What things can you use a Custodial Account for?<\/h3>\n\n\n\n
Custodial Account funds can be used for practically any expense that benefits your child. However, they generally can\u2019t be used for expenses that are considered parental obligations, such as food and shelter.<\/p>\n\n\n\n
Are there contribution limits?<\/h3>\n\n\n\n
There is no annual or lifetime contribution limit, but regular gift tax limits still apply. Here\u2019s what this looks like for 2026:<\/p>\n\n\n\n
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- A donor can gift up to $19,000 per recipient<\/li>\n\n\n\n
- Anything more than this will need to be reported for tax purposes<\/li>\n\n\n\n
- Contributions must adhere to federal gift tax rules: $19,000 for individuals or $38,000 for a married couple in 2026<\/li>\n\n\n\n
- Any contributions over the gift tax exclusion may be subject to gift tax<\/li>\n<\/ul>\n\n\n\n
These tax thresholds and gift tax limits are subject to annual adjustments by the IRS and should not be relied upon as permanent.<\/p>\n\n\n\n
How does a Wealthfront Custodial Account work?<\/h2>\n\n\n\n
When you open a Custodial Account, we\u2019ll set your child up with a globally diversified portfolio of low-cost index funds designed to soften the impact of the market\u2019s ups and downs. You can:<\/p>\n\n\n\n
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- Choose between three levels of risk: low, medium, or high<\/li>\n\n\n\n
- Have our software automatically keep the portfolio balanced with your preferred risk level<\/li>\n\n\n\n
- Customize your child\u2019s portfolio by adjusting allocations and specific asset classes<\/li>\n\n\n\n
- Add specific ETFs<\/li>\n<\/ul>\n\n\n\n
Diversification and automated investing do not guarantee profit or ensure against loss. Investor experiences can vary widely based on strategies and time horizons. Index funds and ETFs generally offer broad diversification, but may still expose investors to specific market, sector, or asset class risks. Wealthfront provides investment management services but may not achieve returns comparable to those of the general market or specific benchmarks.<\/p>\n\n\n\n
How can Tax-Gain Harvesting reduce your child’s future taxes?<\/h2>\n\n\n\n
We\u2019ll look for opportunities to help lower your child\u2019s future taxes by automatically taking advantage of available tax benefits.<\/p>\n\n\n\n
For example, children can generally receive up to $1,350 of unearned income\u2014such as interest, dividends, and capital gains\u2014each year without owing federal income tax, though lower filing thresholds may apply in certain states. In addition, another $1,350 of long-term capital gains and qualified dividends may qualify for a 0% federal tax rate, as this portion is taxed at the child\u2019s tax rate.<\/p>\n\n\n\n
Our software aims to take advantage of these limits by realizing gains when they could be taxed at a low or 0% federal tax rate (assuming your child doesn\u2019t have significant earned income or additional investment income elsewhere).<\/p>\n\n\n\n
Why does raising an investment\u2019s cost basis matter?<\/strong><\/h3>\n\n\n\n
When gains are realized, the investment\u2019s cost basis increases. A higher cost basis means less taxable gain when the investment is sold in the future, assuming the asset appreciates. As a result, your child may owe less taxes later in life, when they\u2019re more likely to be in a higher tax bracket.<\/p>\n\n\n\n
How is Tax-Gain Harvesting different from Tax-Loss Harvesting?<\/h3>\n\n\n\n
Tax-Gain Harvesting and Tax-Loss Harvesting use similar concepts but have different goals. Tax-Loss Harvesting seeks to reduce taxes in the short term by realizing losses, while Tax-Gain Harvesting seeks to reduce taxes in the future by realizing gains when they can be taxed at a low or 0% federal tax rate. Thus, by resetting the purchase price higher, you can help ensure your child isn\u2019t taxed on that growth in the future.<\/p>\n\n\n\n
Strategy<\/th> Goal<\/th> How it works<\/th><\/tr><\/thead> Tax-Loss Harvesting<\/td> Reduce taxes in the short term<\/td> Realizes losses<\/td><\/tr> Tax-Gain Harvesting<\/a><\/td> Reduce taxes in the future<\/td> Realizes gains when they can be taxed at a low or 0% federal tax rate<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n What could the long-term impact of Tax-Gain Harvesting be?<\/h2>\n\n\n\n
Imagine opening a custodial account in 2008 with $5,000 in a simple 60\/40 stock\/bond portfolio when your child was one year old, and then letting it grow for the next 17 years, until 2025. If you never contributed another dollar, the account could potentially grow to over $21,500.<\/p>\n\n\n\n
With Tax-Gain Harvesting, our software can sell up to the federal tax-free amount of gains each December to raise the cost basis. The federal tax-free amount started at $900 in 2008 and increased year over year to $1,350 by 2025, and will likely keep increasing in the future to account for inflation.<\/p>\n\n\n\n
How do the hypothetical Tax-Gain Harvesting outcomes compare?<\/h3>\n\n\n\n
Hypothetical approach<\/th> Potential federal tax treatment of gains<\/th><\/tr><\/thead> No Tax-Gain Harvesting<\/td> The child would owe federal taxes on $12,915<\/td><\/tr> Tax-Gain Harvesting using the federal tax-free amount<\/td> The child may only owe federal taxes on $2,411 worth of gains if they liquidated the account when they are 18 years old<\/td><\/tr> Tax-Gain Harvesting using both the federal tax-free amount and the child\u2019s federal tax rate amount each year<\/td> The account would not owe any federal taxes on gains if they sold the portfolio<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n The difference in returns is small, but the client with Tax-Gain Harvesting could help their child save a lot more in taxes.<\/p>\n\n\n\n
The combined federal tax-free amount and child\u2019s federal tax rate amount started at $1,800 in 2008 and increased year over year to $2,700 by 2025, and will likely keep increasing in the future.<\/p>\n\n\n\n
Despite growing more than 4x in value, the account using both amounts would actually incur a small loss because we would have realized some of the gains when the price was higher than the end of 2025.<\/p>\n\n\n\n
Doing this on your own would be hard and time-consuming, to say the least. But, as a Wealthfront client, this service is already included in our annual advisory fee\u2014just 0.25%.<\/p>\n\n\n\n
![\"\"](\"https:\/\/canary.kcprod.info/blog\/wp-content\/uploads\/2026\/06\/Table-TGH-final-1134x530.png\")
<\/figure>\n\n\n\nWhen could a tax return be required?<\/h3>\n\n\n\n
If your child receives more than $1,350 in unearned income, like from a savings account, or has sizable income from a job, a tax return may be required.<\/p>\n\n\n\n
Additionally, some states\u2014HI, IN, MO, and PA\u2014have a filing requirement that is lower than the federal tax-free limit. We will automatically default to the lower of either the federal tax-free limit or the state filing requirement threshold. However, you can opt out or adjust your Tax-Gain Harvesting limits in the settings.<\/p>\n\n\n\n
How can a Custodial Account help your child learn to invest?<\/strong><\/h2>\n\n\n\n
In addition to their flexibility, Custodial Accounts are a great way to teach your child about investing and help them make responsible investing decisions before the account becomes theirs to manage.<\/p>\n\n\n\n
Watching the account grow over time can help them understand:<\/p>\n\n\n\n
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- How compounding works in practice<\/li>\n\n\n\n
- How a diversified portfolio behaves<\/li>\n\n\n\n
- How markets change year to year<\/li>\n\n\n\n
- Why asset class that performs well today won\u2019t always do so<\/a><\/li>\n<\/ul>\n\n\n\n
When does your child take control of the account?<\/h2>\n\n\n\n
A Custodial Account is a great choice for parents who want the flexibility to help their child with future life expenses, no matter what path the child ends up choosing.<\/p>\n\n\n\n
However, once your child reaches the age of transfer, how they use their funds is up to them. Legal control of the assets automatically transfers to the beneficiary upon reaching the age of termination, typically 18 to 25 depending on the state. Helping our clients build wealth on their own terms is one of our primary motivations as a company, and that includes the next generation, too. A Custodial Account makes this transition easier, for you and for them. And, with the help of our software, making meaningful progress is as easy as watching them grow up.<\/p>\n\n\n\n