Do you want to secure your child's financial future and teach them about investing from a young age? A custodial account on E*TRADE can be an excellent tool for this! It allows you, as an adult, to manage investments on behalf of a minor until they reach the age of majority.
This comprehensive guide will walk you through every step of opening a custodial account on E*TRADE, from understanding what it is to funding and managing it. Let's get started!
What is a Custodial Account?
Before we dive into the "how-to," let's understand what a custodial account truly is. A custodial account, often referred to as a UGMA (Uniform Gift to Minors Act) or UTMA (Uniform Transfers to Minors Act) account, is a type of investment account opened by an adult (the "custodian") for the benefit of a minor (the "beneficiary").
The key characteristic is that the assets held in the account are an irrevocable gift to the minor. While you, as the custodian, manage the account and make investment decisions, the money legally belongs to the child. Once the child reaches the "age of majority" (which varies by state, typically 18 or 21), they gain full control of the account and its contents.
Why consider a custodial account?
Financial Head Start: It's a fantastic way to start investing for a child's future, whether for college, a first home, or general wealth building.
Financial Education: It provides a practical platform to teach children about investing, compounding, and financial responsibility.
Wealth Transfer: It allows for direct wealth transfer to a minor without the complexities of setting up a formal trust.
Flexibility: Unlike some education-specific accounts (like 529 plans), UGMA/UTMA accounts generally have fewer restrictions on how the funds can be used once the minor gains control.
Now that we've covered the basics, let's embark on the journey of opening your E*TRADE custodial account!
Step 1: Are You Ready to Invest in Their Future? (Pre-Application Considerations)
Before you even visit the E*TRADE website, let's ensure you're fully prepared. Opening a custodial account involves a commitment, so it's wise to consider a few things first.
Understanding the Custodian's Role
As the custodian, you're the designated manager. This means:
You make all the investment decisions until the child reaches the age of majority.
You have a fiduciary duty to manage the account for the minor's benefit. This means you must act in their best interest, not your own.
The assets are an irrevocable gift. Once funds are in the custodial account, they belong to the minor and cannot be reclaimed by you, even if circumstances change.
Gathering Essential Information
To streamline the application process, have the following information readily available for both yourself (the custodian) and the minor (the beneficiary):
For the Custodian:
Full Legal Name
Social Security Number (SSN) or Tax Identification Number (TIN)
Date of Birth
Residential Address (P.O. boxes are typically not accepted for physical addresses)
Contact Information (phone number, email address)
Employment Information (employer's name and address)
Financial Information (e.g., net worth, annual income – for regulatory purposes)
Government-issued ID (e.g., Driver's License, State ID, Passport) for identity verification.
For the Minor Beneficiary:
Full Legal Name
Social Security Number (SSN)
Date of Birth
Residential Address (often the same as the custodian)
Pro Tip: Having these details at your fingertips will significantly speed up the online application process and prevent frustrating delays.
Step 2: Navigating to E*TRADE and Initiating the Account Opening Process
Ready to take the plunge? Let's head to the E*TRADE platform.
Accessing the E*TRADE Website
Open your web browser and go to the official ETRADE website. You can usually find it by searching "ETRADE" or directly typing
us.etrade.com.Look for a prominent button or link that says "Open an Account" or "Open New Account." This is usually located in the top right corner or center of the homepage.
Selecting the Account Type
After clicking "Open an Account," you'll typically be presented with various account types. You'll need to select the option for a "Custodial Account" or something similar, often categorized under "For a minor" or "Youth accounts." E*TRADE specifically offers "IRA for Minors" and general brokerage custodial accounts. For a standard investment account for a child, you'll generally be looking for the UGMA/UTMA option.
Read any brief descriptions provided to ensure you're selecting the correct account type.
Step 3: Completing the Online Application Form
This is where you'll input all the information you gathered in Step 1. Take your time and be accurate!
Providing Personal Information (Custodian)
Enter your personal details as the custodian. This will include your full name, SSN, date of birth, and contact information.
You'll also need to provide your residential address. Be sure this matches your identification documents.
Answer questions related to your employment status and financial background. This is standard for all brokerage accounts and helps E*TRADE understand your suitability for certain investments.
Entering Minor's Information (Beneficiary)
You will then be prompted to provide the minor's full legal name, their Social Security Number, and their date of birth.
The minor's address will typically be assumed to be the same as the custodian's, but you may have an option to specify if it's different.
You might be asked to specify the state's Uniform Gift/Transfer to Minors Act that applies, which dictates the age of majority for the account. E*TRADE usually defaults this based on your state of residence.
Financial and Investment Experience Questions
E*TRADE, like other financial institutions, has regulatory requirements to understand your investment objectives and risk tolerance. You'll be asked questions about:
Your investment goals (e.g., growth, income, speculation).
Your time horizon for investing.
Your experience with different investment products (stocks, bonds, mutual funds, options, etc.).
Your comfort level with investment risk.
Important Note: Be honest and accurate in your responses. This helps ETRADE tailor suitable investment options and ensure you understand the risks involved.*
Step 4: Reviewing Agreements and Disclosures
This is a crucial step that many people rush through, but it's extremely important.
Reading the Fine Print
You will be presented with various agreements and disclosures, including:
E*TRADE Account Agreement: The terms and conditions governing your account.
UGMA/UTMA Disclosure: Specific rules and regulations pertaining to custodial accounts, including the irrevocability of gifts and the transfer of assets to the minor at the age of majority.
Privacy Policy: How E*TRADE handles your personal information.
Fee Schedule: Details of any potential fees associated with the account and trading.
Take the time to read these documents carefully. Understand your rights, responsibilities, and any potential charges.
You will typically need to check a box or digitally sign to confirm that you have read, understood, and agree to these terms.
Step 5: Funding Your Custodial Account
Once your application is submitted and approved, the next step is to fund the account so you can start investing! E*TRADE offers several convenient funding methods.
Initial Deposit Options
Electronic Funds Transfer (EFT) / ACH Transfer: This is usually the easiest and most common method. You can link your bank account to your E*TRADE custodial account and transfer funds directly.
You'll typically need your bank account number and routing number.
Transfers usually take 1-3 business days to clear.
Bank Wire Transfer: For larger or more urgent deposits, you can initiate a wire transfer from your bank.
E*TRADE will provide you with specific wire transfer instructions.
Wire transfers are generally faster but may incur fees from your bank.
Check Deposit: You can mail a check to E*TRADE.
Ensure the check is made payable to "ETRADE for the benefit of [Minor's Name]" or as otherwise instructed by ETRADE.
This method is the slowest.
Transfer from Another Brokerage Account (ACATS): If you already have a custodial account at another financial institution, you can initiate a transfer of assets (ACATS - Automated Customer Account Transfer Service) to your new E*TRADE custodial account.
This typically involves filling out a transfer form with E*TRADE and providing information about your existing account.
This process can take 1-2 weeks.
Key Consideration: Remember that contributions to a custodial account are considered gifts. Be aware of annual gift tax exclusion limits ($19,000 per individual in 2025). While most people won't owe gift taxes due to the high lifetime exclusion, it's something to keep in mind, especially for large contributions.
Step 6: Setting Up Your Online Access and Exploring Investment Options
Congratulations! Your custodial account is open and funded. Now it's time to set up your online access and begin investing.
Creating Your User ID and Password
If you haven't already, you'll be prompted to create a unique User ID and a strong password for your E*TRADE account.
Set up any two-factor authentication (e.g., text message codes, authenticator app) for enhanced security.
Navigating the E*TRADE Platform
Log in to your new E*TRADE account. Familiarize yourself with the dashboard and navigation.
You'll typically see sections for:
Account Summary: Overview of your account balance, holdings, and recent activity.
Trading: Where you'll place buy and sell orders for investments.
Research & Tools: Access to investment research, screening tools, and educational resources.
Transfers & Payments: For managing deposits, withdrawals, and internal transfers.
Exploring Investment Options
E*TRADE offers a wide array of investment products suitable for a custodial account:
Stocks: Individual company shares.
Exchange-Traded Funds (ETFs): Diversified baskets of securities that trade like stocks.
Mutual Funds: Professionally managed portfolios of stocks, bonds, or other investments.
Bonds: Debt instruments issued by governments or corporations.
Certificates of Deposit (CDs): Savings accounts with a fixed interest rate for a set period.
Considerations for Investment Selection:
Long-Term Growth: Since the account is for a minor, you generally have a long time horizon, which allows for potentially more aggressive growth-oriented investments.
Diversification: Don't put all your eggs in one basket. Diversify your investments across different asset classes and industries.
Risk Tolerance: While it's for a child, consider your own comfort level with risk as the manager.
Rebalancing: Periodically review the portfolio and rebalance it to maintain your desired asset allocation.
Step 7: Ongoing Management and Monitoring
Opening the account is just the beginning. Effective ongoing management is key to maximizing its benefits.
Regular Monitoring
Check account statements: Review your monthly or quarterly statements from E*TRADE to track performance and ensure accuracy.
Monitor investments: Keep an eye on the performance of the investments within the account. E*TRADE provides tools and research to help with this.
Consider automated investing options if E*TRADE offers them for custodial accounts, such as robo-advisory services, which can manage the portfolio based on your risk profile.
Contributions
You can continue to contribute to the custodial account as often as you like, keeping the annual gift tax exclusion in mind.
Set up recurring deposits from your linked bank account to automate contributions and leverage dollar-cost averaging.
Taxes
The minor is the owner of the account for tax purposes. This means any unearned income (dividends, interest, capital gains) generated within the account is generally taxed at the child's tax rate up to a certain threshold (the "Kiddie Tax" rules apply).
Consult a tax advisor for specific guidance on how custodial account earnings will affect your family's tax situation, as rules can be complex and change annually.
Transition at Age of Majority
When the minor approaches the age of majority in their state, E*TRADE will typically notify you.
You will then need to facilitate the transfer of ownership of the account to the now-adult beneficiary. The process will involve updating account information and changing the account type from custodial to individual.
10 Related FAQ Questions:
Here are some frequently asked questions about E*TRADE custodial accounts, answered quickly:
How to transfer assets to an E*TRADE custodial account?
You can transfer assets via Electronic Funds Transfer (EFT/ACH), bank wire, mailing a check, or initiating an ACATS (Automated Customer Account Transfer Service) if you're transferring from another brokerage.
How to find the age of majority for my state for a UGMA/UTMA account?
The age of majority for UGMA/UTMA accounts varies by state, typically between 18 and 21. E*TRADE will usually apply the age of majority for your state of residence when you open the account. You can also research your specific state's UGMA/UTMA laws.
How to withdraw money from an E*TRADE custodial account?
As the custodian, you can initiate withdrawals from the account, but the funds must be used for the benefit of the minor beneficiary. E*TRADE typically does not require special forms for withdrawals, and you can generally transfer funds to your linked bank account.
How to view statements for my E*TRADE custodial account?
You can access your account statements digitally by logging into your E*TRADE account online and navigating to the "Statements & Documents" or similar section.
How to change the custodian on an E*TRADE custodial account?
Changing a custodian typically involves a specific process and forms provided by ETRADE, often requiring documentation like a court order if the change is due to death or incapacity of the original custodian. Contact ETRADE directly for guidance.
How to close an E*TRADE custodial account?
A custodial account typically cannot be closed until the minor reaches the age of majority and the assets are transferred to them, or if the funds are fully spent for the minor's benefit. Contact E*TRADE customer service for specific procedures if you need to close it prematurely under specific circumstances.
How to avoid gift taxes when contributing to a custodial account?
Contributions are subject to annual gift tax exclusion limits (e.g., $19,000 per individual in 2025). To avoid filing a gift tax return, ensure your contributions per beneficiary per year do not exceed this limit. Spouses can "gift split" to double this amount.
How to choose investments for a custodial account on E*TRADE?
Consider the minor's long-term horizon, your risk tolerance, and diversify across various asset classes like stocks, ETFs, mutual funds, and bonds, using E*TRADE's research tools and resources.
How to understand the tax implications of an E*TRADE custodial account?
Earnings (interest, dividends, capital gains) are generally taxed under "Kiddie Tax" rules, where a portion is tax-free, another portion taxed at the child's rate, and amounts above a certain threshold are taxed at the parent's rate. Consult a tax advisor for personalized advice.
How to transition the E*TRADE custodial account to the minor when they reach adulthood?
When the minor reaches the age of majority, E*TRADE will notify you. You'll typically need to complete paperwork to transfer legal control of the account to the now-adult beneficiary, converting it into an individual brokerage account in their name.
