A portion of any custodial account earnings (up to $1,250) may be exempt from federal income tax. Additionally, for earnings that exceed the exemption amount, another $1,250 may be taxed at the child's tax rate, which is generally lower than the parent's tax rate. Up to $18,000 per individual ($36,000 for a married couple) can be contributed free of gift tax in 2024. (Note: Contributions to a custodial account are not tax deductible.)