Wealthfront announced the launch of the Wealthfront Custodial Account, a new product designed to help parents and guardians invest for a child’s future.
The account allows adults to invest on behalf of a child or another minor before the child takes control of the account.
Wealthfront said the product is designed to provide a flexible way to save for future life expenses beyond education, such as a down payment, first car, or other needs that benefit the child.
Custodial Account funds can generally be used for almost any expense that benefits the child, whether the money is withdrawn before or after the age of transfer.
Wealthfront said there is no annual or lifetime contribution limit for the account, though regular gift tax limits still apply.
The company said its Custodial Account is one of the only custodial accounts designed to automatically help reduce a child’s future tax burden before the child takes ownership of the account.
When a custodial account is opened, Wealthfront creates a globally diversified portfolio of low-cost index funds.
Clients can choose among low, medium, and high risk levels, and Wealthfront’s software automatically keeps the portfolio aligned with the selected risk level.
Clients can also customize the portfolio by adjusting allocations, selecting asset classes, or adding specific ETFs.
Wealthfront said the account includes Tax-Gain Harvesting, a software-driven strategy designed to realize gains when they may be taxed at low or 0% federal tax rates.
The strategy is intended to increase the investment’s cost basis, potentially reducing taxable gains when the child sells the investments later in life.
Wealthfront said the feature is included in its annual advisory fee of 0.25%.
The company positioned the product as a way to help parents support long-term wealth building while also teaching children about investing, compounding, diversification, and market cycles.
Wealthfront also noted that custodial accounts have limitations, including the inability to make irrevocable gifts to the beneficiary, the transfer of legal control to the beneficiary at the age of termination, potential impact on financial aid, and possible Kiddie Tax implications.
The product is now available through Wealthfront.
