Do You Have to Be 18 to Buy Stocks?

Generally, individuals must be 18 years old to directly purchase stocks. While this age requirement prevents minors from engaging in direct stock market transactions, established legal avenues enable them to own investments. These pathways provide a structured approach for younger individuals to build a financial future with oversight until adulthood. This allows for early financial education and asset accumulation under responsible management.

Legal Age for Stock Purchases

The ability to directly purchase stocks is tied to the legal concept of the “age of majority,” which is typically 18 years old in most states across the United States. This age signifies when an individual is legally considered an adult, capable of entering into binding agreements and assuming full responsibility for their actions. Before reaching this age, individuals are generally deemed to lack the legal capacity to form contracts.

Purchasing stocks involves entering into legally binding contracts with brokerage firms. These agreements outline the terms of the investment, including the purchase, sale, and holding of securities. Since minors generally cannot legally form such contracts, brokerage firms are prevented from opening accounts for them directly. This rule protects minors from financial obligations and risks they may not fully comprehend.

This legal framework safeguards minors from financial decisions without adequate understanding. Consequently, a minor cannot independently open a brokerage account or directly buy and sell securities in their own name.

Investing for Minors Through Custodial Accounts

For minors to own investments, a specialized account known as a custodial account is utilized. An adult, designated as the custodian, establishes and manages this investment account for the sole benefit of a minor, who is the beneficiary. This structure allows assets to be held and grown for a child’s future, circumventing the legal limitations on minors directly owning investments.

Two primary types of custodial accounts exist: the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA) accounts. UGMA accounts are generally limited to financial assets such as cash, stocks, bonds, and mutual funds. UTMA accounts offer greater flexibility, allowing for a broader range of assets, including physical property like real estate or intellectual property, in addition to financial assets. While UGMA accounts are available in all states, UTMA accounts are more widely adopted, though some states do not permit them.

The custodian assumes the responsibility of managing the assets within the account, while the minor is the legal owner of these assets. To open a custodial account, an adult typically chooses a brokerage firm that offers these account types. The process involves providing personal information for both the custodian and the minor, including names, addresses, and Social Security numbers. After establishment, the account can be funded through cash deposits or security transfers.

Custodian Responsibilities and Account Transfer

The custodian has fiduciary responsibilities, legally bound to manage investments prudently and in the minor’s best interest. This includes making informed investment decisions, maintaining accurate records of all transactions, and ensuring that all funds are used exclusively for the minor’s benefit. Permissible uses typically include expenses for education, healthcare, or general welfare, but funds cannot be used for the custodian’s personal gain.

When the minor reaches the age of majority, or a state-designated age for custodial accounts, assets transfer to them. This age varies by state, commonly falling between 18 and 21 for UGMA accounts, and up to 25 for UTMA accounts. Upon transfer, the adult beneficiary gains full control over the investments, including the ability to manage, sell, or withdraw assets.

Custodial accounts also have specific tax implications. Investment income generated within the account is typically reported under the minor’s Social Security number. However, unearned income, such as interest and dividends, may be subject to what is known as the “kiddie tax.” For the 2024 tax year, if a minor’s unearned income exceeds $2,600, a portion of that income will be taxed at the parent’s marginal tax rate, rather than the child’s potentially lower rate. For the 2025 tax year, this threshold increases to $2,700.