A Fidelity custodial account (UGMA/UTMA) allows parents and guardians to invest on behalf of a minor child. The adult controls the account until the child reaches the age of majority, then the assets transfer to the child outright. Fidelity offers custodial accounts with no account minimums, $0 commissions, and access to its full investment platform — including Fidelity ZERO funds at 0.00% expense ratio.
What Is a UGMA/UTMA Custodial Account?
A custodial account is a brokerage account held in a minor’s name, managed by an adult custodian:
- UGMA (Uniform Gifts to Minors Act) — the original custodial structure; limited to financial assets (stocks, ETFs, mutual funds, cash)
- UTMA (Uniform Transfers to Minors Act) — an expanded version that allows real estate and other property; the standard in most states today
Both allow you to invest money on behalf of a child using the child’s Social Security Number. The assets legally belong to the child, but the custodian (parent or guardian) makes all investment decisions until the minor reaches the age of majority — typically 18 in most states, 21 in some under UTMA.
Key difference from the Fidelity Youth Account: The UGMA/UTMA custodial account is a formal trust structure. The Fidelity Youth Account (for teens 13–17) is owned directly by the teen with parental oversight. Both serve different purposes.
Fidelity Custodial Account: Key Features
| Feature | Detail |
|---|---|
| Account type | UGMA or UTMA (varies by state) |
| Who can open | Any adult for any minor US resident |
| Minimum to open | $0 |
| Commission on stocks/ETFs | $0 |
| Investment options | Stocks, ETFs, mutual funds, bonds |
| Fidelity ZERO funds available | Yes (FZROX, FZILX at 0.00%) |
| Monthly fee | $0 |
| Age of majority | State-dependent (18–21) |
| Account control transfer | Automatic at age of majority |
What Can You Invest In?
Through a Fidelity custodial account, you can invest in:
- US stocks (including fractional shares)
- ETFs (VOO, VTI, SCHD, and any other ETF)
- Fidelity mutual funds including:
- FZROX — Fidelity ZERO Total Market Fund (0.00% expense ratio)
- FZILX — Fidelity ZERO International Index (0.00% expense ratio)
- FXAIX — Fidelity 500 Index Fund (0.015%)
- Bonds (US Treasuries, CDs)
- Options (custodian may have limited options access depending on account settings)
The ability to invest in Fidelity ZERO funds at zero cost makes Fidelity custodial accounts among the most cost-efficient for long-term investing.
Tax Treatment of a Fidelity Custodial Account
Custodial accounts are taxable brokerage accounts. Understanding the tax rules is essential:
The Kiddie Tax (2026 thresholds)
For children who are dependents, unearned income (dividends, capital gains distributions) in a custodial account is taxed as follows:
- First $1,300 — tax-free
- Next $1,300 — taxed at the child’s (lower) tax rate
- Above $2,600 — taxed at the parent’s marginal tax rate
The Kiddie Tax applies to children under 19 (or under 24 if a full-time student). For small custodial accounts generating modest income, the tax burden is minimal. For large accounts generating substantial dividends, the parent’s tax rate applies to most of it.
Capital Gains
If you sell stocks inside the custodial account at a gain, the capital gains are reported on the child’s tax return. Long-term capital gains may be taxed at 0% if the child’s income (including the gains) falls below the threshold.
Tax tip: For taxable custodial accounts, low-cost, low-turnover funds like FZROX or VOO minimise annual dividend distributions and capital gains events.
Impact on College Financial Aid (FAFSA)
This is a critical consideration for families expecting to apply for college financial aid:
| Asset type | FAFSA impact |
|---|---|
| UGMA/UTMA custodial account | Up to 20% of value per year |
| 529 plan (parent-owned) | Up to 5.64% of value per year |
| Roth IRA (parent-owned) | 0% (not counted) |
A $50,000 custodial account can reduce financial aid eligibility by $10,000/year. A $50,000 parent-owned 529 plan reduces aid by only $2,820/year. Families who plan to apply for need-based aid should carefully compare custodial accounts vs. 529 plans.
Custodial Account vs. 529 Plan vs. Fidelity Youth Account
| Feature | Custodial (UGMA/UTMA) | 529 Plan | Youth Account |
|---|---|---|---|
| Who owns it | Child (via custodian) | Parent/beneficiary | Teen (13–17) |
| Control after majority | Child owns outright | Parent retains control | Converts to adult account |
| Tax on growth | Taxable (Kiddie Tax) | Tax-free if used for education | Taxable |
| Use of funds | Any purpose | Education only (or 10% penalty) | Any purpose |
| FAFSA impact | High (20%) | Lower (5.64%) | High (student asset) |
| Investment options | Any (stocks, ETFs, funds) | Limited to plan options | Stocks, ETFs, Fidelity funds |
| Best for | General wealth transfer | College savings | Teen financial education |
Worked Example: 18-Year Head Start
A parent opens a Fidelity custodial account at a child’s birth and contributes $200/month into FZROX (0.00% expense ratio, broad US market):
| Age of child | Total contributions | Estimated value at 7% annualised |
|---|---|---|
| 5 | $12,000 | ~$14,400 |
| 10 | $24,000 | ~$34,600 |
| 18 | $43,200 | ~$88,000 |
| 21 | $50,400 | ~$115,000 |
At age 21 (or 18 in most states), the $115,000+ transfers entirely to the child. This demonstrates the power of early, consistent investing.
How to Open a Fidelity Custodial Account
- Log in to Fidelity (or create an account)
- Navigate to “Open an Account” → “Custodial Account”
- Provide your information as custodian and the minor’s Social Security Number
- Fund the account (bank transfer, check, or ACATS transfer)
- Begin investing — select Fidelity ZERO funds for $0 cost, or any ETF/stock
Note: If you’re the minor’s parent but don’t yet have a Fidelity account, you must open one first. The Fidelity Youth Account is an alternative for teens 13–17 who want to manage their own investing with parental oversight.
Internal Links
- Fidelity Youth Account guide (teens 13–17)
- Fidelity 529 plan guide
- Fidelity ZERO funds: FZROX and FZILX explained
- Open a Fidelity account
- FXAIX vs. VOO: which S&P 500 fund?
- Fidelity investing hub
Bottom Line
A Fidelity custodial account is one of the most powerful wealth-building tools a parent can create for a child. With $0 minimums, $0 commissions, and access to Fidelity ZERO funds at 0.00%, the cost drag is virtually eliminated. The main caveats are the FAFSA impact (20% of value counts against financial aid) and the irrevocability — once assets are contributed, they belong to the child. For families not relying on need-based financial aid, a Fidelity UGMA/UTMA custodial account is an excellent long-term wealth transfer vehicle.
This article is for educational purposes only. Consult a financial advisor or tax professional for personalised guidance. All investments carry risk, including the possible loss of principal.
The content on Wealthvieu is for informational purposes only and should not be considered financial, tax, or investment advice. Consult a qualified professional before making financial decisions. Full disclaimer · Editorial policy