Custodial Accounts

Any adult can open a custodial account for a child, as long as they know the child's name, Social Security number and date of birth. This can include parents, grandparents, aunts and uncles and even family friends. In fact, any adult can make contributions to these accounts, as long as they do not exceed any contribution limits.

This depends on the type of account you're using as well your own personal tax situation. Different types of custodial accounts are treated differently from a tax perspective. In general, if taxes are owed, the child will likely be responsible for paying the taxes (although the parent may have to file on their behalf). But there are certain cases where the parent may owe tax.

The minor (beneficiary) owns the assets—including cash, investments and insurance policies—held in a custodial account. The account's custodian manages these assets until the child reaches adulthood. The exact age of adulthood varies by state.

It depends on the type of custodial account.

• Withdrawals from UGMA or UTMA accounts are penalty-free as long as the funds are used for the benefit of the child.
• Withdrawals from Coverdell ESAs are penalty-free when they're used to pay for qualified educational expenses.
• Contributions can be withdrawn from a custodial Roth IRA at any time, but withdrawing earnings before the age of 59½ can trigger penalties and taxes.
• Withdrawals from a custodial brokerage account don't incur penalties as long as withdrawals are used for the benefit of the child.

It depends on the type of custodial account. Money in a Coverdell ESA must be used for qualified educational expenses. But money in an UTMA or UGMA account, custodial Roth IRA or custodial brokerage account can generally be used for any purpose. If funds are withdrawn before the child becomes an adult, they must typically be used to benefit the child.

When a child fills out the Free Application for Federal Student Aid (FAFSA), any assets they own will be assessed at 20%. This includes money in most custodial accounts. The exceptions are:

• Custodial Roth IRA assets, which are assessed at 0%, and
• 529 or Coverdell accounts, which are treated as parental assets and assessed at 5.64%.

While it's technically not a custodial account, cash value that's accumulated in a permanent life insurance policy is also not counted as an asset for the purposes of calculated student aid.

Yes. Northwestern Mutual offers a number of different account types to help you save and invest for your child's future. Your Northwestern Mutual financial advisor can help you learn more.