education, healthcare, or other needs.

Do Custodial Accounts Get Taxed?

Yes, custodial accounts are subject to taxes. The income generated by the account may be subject to income tax and capital gains tax.

Are Custodial Accounts FDIC insured?

Custodial accounts at Ally Bank are FDIC insured up to the maximum allowed by law. This provides an extra layer of security for your child's funds.

Is a Custodial Account a Good Idea?

A custodial account can be a great opportunity to teach kids about money and help them build a strong financial foundation. However, it's important to consider the pros and cons before opening an account.

Conclusion

A custodial account at Ally Bank is a valuable tool for parents and guardians who want to help their children develop good financial habits. Whether you choose a savings account or a brokerage account, opening a custodial account can provide your child with a head start on their financial journey. Remember to consider your child's needs and goals when deciding which type of account is right for them. With the right guidance and support, a custodial account can set your child up for a bright financial future.