We are excited to announce the launch of custodial accounts for Alpaca’s Broker API partners. Through this new offering, partners can enable parents and guardians in US households to start investing on behalf of the next generation within the same API they already use.
This release expands Alpaca’s account infrastructure while enabling partners to diversify their product offering.
Why Custodial Accounts Matter to Investors
Custodial accounts in the US offer a flexible and potentially tax-advantaged way for adults to open and manage a brokerage account for a minor until they reach a certain age, usually between 18 to 21. As minors lack the legal capacity to enter into brokerage contracts, these accounts serve as a bridge, with assets managed by a custodian until the child reaches adulthood.
Alpaca currently supports the two primary types of custodial accounts:
- Uniform Gifts to Minors Act (UGMA) Accounts: Accounts limited to cash, crypto, and securities such as stocks and bonds, among others.
- Uniform Transfers to Minors Act (UTMA) Accounts: An extension of UGMA that currently includes cash, securities, and crypto.
The specific account type available depends on the legal jurisdiction of the beneficiary. Currently, UGMA accounts are recognized in all 50 US states, and UTMA accounts are available in every state except for South Carolina and Vermont.1
Streamlined API Integration and Operational Workflows
Custodial accounts are fully integrated with Alpaca’s Broker API and follow a workflow similar to that of standard individual account opening:
- Simplified KYC: The account-opening steps are the same as for standard brokerage accounts offered by Alpaca. Any required KYC checks are performed on the adult/custodian.
- Minor Identity Object: A dedicated minor_identity object in our API captures the beneficiary's information, including their name, date of birth, and tax ID.
- Safety and Compliance: To protect the interests of the minor, custodial accounts are restricted to cash-only trading. They do not support margin leverage, shorting, or pattern day trading (PDT). Additionally, the minor cannot trade in the account themselves, as they are strictly the beneficiary.
As part of this offering, Alpaca custodies the assets, generates monthly account statements, and handles the annual tax reporting requirements, allowing partners to focus on the product experience and less on the back office operations. All tax reporting is issued under the minor's information, supporting compliance with applicable US tax reporting requirements.
Why Integrate Custodial Accounts with Alpaca
With custodial accounts, Alpaca’s partners can now:
Engage Customers Earlier
Enable access for younger investors through custodial account structures, years before they would typically open their first standalone account.
Consolidate Household Assets
Encourage parents to manage their children's accounts under a single broker to increase overall platform assets.
Drive Long-term Retention
Create a natural path for accounts to transition into standard individual brokerage accounts once the beneficiary reaches the age of majority.
“Custodial accounts are a natural extension of our account infrastructure,” said Hakan Bayraksan, Senior Director of Product at Alpaca. “Along with expanding product capability, we’re also enabling families to invest earlier. This release enables our partners to support long-term investing while maintaining the operational simplicity and compliance standards they expect from Alpaca.”
By enabling custodial accounts, we’re helping our partners expand access to investment accounts and empower future generations of investors, another step forward in Alpaca's mission to open financial services to everyone on the planet.
Get Started
For information on integrating custodial accounts into your platform, read our documentation about getting started with custodial accounts.
For prospective partners, please contact Alpaca’s Sales team at [email protected] or complete the form below.
For existing partners, please contact your Customer Success Manager (CSM) or email the Success team at [email protected].
Contact Alpaca
About Alpaca
Alpaca is a US-headquartered, self-clearing broker-dealer and a global leader in brokerage infrastructure APIs providing access to stocks, ETFs, options, fixed income, and crypto. Alpaca delivers embeddable finance solutions for tokenization, fully paid securities lending, high-yield cash, 24/5 trading, Shariah-compliant investing and more. Today, Alpaca powers over 10 million brokerage accounts across hundreds of fintechs and institutions in 40+ countries with over $320M in funding.References
Custodial accounts involve legal, tax, and investment considerations. Assets contributed to these accounts are generally irrevocable gifts to the minor and become the property of the minor. Such accounts may have tax implications, including the potential application of the “kiddie tax.” Upon reaching the age of majority, the beneficiary assumes full control of the account. Investments held in custodial accounts are subject to market risk, including the potential loss of principal, and custodians are responsible for managing the account in the best interest of the minor.
The content of this blog is for general informational purposes only. All examples are for illustrative purposes only. Alpaca does not provide investment, tax, or legal advice. Please consult your own independent advisor as to any investment, tax, or legal statements made herein.
All investments involve risk and the past performance of a security, or financial product does not guarantee future results or returns. There is no guarantee that any investment strategy will achieve its objectives. Keep in mind that while diversification may help spread risk, it does not assure a profit, or protect against loss. There is always the potential of losing money when you invest in securities, or other financial products. Investors should consider their investment objectives and risks carefully before investing.
Options trading is not suitable for all investors due to its inherent high risk, which can potentially result in significant losses. Please read Characteristics and Risks of Standardized Options before investing.
Fractional share trading allows a customer to buy and sell fractional share quantities and dollar amounts of certain securities. Fractional share trading presents unique risks and is subject to particular limitations that you should be aware of before engaging in such activity. See Alpaca Customer Agreement at https://alpaca.markets/disclosures for more details.
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Orders placed outside regular trading hours (9:30 a.m. – 4:00 p.m. ET) may experience price fluctuations, partial executions, or delays due to lower liquidity and higher volatility. Orders not designated for extended hours execution will be queued for the next trading session. Additionally, fractional trading may be limited during extended hours. For more details, please review Alpaca Extended Hours & Overnight Trading Risk Disclosure.
Fixed income securities can experience a greater risk of principal loss when interest rates rise. These investments are also subject to additional risks, including credit quality fluctuations, market volatility, liquidity constraints, prepayment or early redemption, corporate actions, tax implications, and other influencing factors.
Alpaca does not make any representation that its products or services are Shariah-compliant. Customers are solely responsible for determining whether any offering meets their own Shariah requirements.
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These disclosures describe important characteristics of, and risks associated with engaging in, securities-lending transactions.
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Alpaca's Instant Tokenization Network is owned and developed by AlpacaDB, Inc. and Alpaca Crypto LLC.
Additional geographic restrictions may apply for tokenization services based on local regulatory requirements. Neither Alpaca Crypto LLC nor Alpaca Securities LLC are the issuer of, nor directly involved in, the tokenization of any assets. Tokenization is performed by a third party. Tokenized assets do not represent direct equity ownership in any underlying company or issuer. Instead, tokenized assets generally provide economic exposure to the equity securities of an underlying issuer. As such, holders of tokenized assets have no voting rights, dividend entitlements, or legal claims to the underlying company shares or any residual assets in the event of the underlying company’s liquidation or insolvency, unless explicitly stated otherwise. All investments involve risk. For more information, please see our Tokenization Risk Disclosure.
Securities brokerage services are provided by Alpaca Securities LLC ("Alpaca Securities"), member FINRA/SIPC, a wholly-owned subsidiary of AlpacaDB, Inc. Technology and services are offered by AlpacaDB, Inc.
Cryptocurrency is highly speculative in nature, involves a high degree of risks, such as volatile market price swings, market manipulation, flash crashes, and cybersecurity risks. Cryptocurrency regulations are continuously evolving, and it is your responsibility to understand and abide by them. Cryptocurrency trading can lead to large, immediate and permanent loss of financial value. You should have appropriate knowledge and experience before engaging in cryptocurrency trading. For additional information, please click here.
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