Individual Account
An individual account is a type of account that allows a person to buy and sell various kinds of investment securities, such as stocks, bonds, ETFs, and mutual funds. An individual brokerage account is owned and managed by one account holder, who has sole rights and ownership of the assets in it. Individual accounts are taxable.
Joint Owner Account
A joint owner account is an account shared by two or more individuals. Joint account holders have equal access to funds but also share equal responsibility for any fees or charges incurred. Transactions conducted through the account to trade securities may require the signature of all parties or just one, depending on how the account is set up.
Trust Account
An account in trust or a trust account refers to a type of financial account that is opened by an individual and managed by a designated trustee for the benefit of a third party. This type of account usually is guided by a legal arrangement (such as legal trust documents) to ensure the assets of the account are distributed according to creator or grantor of the trust.
Minor Account
A custodial account established for a minor that allows you to give money to a minor while maintaining control over the money until the child reaches age of majority or the custodianship terminates. The legal age in most states is 18 or 21, although some states allow custodianships to continue to age 25. Gifts and transfers to a minor account are irrevocable and funds must be spent to benefit the child, and donors are prohibited from ever taking the money back for other uses or for another child. When the custodianship terminates, the money must be turned over to the former minor to use as he or she sees fit.
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Uniform Transfers to Minors Account (UTMA)
A custodial account that can hold almost any kind of asset including, stocks, bonds, ETFs, mutual funds, insurance policies, real estate, art, and cars.
Uniform Gifts to Minors Account (UGMA)
A custodial account that can hold securities limited to financial products such as stocks, bonds, mutual funds and insurance policies.
In contrast, 529 plans and Coverdell ESAs give much greater control to the account owner, typically a parent, over how the funds are used, including the ability to change beneficiaries as the need arises. The main limitation being that the funds must be used specifically for certain education expenses to receive tax advantages.
The key is knowing how and under which circumstances to use the various options. For example, custodial accounts can supplement a 529 plan or an ESA for a child’s college education. If a parent wants to set aside money for college expenses that aren’t covered by an ESA or 529 plan—sorority dues or car repairs, for example—a custodial account may be helpful.
Unlike 529 plans and ESAs, custodial accounts are subject to the so-called “kiddie tax.” This tax rule applies to unearned income (i.e., investment income) up to a certain threshold. Over that threshold, the child will pay taxes at the parent’s tax rate.