What is a financial custodial account?

A financial custodial account is either an account managed by an adult on behalf of a minor who is under the age of majority or a retirement account managed by a custodian for eligible employees, according to Investopedia. Banks, brokerage firms and mutual fund companies offer custodial accounts to customers.

A minor who wishes to transact in securities must get approval from a parent or guardian, who acts as the custodian of the account, according to Investopedia. A custodian reports all the earnings of the account for taxation where necessary, and also files an annual income tax return for the ascertainment of the accounts earnings, according to Custodialaccount.org.