TD Ameritrade Custodial Account vs Fidelity and Charles Schwab

If you're considering opening a custodial account for a minor, you're likely weighing your options between TD Ameritrade, Fidelity, and Charles Schwab.

TD Ameritrade's custodial account allows minors to invest in a wide range of assets, including stocks, ETFs, and mutual funds.

The minimum deposit required to open a TD Ameritrade custodial account is $100, which is lower than the minimum deposit required by Fidelity and Charles Schwab.

TD Ameritrade also offers a range of educational resources and tools to help minors learn about investing and managing their accounts.

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A custodial account is a type of investment account that allows you to save for your child's future while they're still young.

Most custodial accounts are either Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA) accounts.

These accounts work like regular taxable brokerage accounts, but with a twist: the custodian, which is usually you or another family member, has control over the account until the child reaches the age of majority in your state.

Major brokers like TD Ameritrade, Fidelity, Merrill Edge, and Vanguard offer custodial accounts.

Many parents choose to open a custodial account to start investing for their child's future, and it's a great way to teach them about the value of saving and investing.

The custodian can make contributions and invest the money into stocks, bonds, or mutual funds to grow the account balance.

This can be a valuable learning experience for parents as well, helping you understand the ins and outs of investing and how to make smart financial decisions for your child's future.

Opening a custodial brokerage account is a relatively straightforward process. Parents, grandparents, and guardians can open a custodial account at virtually any brokerage or financial institution.

These financial institutions set the terms of the accounts, including initial investment requirements, minimum account balances, interest rates, and management fees. The terms are usually similar to those of the firm's standard accounts.

The minimum balance to open a UTMA custodial account generally ranges from $500 to $2,000.

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Custodial brokerage accounts are like regular taxable brokerage accounts, but with a custodian in control until the child reaches the age of majority in their state.

These accounts are often Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA) accounts, which allow the custodian to make contributions and invest the money in stocks, bonds, or mutual funds.

Most major brokers, such as TD Ameritrade, Fidelity, Merrill Edge, and Vanguard, offer custodial accounts, making it easy to get started.

Both Fidelity and TD Ameritrade offer excellent customer service. Fidelity has a 24/7 phone line that's always available to assist with any questions or concerns.

You can also reach out to Fidelity through its online chat feature, although it's only available during limited hours. This is a convenient option for those who prefer to communicate online.

TD Ameritrade, on the other hand, offers 24/7 phone support, so you can get help whenever you need it.

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Both Fidelity and TD Ameritrade offer robust security features to protect your custodial brokerage account.

You can log in to the apps using biometric recognition, such as face or fingerprint recognition, for an added layer of security.

Fidelity carries an excess of SIPC insurance with a per-customer limit of $1.9 million on cash awaiting investment, the maximum excess SIPC protection currently available in the brokerage industry.

TD Ameritrade's excess of SIPC insurance provides each client with $152 million worth of protection for securities and $2 million of protection for cash.

This insurance covers investors beyond what the SIPC provides, which is $500,000 of protection and $250,000 for cash, and protects you if the brokerage should go bankrupt or fail.

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Both TD Ameritrade and Charles Schwab offer comprehensive and accessible research features on their platforms.

TD Ameritrade has a unique Bond Wizard, which is a valuable tool for investors looking to analyze bonds.

The Schwab platform offers proprietary Schwab stock lists, in addition to screeners and in-depth stock research tools.

Both platforms provide a wealth of technical and fundamental research and charting tools for traders.

Most investors will be content with the research amenities on either site, especially since they will be merged within a year or so.

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A custodial account with TD Ameritrade can provide greater control over how your child's money is invested and spent.

The main reason to open a custodial account is to take advantage of the gift tax exclusion to grow your investments for your child.

Unlike a 529 plan, a custodial account offers more flexibility in how the funds can eventually be spent, as your child can use the money for any expense, not just education.

However, a custodial account is subject to a "kiddie tax" on unearned income over $2,500, taxed at the parents' tax rate.

This means that if you know you're only investing for your child's future education, a 529 plan will offer greater tax-deferred growth.

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If you're under 19 years of age, your custodial account income is taxed at a relatively low rate.

You can save thousands of dollars by investing in accounts with tax advantages, especially if you're under 19.

Here's how the taxes on your custodial account income break down:

Investing in a retirement account can save you even more money on taxes.

Custodial brokerage accounts offer a way to grow your child's investments while providing greater control over how the money is invested and spent.

The main reason to open a custodial account is to take advantage of the gift tax exclusion to grow your investments for your child.

A UTMA account offers fewer tax benefits compared to a Roth IRA or a 529 plan. Unlike 529 plans, custodial accounts are subject to a "kiddie tax" on unearned income up to a certain threshold.

For 2023, any unearned income over $2,500 is taxed at the parents' tax rate. Once money goes into a custodial account, it can't be taken back.

A UTMA provides more flexibility in how your child's funds can eventually be spent, unlike a 529 plan which requires the funds be used to pay for their education.

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