4 Best Under-18 Investment Accounts [Invest as a Minor]

Investing is one of the most powerful ways to accumulate wealth, and that accumulation can start awfully early in life. People think you have to get a job or get into college first, but in truth, even minors can have investment accounts.

Legendary investor Warren Buffett famously bought his first stock when he was only 11 years old. To be clear: We’re not promising that anyone who gets started early in life will do as well as Buffett. But we can assure you that investing strategically from a very young age can give you a great head start on a secure financial future.

Minors will need a little help—they can’t begin investing without an adult’s assistance. And not every type of investment account is an option. Still, there are plenty of ways However, minors can’t start investing without help from adults and not every type of investment account is an option.

Today, we’ll explore some of the best under-18 investment accounts—their pros, their cons, and what types of financial situations they’re best for. We’ll also answer other common questions about how minors can invest, how much they can invest, what type of investments they can hold, and more. 

Best Under-18 Investment Accounts—Our Top Pick: E*Trade

Can Minors Invest?

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As we said above, yes indeed—minors can invest!

With some help.

A minor can’t just stroll into their local Fidelity office or log on to Schwab and open up their own brokerage account. But they still have options as long as they have a parent or other trusted adult to help.

For instance, with an adult’s assistance, a minor can use a joint brokerage account alongside an adult. Or an adult can open a custodial brokerage account, custodial IRA, or custodial Roth IRA—accounts the child technically owns, but that the parent helps steer until their kid is old enough. Also, adults can open up educational accounts like 529 plans or Coverdell education savings accounts (ESAs) to invest on behalf of their minor, though again, the child doesn’t have final say in how those are run.

Still, these varying accounts allow minors (or parents on behalf of minors) to hold a wide range of investments, including stocks, bonds, mutual funds, exchange-traded funds (ETFs), and more.

How Old Do You Have to Be to Invest in the Stock Market?

If you want to invest in the stock market without any assistance or supervision, you need to be at least 18 years old. However, minors can invest in the stock market through certain types of brokerage accounts and other investment accounts with the help of an adult.

Related: 9 Best Stocks for Beginners With Little Money

How Can Minors Invest in the Stock Market?

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Joint Brokerage Account

A joint brokerage account is a brokerage account that has two or more people on the account’s title. At least one of the account owners must be an adult—but a minor can be on the account as well, meaning a parent and child could share a joint brokerage account.

Both parent and child jointly own all of the assets in the account and are responsible for trading decisions. These accounts also boast the widest varieties of investment options, including stocks, bonds, mutual funds, ETFs, and more.

Custodial Account

A custodial account is a financial account held in the name of a beneficiary (often a minor) by one or more custodians (often a minor’s parents).

The minor owns the account, but the custodian is legally responsible for the account and invests on behalf of the minor. That said, some custodians choose to involve the child in investment decisions to help them develop financial skills.

Assets in the account belong to the minor, and any withdrawals must directly benefit the child. Once the beneficiary reaches the age of majority, which varies by state, they gain legal control of the account.

Custodial Individual Retirement Account (IRA) and Custodial Roth IRA

Custodial IRAs—which can be traditional IRAs or Roth IRAs—function similarly to other custodial investment accounts in that an adult custodian sets the account up for the minor child. The child is the owner, but an adult manages the account.

These accounts follow the same rules for contribution limits, taxes, early withdrawals, and distributions as standard IRAs.

One important rule to note: As with any IRA, the account owner (the child) must have earned income that year. Parents can contribute to the account, just so long as contributions don’t exceed the child’s earned income or annual contribution limits.

529 Plan

The 529 plan typically is used to invest on behalf of minors interested in going to college or attending a private K-12 school. Minors can’t own these accounts, nor can they make the official investment decisions. Regardless, these accounts are beneficial to have on a child’s behalf, and parents can still talk to their children about the investment decisions being made within a 529 plan.

A 529 plan invests after-tax money, typically in mutual funds. The money then grows tax-deferred, and any withdrawals used for qualified education expenses—such as tuition, fees, books, and more—are tax-free. However, any 529 funds used for other expenses are subject to both federal income taxes and a 10% penalty.

But there are several exceptions where the penalty doesn’t apply. For example, there is no penalty if the beneficiary becomes disabled or dies, attends a U.S. military academy, receives a tax-free scholarship, or receives educational help through a qualifying employer program. If the beneficiary decides not to pursue further education or has money left over, the beneficiary can be changed to another qualifying family member.

Mike Ramirez, Manager of Financial Planning and Certified College Planning Specialist at EP Wealth Advisors’ San Diego office, adds the SECURE Act 2.0 has made 529 plans “more versatile” than they were before, too.

“The Secure Act 2.0 really eliminated the big boogeyman for 529s: If my kid doesn’t use all the funds, what do I do with it? The old answer: You can re-designate the beneficiary as a sibling or someone else,” he says. “But starting in 2024, you can use excess funds from the 529 in the beneficiary’s Roth IRA. That makes a 529 much more compelling to parents, to savers.”

Coverdell Education Savings Account (ESA)

Similar to 529 plans, Coverdell education savings accounts (ESAs) are used to invest for a minor’s education expenses, but the minor doesn’t own the account, nor do they  but the minors usually aren’t the ones investing.

Just like a 529 plan, money is invested and distributions are tax-free if used for qualified education expenses. Funds aren’t limited to higher education, either; they can be used for primary and secondary schools as well.

ESAs have several limiting factors, however. For instance, families can only contribute to an ESA if their modified adjusted gross income (MAGI) is under the limit set for that tax year.

“They’re limited to annual contributions of just $2,000 per beneficiary. So immediately, you’re handcuffed,” Ramirez adds. “Also, once the beneficiary turns 30, that fund has to be fully distributed. So if your student didn’t go to school, didn’t use the funds, then those funds have to be distributed, so they’ll be subject to tax and a 10% penalty. You can’t get around it like you can with a 529.”

Related: Best Investing Apps for Teens Under 18 [Stock Apps]

Best Under-18 Investment Accounts to Start Investing as a Minor

1. E*Trade (Top Teen Investing App/Custodial Account)

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• Platforms: Web, mobile app (Apple iOS, Android)
• Price: No monthly fees or trading commissions on stocks and ETFs through E*Trade’s Custodial Account

Most people know E*Trade as one of the leading providers of individual brokerage accounts, but you can also put the powerful platform to work saving for your child’s future, through a custodial account (and even a custodial IRA).

E*Trade’s custodial account for teens (and generally any minor) allows you to open up a custodial account that offers the chance to build a personalized portfolio through thousands of stocks, bonds, ETFs, and mutual funds, or you can have E*Trade select your holdings for you through its Core Portfolio robo-advisory service (minimum account size of $500 is needed to use this product). Further, you can choose to open a traditional custodial IRA or a custodial Roth IRA for children under age 18 who have earned income.

Just like with its individual brokerage accounts for adults, E*Trade custodial accounts offer zero-commission stock, ETF, and options trading. It also has a leg up on some platforms by offering $0-commission mutual fund trading.

And if you want to learn more about investing—or want your young one to learn alongside you—E*Trade also boasts educational resources, including articles, videos, classes, monthly webinars, and even live events.

For a limited time, E*Trade offers a new account funding bonus when you use reward code “OFFER24” in the following amounts:

• $50-$999 earns $100
• $1,000-$19,999 earns $150.
• $20,000-$99,999 earns $300.
• $100,000-$199,999 earns $600.
• $200,000-$499,999 earns $800.
• $500,000-$999,999 earns $1,000.
• $1,000,000-$1,499,999 earns $3,000.
• $1,500,000 or more earns $5,000.

To open a free E*Trade custodial account, click “Open Account” below.

Related: 10 Best Debit Cards for Teens [Reviewed by a CPA + Father]

2. Greenlight Max

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• Available: Sign up here
• Price: Greenlight Max: $9.98/mo. Greenlight Infinity: $14.98/mo.

Greenlight, through its Max and Infinity tiers, is an investment account for kids that comes paired with a debit card and bank account.

It’s easy to use and can double as a savings account and banking apps for teens. The investing app will teach the basics of investing, how to invest in stocks and ETFs, and more.

It works best if parents are involved in the process because it requires linked brokerage accounts from custodian banks or brokerages.

The all-in-one plan teaches them important financial skills like money management and investing fundamentals—with real money, real stocks and real-life lessons.

You can use the investing feature to:

• Start investing with as little as $1 in your account
• Buy fractional shares of companies you admire (say, kid-friendly stocks)
• No trading commissions beyond the monthly subscription fee
• Teens can only invest in U.S.-listed stocks and ETFs that have either a market capitalization over $1 billion or a three-month average daily dollar volume of more than $500,000
• Parents must approve every trade directly in the app.

Each account supports up to five kids.

Consider opening a Greenlight Max or Infinity account to start investing in a joint investment account as a teenager today. Or, you can read more in our Greenlight Card review.

Related: Best Greenlight Alternatives

3. EarlyBird (Custodial Account With Personal Touches)

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• Available: Sign up here
• Price: $2.95/mo. for one child, $4.95/mo. for families with 2+ children

EarlyBird is a mobile app that allows parents and guardians to set up a UGMA account, where they can quickly start investing for their children. It also allows friends and family to easily gift money to a child in EarlyBird’s investing accounts for children.

EarlyBird allows you to choose from five strategic ETF-only portfolios, with investing goals ranging from conservative to aggressive, based on your stated risk tolerance and overall investor profile. This removes the complexity of conducting your own research or selecting specific investments.

Do family and friends want to provide a gift, but think money is too impersonal? With EarlyBird, they can record a video to go along with their financial contribution, personalizing these moments which last a lifetime. And if you’d like to give but the recipient doesn’t have an EarlyBird account, you can text them a link from the app to the recipient’s phone number.

EarlyBird also has a “Moments” feature that allows parents to begin to save and share special milestones and memories alongside their investments. Parents can add a “Moment” to their child’s timeline at any time by uploading photos or videos with notes to capture magical moments as their child grows—no contributions necessary (but naturally encouraged). You can choose to automatically share Moments with anyone else who has invested in your child on EarlyBird, but each Moment also has its own unique link that you can share with people outside of the app.

An EarlyBird investment account costs $2.95 per month for one child, or $4.95 per month for multiple children. When parents or guardians set up a new custodial investment account through EarlyBird, they must start with a $15/month recurring contribution minimum. However, you can change that recurring contribution amount higher or lower as your budget allows or necessitates.

Consider opening an EarlyBird account today and receive $15 to get you started after opening your account. Also, EarlyBird currently is in the “early access” stages of a cryptocurrency offering. Through a partnership with Gemini, one of the world’s largest and most secure crypto exchanges, EarlyBird also offers a crypto wallet that can hold Ethereum and Bitcoin when you sign up for an investment account. You will receive $25 when you open your wallet to invest in Ethereum or Bitcoin, and you can also earn a $50 referral bonus, which you can invest in the same token of choice, when you refer three other families.

Related: 13 Best Money Apps for Teens [Invest, Spend, Budget + Pay]

4. Backer (529 Plans)

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• Available: Sign up here
• Price: $1.99/gift, $1.99/contribution

A great option to consider is Backer. Backer, a hassle-free 529 Savings Plan where your family and friends can play a role, has helped families save over $20 million toward college in just minutes.

You can use the 529 plan to put your child on track to afford college; all while remaining invested in an asset class that will grow over time.

Backer allows you to invest in a portfolio of low-cost index funds that track major indexes of large company stocks (S&P 500), small-cap stocks (Russell 2000), international company shares (MSCI EAFE Index), and U.S. government bonds (Barclays Aggregate Bond Index).

You can share an invite code for friends and family to make contributions to a 529 savings plan for birthdays, holidays, or other noteworthy events (like making honor roll).

 

Why Should a Minor Start Investing Early?

The younger a person starts investing, the more time their invested money has to compound on itself. As a general rule, the more time money is in the market, the higher one’s potential returns.

Another benefit of investing early is that children learn personal finance skills that can last them a lifetime. If they make investing mistakes, there is time to make up for them. Investing at a young age shows children how their money can grow and gets them in the habit of making investing part of their budgets.

FAQs About Under-18 Investment Accounts

What is a Uniform Gifts to Minors Act (UGMA) account?

A Uniform Gifts to Minors Act (UGMA) account is a type of custodial account. The account is managed by the adult custodian, but all assets in it legally belong to the beneficiary. The minor takes control once they reach the age of majority or termination in their state—typically 18, but sometimes older.

What is a Uniform Transfer to Minors Act (UTMA) account?

A Uniform Transfers to Minors Act (UTMA) account is a very similar custodial account where the assets belong to the beneficiary but are managed by the custodian.

What are the differences between UGMA and UTMA accounts?

Overall, UGMA and UTMA accounts are more similar than they are different, but they’re not exactly the same.

In an UGMA account, the financial assets that can be held are more limited. Both accounts allow stocks, bonds, index funds, mutual funds, cash, and insurance policies. An UTMA account also allows physical assets, such as real estate or cars.

For years, there was one more crucial difference: Not all states had adopted UTMA accounts. That changed in 2022, when South Carolina became the last state to adopt UTMAs.

How do custodial accounts work?

A custodial account is run by a custodian for a beneficiary. Often, the custodian is a parent and the beneficiary is their child. The custodian manages the account, though they can take input from the beneficiary if they wish.

Everything in the account is owned by the beneficiary, and any transfers made to the account are typically irrevocable.

What happens to custodial accounts when the minor reaches the age of majority?

A custodial account fully transfers to the child once they reach the age of majority for their state, which is usually 18 or 21.

How can minors open a brokerage account?

A child cannot open their own brokerage account. However, with the help of parents, they can open joint brokerage accounts or have custodial accounts set up in their names. Parents can also open a 529 account or ESA to save for a child’s education expenses. If the child has earned income, a parent can open a custodial IRA or custodial Roth IRA for them.

What types of investments can minors have in their investment accounts?

Minors can hold a wide variety of investments in the aforementioned accounts, but what exactly they can hold varies by account type. Among the possible investments:

Individual stocks

Individual stocks allow you to invest directly in companies. They have a higher rate of return than most other investment types, though they are a bit high on risk. Minors are often drawn to stocks because they’re attached to the brands they love. Stocks are common in custodial accounts, joint brokerage accounts, ESAs, and IRAs, but they’re typically not an option for 529 plans.

Mutual funds

A mutual fund pools money from numerous investors and uses it to buy stocks, bonds, or other investments. Often, one or more human managers decide what investments to buy and sell, but some mutual funds, called index funds, track a rules-based index that determines what the fund should buy. You can find mutual funds in just about every account type.

Exchange-traded funds

Exchange-traded funds (ETFs) are like mutual funds in that they can hold a number of investments, but they have a few differences. The big one: ETFs trade on exchanges throughout the trading day, just like stocks, whereas mutual fund trades settle just once per trading day, after the market close. Most, but not all, ETFs are index funds. ETFs are popular in most types of investment accounts, but not 529 plans.

Bonds and bond funds

Bonds are a type of debt security where an entity (the government, a company, etc.) borrows money from you, then pays you back the principal with interest. These don’t have nearly the growth potential of stocks, but they’re largely considered safer investments. Bond funds are mutual funds or ETFs that invest in bonds. Custodial accounts, joint accounts, and IRAs typically allow you to buy bond funds and might let you buy individual bonds depending on the provider. ESAs and 529s might offer bond funds, as well.

Money market funds

A money market fund is a type of mutual fund that invests in short-term debt securities. There is virtually no upside past the income they generate, but they’re exceedingly stable investments. You can typically invest in these via every type of investment account mentioned.

Should minors also have a savings account?

Yes, minors can benefit from a savings account. Investment accounts are ideal for long-term savings, while savings accounts are useful for short-term savings. For example, a savings account is a great place to put money a child is saving for a video game or summer camp a few months in the future. In today’s interest-rate environment, you might want to consider a high-yield savings account. As the name implies, a high-yield savings account generates far more income than a traditional savings account.

Can minors invest in retirement accounts?

Yes, minors can invest in retirement accounts: specifically, custodial IRAs and custodial Roth IRAs. An adult needs to be the custodian of the account and make final decisions on contributions, investments, and any distributions.

To be eligible, the minor must have earned income during the year. Earned income includes all taxable income and wages received, whether it be as an employee or self-employed worker.

Contributions can’t be more than the child earned that year, or exceed annual contribution limits. However, parents can contribute their own money instead of the child’s money, allowing the minor to keep their cash to either save or spend.

Do custodial accounts affect financial aid eligibility for college?

Yes, a custodial brokerage account can have a massive impact on financial aid eligibility. The assets within a custodial account belong to the soon-to-be college student. Remember: The FAFSA calculation assumes 20% of assets owned by a dependent student will be used to pay for school.

Those who are specifically setting money aside for a child’s future education should consider other options, such as a 529 plan, ESA, or custodial Roth IRA.

Do 529 plans and education savings accounts affect financial aid?

While 529 plans and education savings accounts do have an impact on financial aid, the impact is minimal if the student’s parents own the account. Parents are expected to contribute a much smaller amount of their assets than the student.

The effect on financial aid is a little greater if the student owns a 529 account themselves.

And in some cases, another adult—say, a grandparent, other relative, or even family friend—owns a 529. While the 529 plan itself would not be counted as an asset against eligibility, any 529 withdrawals would because they qualify as unearned income. And unearned income is calculated at the 20% rate toward the Student Aid Index (SAI).

Do kids pay taxes on earnings in their investment accounts?

Whether children have to pay taxes on earnings in their investment accounts depends on the type of account. For example, earnings from a 529 plan that are spent on qualified education expenses are not taxed.

Earnings in a Roth IRA grow tax-free as long as the money stays in the account and can be withdrawn tax-free after age 59 1/2 (if the account is at least five years old) and for some purposes at younger ages. However, children with custodial accounts who have more than a certain threshold of unearned income are subject to the kiddie tax.