A custodial account is a financial account set up and managed by an adult (the custodian) on behalf of a minor or another individual who is unable to manage their own finances. In the context of Roots, a custodial account allows an adult, such as a parent or guardian, to invest in real estate on behalf of a minor, helping to build wealth for their future.
Key Features of a Custodial Account:
- Custodian Management: The custodian (typically a parent or guardian) has control over the account, making all investment decisions until the minor reaches the age of majority (usually 18 or 21, depending on the jurisdiction).
- Beneficiary Ownership: Although the custodian manages the account, the assets within the custodial account legally belong to the minor beneficiary. Once the beneficiary reaches the age of majority, they gain full control of the account.
- Long-Term Investment: Custodial accounts are often used as a way to invest for the long term, such as for educational expenses or other future financial needs.
- Tax Implications: Earnings within a custodial account are generally taxed at the minor’s tax rate, which is often lower than the custodian’s rate. However, there are specific rules and limits regarding taxation of custodial accounts.
How to Set Up a Custodial Account with Roots:
- To set up a custodial account with Roots, the custodian must first log in to their Roots account. From there, they can create a new investor profile under the “Create New Investor” option in the profile dropdown menu.
- Follow the prompts to set up the custodial account, entering the necessary information for both the custodian and the minor beneficiary.
- Once the account is set up, the custodian can begin investing on behalf of the minor, with all investments and returns being managed within the custodial account until the beneficiary reaches the age of majority.