Custodial Accounts
Date Added: October, 1999
By Chris Stallman
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When it
comes to investing online or through a stockbroker, you can't
just do it on your own...you actually have to have your parents
permission.
When you want to start investing in stocks, you have
to set up what is known as a custodial account.
In this account, you are named as the owner of the stocks but
a person is appointed (usually a parent or guardian) to help you
control the investments.
Keep in
mind that this does not mean that the stocks aren't yours. You
own them and you control them, but you have someone who will help
you do this, and that is your custodian.
Once you reach the age of maturity for your state (usually
18 to 21) the custodian is removed from your account and you are
given complete ownership of your account. But this doesn't mean
that you can't take the money out at any time. You can tell
your custodian that you want the money and they would have to withdraw
it from your account for you. Also, the custodian can't take
out any money from your account for himself.
I know
it might seem like a drag to have a parent controlling your account
because you want to do everything on your own but, believe me, this
has some major benefits.
Benefits
It benefits you, the young investor, by offering you
the opportunity to invest at such a young age. It also helps you
in case you come across a situation involving your investments that
you don't know how to handle. Your custodian would then help
you out.
It benefits your parents or custodian because they
are always aware of what you are investing in, which will help them
sleep better at night knowing that little Johnny isn't risking
all of his college money on a hot stock tip.
Disadvantages
For your parents or custodian, once they put money
in your custodial account, they can't take it back. So if you
decide to spend the money on that brand new sports car rather than
your college education, they can't control that. So a lot of
trust has to be given to you before they will risk that money.
Now that you know what kind of account to set up, you
can talk to your parents about setting up a custodial account for
you to get started in investing!
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