How old do you have to be to Buy Stocks?

To trade stocks and other investments like mutual funds and ETFs in the United States, you must be at least 18 years old. A person of legal age, on the other hand, can open a custodial account for the sake of a minor.

The age requirement for opening brokerage accounts to trade stocks and other investments in the United States is unaffected by where you live.

In most other nations, a parent, guardian, friend, or family member must transact on behalf of a minor until the minor achieves the age of majority.

Can Stocks be bought for Minors?

While children under the age of 18 are unable to register a brokerage account in the United States and hence cannot trade stocks or other investments, an adult parent or legal guardian can do it on their behalf.

However, there are a variety of custodial accounts to choose from.

Four categories of Custodial Account

1. Custodial Brokerage Account (UGMA/UTMA). A custodial brokerage account for a minor can be registered depending on the state where the account holder resides.

This account will be either a UGMA (Uniform Gift to Minors Act) or a UTMA (Uniform Transfer to Minors Act) account.

Even though the account will be first registered in the adult's name, after the child reaches the age of 18 or 21, based on state legislation, the child will be capable to take possession of it.

A UGMA/UTMA account can provide a significant tax benefit. Investment earnings are normally taxed at the child's tax rate, which is likely lower than the parent's rate because the account is practically held by the child.

The first $1,050 in earnings is completely tax-free. The following $1,050 in earnings is taxed at the child's rate. The parent's rate applies to earnings beyond $2,100.

2. Custodial IRA (Traditional or Roth). A parent or guardian can open a custodial IRA or a custodial Roth IRA on behalf of a minor child who has earned income.

Once the custodial account is established, the adult manages the financial funds until the child achieves the age of 18 or 21, depending on state rules.

  • Custodial IRA. It works similarly to a typical IRA in that contributions are made before taxes, lowering taxable income.

  • Custodial Roth IRA. Contributions are made after taxes, just like in a traditional Roth IRA. This is often the greatest option for minors because Roth contributions are often more favorable when the individual anticipates being in a higher tax rate when making withdrawals.

Custodial IRAs are taxed and benefited in the same way that traditional individual retirement funds are. It's vital to remember, though, that the child can't contribute more than 100% of their income in any given tax year.

If a kid earns 1,500 throughout the summer, they will be unable to pay more than $1,500 for that year.

3. Coverdell Education Savings Account (ESA). A Coverdell Education Savings Account (ESA), often known as an Education IRA, is a tax-deferred education savings vehicle.

An ESA can be formed in favor of a child recipient under the age of 18 by a parent or another direct family member, such as a grandparent.

Contributions are tax-free and can be invested in a range of securities.

When utilized for certain qualifying educational expenditures, withdrawals from an ESA are also tax-free. Although one beneficiary may have many ESAs, the maximum contribution for each recipient is $2,000 per year.

4. 529 Plan. A 529 plan is a state-sponsored tax-advantaged school savings vehicle named after Section 529 of the Internal Revenue Code.

Earnings grow tax-free as long as the money remains in the account. Withdrawals for some eligible education expenses may be tax-free both at the federal and state levels.

The 529 plan has the distinct advantage of having no income restrictions on contributions. A 529 plan account owner must be a U.S. resident aged 18 or older, just as other custodial accounts.

The 529 plan's recipient can be of any age as far as they have a Social Security number.

While contributions to a 529 plan are not tax-deductible at the federal level, several states provide state income tax deductions or credits for 529 plan contributions.

The portion of state tax deduction you can claim is determined by your residence state and the amount of money you put into a 529 plan during a given tax year.

Factors to Consider Before Investing in Stocks for Children

The sort of account that will be utilized for investing is the most important consideration to make before investing in stocks for children.

Because minors under the age of 18 are unable to open a brokerage account, a parent, family member, friend, or adult guardian must decide whether a custodial brokerage account, custodial IRA, or education savings account is ideal for them.

Consider the following factors when selecting the appropriate form of investment account for children under the age of 18:

1. Plans for college. If attending college is a long-term goal, education savings vehicles such as the Coverdell ESA or a 529 plan can help. Keep in mind that you can use a percentage of your qualified education expenditures before you start college.

2. Holding Duration. Stocks are good investments for long-term time frames. A 10-year or longer time horizon is often considered long.

3. Contribution Limit. Maximum contribution limits apply to several custodial accounts. The maximum contribution to a Coverdell ESA is $2,000 per calendar year, for example.

Contribution limits for custodial IRAs are $6,000 per year or 100% of the child's income or salary, whichever is lower. UGMA/UTMA accounts and 529 plans, on the other hand, have no contribution restrictions.

4. Custodial Roth vs. Custodial IRA. The child must have earned income or compensation during the year of contribution to be eligible for these IRAs.

Custodial Roth IRAs are excellent for children if their income tax rate at the time of deposit is lower than it will be at the time of withdrawal.

5. Tax advantages. Minors can use education savings accounts (ESAs) like the Coverdell ESA and the 529 plan to save money for certain eligible educational costs.

They both grow tax-free. Traditional IRA contributions are tax-deductible, and withdrawals are taxable, whereas Roth IRA contributions are after-tax, and withdrawals are tax-free.

Investment earnings in UGMA and UTMA brokerage accounts are taxed at the child's income tax rate.


Because children under the age of 18 are not permitted to open a brokerage account in the United States, they will be unable to invest in stocks without the assistance of an adult. Children can start investing at a young age so they don't have to look for jobs that they don't like in the future.

An adult can open an investing account for children on their behalf.

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