Can You Buy Stocks Under 18? A Look at Your Options

Investing in the stock market can be a valuable way to build wealth over time, and many individuals consider starting this process early. However, a common question arises regarding whether individuals under the age of 18 can directly participate in stock ownership. The legal framework surrounding minors and financial contracts introduces specific considerations that shape the available avenues for youthful investors.

Direct Stock Ownership for Minors

Minors generally face restrictions when attempting to directly own or purchase stocks in their own name. This limitation stems from the legal concept of contractual capacity. Individuals under the age of majority, typically 18, are usually not considered to possess the full legal competence required to enter into binding agreements. A brokerage agreement, which is necessary to buy and sell securities, is a type of contract. While a minor might physically acquire a stock, any contract they enter into is typically voidable by the minor at their discretion. Due to these inherent legal vulnerabilities and the desire to avoid such risks, financial institutions and brokerage firms universally require account holders to be at least 18 years old to open a standard investment account.

Custodial Investment Accounts

To address the limitations on direct ownership, custodial accounts provide a structured and legal mechanism for minors to own investments. These accounts hold assets in the minor’s name, but an adult, known as the custodian, manages the investments. The two primary types of custodial accounts are established under the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA). UGMA accounts typically allow for financial assets such as cash, stocks, bonds, and mutual funds. UTMA accounts offer broader flexibility, permitting the inclusion of financial assets along with physical assets like real estate, artwork, and intellectual property.

Any adult can serve as the custodian for these accounts. The custodian has a fiduciary duty, meaning they must manage the investments responsibly and solely for the minor’s well-being. Once a gift is made to a custodial account, it is irrevocable, becoming the legal property of the minor even though the custodian controls it until the minor reaches the age of majority. When opening a custodial account, specific information is required for both the custodian and the minor beneficiary. The custodian typically provides their Social Security Number, date of birth, current address, and contact information, while the minor beneficiary’s Social Security Number and date of birth are necessary.

Opening and Managing a Custodial Account

Major brokerage firms, mutual fund companies, and even some banks commonly offer custodial accounts. The application process typically involves the custodian completing paperwork on behalf of the minor, often online. Initial and subsequent contributions to the account can be made through various methods, including electronic transfers, checks, or even transfers of existing stock.

The custodian assumes ongoing responsibilities, making all investment decisions, maintaining accurate records of transactions, and ensuring that all funds and assets are utilized strictly for the minor’s benefit. This oversight continues until the minor reaches a specific age, at which point the account transitions. When the minor reaches the age of majority, which is typically 18 or 21 depending on the state where the account was established, control of the assets must be transferred to the now-adult beneficiary. The process involves re-registering the account in the adult’s name, granting them full legal control and discretion over the funds.

Tax Implications of Minor Investments

Investments held in a minor’s name, predominantly through custodial accounts, are subject to specific tax rules, notably the “Kiddie Tax.” The Kiddie Tax applies to a minor’s unearned income, which includes investment earnings such as dividends, interest, and capital gains. For the 2025 tax year, the first $1,350 of unearned income is tax-free. The next $1,350 is taxed at the child’s rate, and amounts above $2,700 are taxed at the parent’s marginal rate.

Investment income from these accounts is typically reported on IRS Form 8615, “Tax for Certain Children Who Have Unearned Income,” which must be filed with the child’s tax return if their unearned income exceeds the threshold. Alternatively, parents may elect to report the child’s interest and dividends on their own tax return using IRS Form 8814 if the child’s gross income is below a certain amount.

Alternative Investment Strategies for Minors

Beyond custodial accounts, several other strategies exist for parents or guardians to save and invest for a minor’s future.

529 Plans: These are specifically designed for education savings, offering tax benefits when funds are used for qualified educational expenses. Contributions are made with after-tax dollars, and earnings grow tax-deferred, with qualified withdrawals being tax-free. Unlike custodial accounts, 529 plans are considered parental assets for financial aid purposes, which can result in a lower impact on eligibility.
U.S. Savings Bonds: A low-risk savings option, these bonds (Series EE and Series I) are purchased through the TreasuryDirect website and can be held in a minor-linked account managed by an adult. They offer interest over time and are considered a secure investment backed by the U.S. government.
Minor IRAs: Often structured as custodial IRAs, these allow a minor to contribute if they have earned income. These accounts function similarly to adult IRAs, with contributions limited to the lesser of the annual contribution limit or the minor’s earned income for the year. They provide a way for minors to begin saving for retirement with potential tax advantages, especially if established as a Roth IRA where qualified withdrawals in retirement are tax-free.