What’s the difference between opening a custodial account and a 529 for our son’s college fund?
Answers | 3
Also, in certain states, you may also get an income tax deduction. For all or part of your investment.
If not used by the beneficiary, you can also use the monies for qualified education expenses. Once again, all growth can be withdrawn income tax free.
In addition, you are the owner of the account, whereby in custodian account the beneficiary becomes the owner at majority.
There is no guarantee he will use the monies for educational purposes. He can withdraw the monies and take a vacation or buy a sports car.
Or, if I want, I can take the money out for myself and pay taxes and a 10% penalty on the gains. In my mind, that is a small price to pay for control of the money. I tell my kids, "If you don't go to college, I'm buying a convertible!"
Now you have it.