Vanguard Custodial Account
Published Aug. 27, 2024
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Vanguard is best known for its low-cost index funds, but it's also a fully functional online broker where account holders can buy and sell stocks, bonds, mutual funds, ETFs, options, CDs, and more. It offers a variety of account types, including custodial accounts for investing on behalf of minors.
Let's explore what Vanguard custodial accounts are, how to open them, and much more.
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Vanguard is one of the best brokerages for passive investors who want to buy low-cost index fund ETFs. It also offers thousands of no-transaction-fee mutual funds, and excellent zero-commission options for buying stocks online, with no account minimums for brokerage accounts. Vanguard tries to keep its costs and expense ratios low so investors (like you) can keep more of your returns.
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Having a custodial account through the Vanguard platform offers a variety of perks:
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Opening a Vanguard custodial account is a quick and easy process. You'll need some basic documentation, as well as a source of funds for the account.
Before you open a Vanguard custodial account, you'll need to gather some basic information:
It's also worth noting that you'll need information for both the custodial (the person opening the account), as well as the account owner (the minor).
Setting up a Vanguard custodial account for a child is a quick process, and involves three basic steps:
Money in a custodial account can be invested in virtually any stocks, bonds, mutual funds, ETFs, money market funds, or CDs offered by a particular broker. Without getting into specific investments to buy in a UGMA or UTMA custodial account, there are some general strategies to keep in mind:
A Vanguard custodial account can be opened under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA). The account can be opened under the rules of any of the 50 states, and the age of majority or age at which the custodianship ends depends on the state's rules.
Accounts may be opened as:
For most purposes, these account types are identical. The biggest difference between the two is that UGMA accounts are designed to hold cash, stocks, bonds, and mutual funds, while UTMA accounts can hold a wider range of assets, including things like real estate, patents, royalties, and more. But for those opening a custodial account through a broker like Vanguard, they are essentially the same thing.
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Yes, Vanguard offers both UGMA and UTMA custodial accounts to allow adults to invest on behalf of minors. Vanguard also offers 529 plans to allow parents and other adults to save and invest for the specific purpose of paying for education.
Once the account owner (child) turns 18, or whatever the age of majority is in their state, the custodianship of the account terminates. In some situations, the custodian can choose between certain ages for the custodianship to terminate (18 and 21 are common choices). Once this happens, the account simply becomes an ordinary brokerage account controlled by the named account owner.
There are two major differences between Vanguard custodial accounts and 529 plans. First, 529 plans are used to save and invest for a specific purpose (education), while investments in a custodial account can be used for any purpose. Second, assets in a 529 plan are the legal property of the parent, or whomever opens the account. Assets in a custodial account are the legal property of the minor.
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Vanguard disclosures
Visit vanguard.com to obtain a prospectus or, if available, a summary prospectus, for Vanguard and non-Vanguard funds offered through Vanguard Brokerage Services. The prospectus contains investment objectives, risks, charges, expenses, and other information; read and consider carefully before investing.
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