Robert Brokamp

So it's generally better to go with the Atma if you can, but it does depend on your state because not every state allows the Atma.

What are the pros of these?

First of all, investment flexibility.

It's a brokerage account, so you can pretty much buy whatever you want.

Also, UTMA is allowed for investments in real estate and alternative assets.

There are some tax advantages for unearned income.

This is the so-called kiddie tax that applies to anyone who is under the age of 18 or under the age of 24 if they are a full-time student.

There's also rules regarding

whether they have so much earned income that it exceeds 50% of their support, which doesn't apply to most people.

But basically, the tax advantages are that the first $1,350 of unearned income, that's capital gains, dividend, and interest, is tax-free.

And then the next $1,350 is taxed at the child's rate.

And then beyond that, it's taxed at the parent's rate.

And I should point out that these numbers change every year.

And another benefit of custodial accounts is there's no contribution limits.

You can contribute as much as you want.

However, there could be gift tax consequences.

That is, in 2026, if one person gives another person more than $19,000, they have to report it on Form 709.

Generally, you don't have to owe taxes because that just then eats into your unified lifetime gift and estate tax exclusion, which is $15 million per person, twice that if you're married.

It's generally not an issue for most people, but it probably does mean you have to file an extra form if you give more than $19,000.

So what are the downsides of custodial accounts?