Investing for Kids: 5 Steps to Opening a Custodial Account

You can open and fund a custodial brokerage account, Roth IRA, ABLE account, special needs trust or 529 and help your kids select investments. It's never too early to start.
Alieza Durana
Arielle O'Shea
By Arielle O'Shea and  Alieza Durana 
Edited by Robert Beaupre Reviewed by Raquel Tennant
For Kids' Allowance, No Cash Required

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Helping your kid open an investment account can teach them valuable lessons about money and the power of investment growth. Brokerage accounts for children are often referred to as custodial accounts, and labeled as UGMA or UTMA depending on their restrictions.

One of the biggest keys to successful investing is a long time horizon for your money to grow — and kids have a lot of time on their side. If they're willing to let their money remain invested for several years, they're likely to see a nice return on their initial investment. Seeing their money grow can encourage them to be good savers and investors as adults.

Whether it's your kid, nibling or grandchild, here are five steps to get you started:

Read further for the details of how to open a brokerage account for your kid.

» Ready to get started? See our list of the best custodial accounts

529 account

An education investment account an adult manages on behalf of a child.

Age of majority

Age minors may take full ownership of their custodial accounts and invest independently (18 and above depending on the U.S. state).

Attainable savings plan (ABLE) account

A savings and investment account for people with disabilities.

Custodial account

Brokerage accounts for kids that are managed by an adult.

Roth IRA for kids

Type of investment account an adult manages on behalf of a child with taxable income.

Special needs trust (SPN)

Type of trust someone — usually a parent or guardian – sets up, funds and invests to be inherited by a beneficiary with a disability.

Uniform Gift to Minors Act or Uniform Transfer to Minors Act (UGMA/UTMA)

Law outlining the rules for custodial brokerage accounts.

Youth accounts

Type of custodial investment and savings account aimed at teens that allows parents to monitor their child’s transactions.

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How to open a brokerage account for your kid

1. Decide on an account type

To get your kid started investing, you should first decide which investment account is best for them. That decision largely hinges on two main factors: whether they have earned income and whether they have a disability.

If your child doesn't have taxable income or wages

Under the Uniform Gift to Minors Act or Uniform Transfer to Minors Act (UGMA/UTMA)

Social Security Administration. SI 01120.205 Uniform Transfers to Minors Act. Accessed Jan 22, 2024.
, you can open up custodial brokerage accounts for your kids. Although the account will initially be in your name, your child will automatically take full control of it once they reach age 18 or 21, depending on state laws. (Learn more about UTMA and UGMA accounts).

If your child has taxable income or wages

If your children are older and have earned income from a part-time job, such as babysitting, raking leaves, or something similar, you can help them open a custodial IRA. A Roth IRA in particular is ideal for children: The contributions your child makes to the account will grow tax-free. Those contributions can be pulled out at any time, and the investment growth portion can be used for retirement, or tapped for special purposes such as a first-home purchase or higher education expenses. (Here's a full run-down on Roth IRAs for kids.)

If your child has a disability

A special needs trust is one way someone with a disability can receive financial support without jeopardizing any income-tested government benefits. Someone — usually a parent or guardian — sets up, funds and invests this type of trust to be inherited by the beneficiary.  

An attainable savings plan (ABLE) account

Internal Revenue Service (IRS). ABLE Accounts - Tax Benefit for People with Disabilities. Accessed Jan 22, 2024.
is a type of 529A account that allows a person with a disability to save money and wages without losing public benefits. But unlike custodial accounts or trusts, an ABLE (or 529A) account is owned by the person with a disability. Family and friends may contribute, and contributions grow tax-free. The money may be used for a wide range of qualified expenses from housing to transportation or education.

If saving for your child’s education is the goal

A 529 savings and investing account is a tax-advantaged account for education expenses. Investments grow tax free and can be withdrawn for qualified expenses like textbooks, tuition and room and board.

2. Choose the right broker

No matter which type of brokerage account you decide to open for your kids, you'll need to start by finding a broker that offers custodial accounts. The best investment accounts for kids charge no account fees, and have no minimum initial deposit. This gives your kids the chance to start investing with a small amount of money.

Consider, too, the costs associated with the investments your child plans to choose. For example, for kids who want to practice trading stocks, you should ensure the broker charges low or no trade commissions. If your kids just want their money to grow in a hands-off way, consider looking for brokers with a large selection of low-cost index funds.

If you’re looking for a brokerage account to teach your kids about investing, know that many brokers offer educational content, including online investing tutorials and even practice trading accounts.

3. Open the account

You can open a custodial account — both a standard brokerage account and a Roth IRA — for your child in under 15 minutes or so. At most brokers, the entire process is completed online.

To speed things up, make sure you have the necessary information ready. The broker will likely ask for both your and your child's Social Security number, as well as dates of birth and contact information.

4. Fund the account

Just because you've opened the account doesn't mean you've invested in anything yet, and you'll first have to fund the account before you can start choosing investments. To fund it, be ready to link another bank or brokerage account so you can transfer money into the new account. You may also have to supply your employment or other personal information.

Brokers are increasingly relying on third parties that connect your new account with an existing bank account, which makes the process much faster. For those that don't use these services, you may have to confirm that a deposit in your bank account (often two separate transactions of a few cents each) came from the broker, which can take several days.

5. Help your kid decide what to invest in

Once the custodial account is open and funded, the real fun begins: Investing the money.

Within their brokerage account, your kids will be able to invest in individual stocks, as well as mutual funds, index funds and exchange-traded funds.

To get your kids excited about investing, you might consider a two-pronged approach:

1. Help them pick one or two individual stocks. Focus on household names they're familiar with — owning even one share of a brand kids recognize will get them excited about investing.

2. Build the rest of the portfolio with index funds. As your child continues to add money to the investment account, consider skipping additional shares of individual stocks, and instead focus on low-cost index funds or ETFs. These funds bring much-needed diversification to the portfolio, by pooling hundreds of stocks together into one investment. That way, your child can invest in a lot of different companies in one transaction for one price.

To learn more about the investments your child will be able to choose from — and to decide which is most suitable — read our full guide to various types of investments.

Once they've selected and purchased their investments, make a habit of checking their earnings and losses every few weeks and comparing the small fluctuations with the larger long-term changes shown on their quarterly statements. This can spark discussion and inspire kids to become more informed investors.

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Investing for teens

If your teen is asking about investing, a custodial account might be a good place to start. Brokerages are also creating new account types geared specifically for teens. Fidelity, for example, offers a Youth Account, which lets teens aged 13 to 17 control the account, but lets parents monitor its activity, trades and transactions, complete with alerts. This is a new type of youth investment account separate from the custodial accounts outlined above.

However, some of the investment apps that are most popular with younger generations (such as Robinhood and Webull) don’t offer custodial accounts. So you’ll want to do your research alongside your teen, explaining that if they want to start investing before the age of 18, they’ll have to do it through an institution that offers custodial accounts. Once they’re of age, they can decide if they want to continue with the same brokerage service, or open their own. This can also be a time to explain the benefits of opening multiple investment accounts for various purposes.

The age requirement to open a brokerage account with the most popular investment apps is 18 (and sometimes older, depending on the state.) So until then, you have the final say in how they invest, and where.

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