A Charles Schwab custodial account (UGMA/UTMA) lets parents and guardians invest on behalf of a minor child. Schwab offers these accounts with no minimum balance, $0 stock and ETF commissions, and access to its full range of investments — including Schwab’s own low-cost ETFs like SCHB (0.03%) and SCHD (0.06%).
What Is a Schwab Custodial Account?
A Schwab custodial account is a brokerage account opened under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA). The adult custodian manages the account until the child reaches the age of majority — typically 18 in most states, up to 21 in some states under UTMA — at which point assets transfer outright to the child.
Key features:
| Feature | Detail |
|---|---|
| Account types | UGMA or UTMA |
| Minimum to open | $0 |
| Monthly fee | $0 |
| Commissions (stocks/ETFs) | $0 |
| Investment options | Stocks, ETFs, mutual funds, bonds, CDs |
| Fractional shares | Yes (Schwab Stock Slices, $5 min, S&P 500 stocks) |
| Schwab ETFs available | SCHB, SCHD, SCHX, SCHF, and more |
| Control transfers | At state age of majority (18–21) |
Investment Options at Schwab
A Schwab custodial account provides access to Schwab’s full investment platform:
- Stocks — any US-listed stock, including fractional shares (S&P 500 stocks, $5 minimum)
- ETFs — all major ETFs commission-free; Schwab’s own low-cost ETFs (SCHB, SCHD, SCHX) are especially suitable for long-term investing
- Mutual funds — thousands of no-transaction-fee mutual funds
- Bonds and CDs — Treasuries, corporate bonds, CDs through Schwab BondSource
- Options — subject to custodian approval and appropriate account permissions
Best Schwab ETFs for a Custodial Account
| ETF | Expense ratio | Strategy |
|---|---|---|
| SCHB | 0.03% | US Total Market (like VTI) |
| SCHX | 0.03% | US Large Cap (like VOO) |
| SCHD | 0.06% | US Dividend Quality |
| SCHF | 0.06% | International Developed Markets |
| SCHZ | 0.03% | US Bond Market |
A simple two-fund portfolio for a child: SCHB (US stocks) + SCHF (international stocks) at a combined cost of 0.03%–0.06% per year.
Tax Rules for Schwab Custodial Accounts
Custodial accounts are taxable. The Kiddie Tax applies to unearned income (dividends, capital gains) for children who are dependents under 19 (or under 24 if a full-time student):
| Income tier (2026) | Tax rate |
|---|---|
| First $1,300 unearned income | 0% (tax-free) |
| Next $1,300 | Child’s marginal rate (usually low) |
| Above $2,600 | Parent’s marginal tax rate |
Practical impact: For small accounts generating limited dividends, Kiddie Tax is minimal. For large accounts or high-yield strategies, it can be significant.
Schwab Custodial Account vs. Schwab 529 Plan
| Feature | Custodial account | 529 Plan |
|---|---|---|
| Tax on growth | Taxable (Kiddie Tax) | Tax-free if used for education |
| Use of funds | Any purpose | Education (or 10% penalty) |
| Control after majority | Child owns outright | Parent retains control |
| FAFSA impact | Up to 20%/year | Up to 5.64%/year |
| Investment flexibility | Unrestricted | Plan options only |
For college savings, a 529 plan is usually more tax-efficient. For general wealth transfer to a child (not specifically for education), a custodial account offers more flexibility.
FAFSA Impact
Custodial account assets count as the student’s assets on the FAFSA, reducing financial aid eligibility by up to 20% of the account value per year. This is more impactful than a parent-owned 529 plan (5.64% per year). Families expecting to need financial aid should weigh this carefully.
Worked Example: Starting a Custodial Account at Birth
A grandparent opens a Schwab custodial account for a newborn and contributes a one-time $5,000, then $100/month in SCHB (US Total Market, 0.03%):
| Age | Total contributions | Estimated value at 7% annualised |
|---|---|---|
| 5 | $11,000 | ~$16,500 |
| 10 | $17,000 | ~$32,000 |
| 18 | $26,600 | ~$72,000 |
At 18, $72,000 transfers to the child — an 18-year head start on wealth building.
How to Open a Schwab Custodial Account
- Log in to Schwab (or create an account at schwab.com)
- Navigate to “Open an Account” → “Custodial Account”
- Provide your information as custodian and the minor’s Social Security Number
- Fund the account via bank transfer, check, or transfer from another account
- Select investments — SCHB is a simple, low-cost starting point
Internal Links
- SCHB ETF 2026 review
- SCHD ETF 2026 review
- Schwab 529 plan guide
- How to open a Schwab account
- Schwab vs. Fidelity: full comparison
- Charles Schwab investing hub
Bottom Line
A Charles Schwab custodial account is an excellent vehicle for investing on behalf of a child. With $0 minimums, $0 commissions, and access to Schwab’s own ultra-low-cost ETF lineup, you can build a well-diversified portfolio at minimal cost. The main considerations are the FAFSA impact (counts as student asset) and the irrevocability — once assets are contributed, they belong to the child. For families focused on long-term wealth building rather than financial aid optimisation, Schwab’s custodial account is a compelling choice.
This article is for educational purposes only. Consult a 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