is a custodian account for a child, tax deductible and deferred?

Answer 1

You can obtain a small tax break if you give assets to a child, because the child can earn up to $850 tax-free and up to another $850 taxed at only 10% on her federal return. If the investments earn more than $1,700 the rest is taxed at your rate until the child is over 17 years old.

Another option is to open a 529 account for the child. The earnings in the 529 account are not taxed until withdrawal, and they are tax-free if the account is used to pay for the child's qualified college expenses (however, a 10% penalty can apply on the earnings if the money is NOT used for qualified college expenses).

Answer 2

A custodian account for a child belongs to the child. It is neither tax deductible nor tax deferred.

Assuming the child has no earned income, if the child earns less than $850 from the account, then no tax is due and no income tax return is required.

If the child earns more than $850, then a tax return is required and tax may be owed. The extent of the tax depends on the age of the child and if there are living parents.

Answer 3

Neither. Contributions are NOT tax deducible. And taxes are paid on them each year.