How Old Do You Have to Be to Buy Stocks?

Investing in stocks is linked to an individual’s legal capacity to enter into binding agreements. While direct stock ownership has specific age limitations, various pathways exist for younger individuals to participate in the stock market. These avenues allow for early exposure to investing principles and potential for long-term financial growth, even before reaching the age of majority. Understanding these distinctions is important for navigating the investment landscape.

Minimum Age for Direct Stock Ownership

Individuals seeking to directly buy and sell stocks in the United States must meet the age of majority, typically 18 years old in most states. This age requirement stems from the legal principle that individuals must possess the capacity to enter binding contracts. Brokerage firms require account holders to be of legal age to ensure the enforceability of agreements when opening an investment account. Some states set the age of majority at 19 or 21 for contractual purposes, which can affect opening a brokerage account independently. For instance, Alabama and Nebraska require individuals to be 19, while Mississippi sets the age at 21.

Investing for Minors

While direct stock ownership is restricted for minors, several options allow them to participate in the stock market, primarily through custodial accounts. These accounts ensure that assets are held and managed for the minor’s benefit by an adult until the minor reaches the age of majority. The two main types of custodial accounts are the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA) accounts. Assets in these accounts are irrevocably gifted to the minor beneficiary but are managed by a designated adult custodian.

UGMA accounts are designed to hold financial assets like cash, stocks, bonds, mutual funds, and insurance policies, and are available in all 50 states. UTMA accounts offer broader flexibility, holding a wider range of assets beyond traditional financial instruments, including real estate, intellectual property, and artwork. Most states have adopted the UTMA, with the exception of Vermont and South Carolina, which primarily use UGMA. The age at which the minor gains control of assets varies by state, ranging from 18 to 21, or up to 25, depending on state UGMA/UTMA laws.

Opening and Managing a Custodial Account

Establishing a custodial account involves a straightforward process, facilitated by major brokerage firms, banks, or mutual fund companies. To open an account, the custodian needs to provide their Social Security Number, the minor’s Social Security Number, and the dates of birth for both individuals. These accounts are set up in the minor’s name, with the designated adult acting as the custodian responsible for managing investments.

The custodian acts in a fiduciary capacity to manage the assets in the minor’s best interest. This includes making all investment decisions, maintaining accurate records, and ensuring withdrawals are solely for the minor’s benefit. While the custodian controls the account, the assets legally belong to the minor and are irrevocable once placed in the account; the custodian cannot reclaim them. The custodian retains control until the minor reaches the age specified by state UGMA or UTMA law for account termination.

Account Transition and Tax Implications

When the minor beneficiary reaches the age of majority or the age stipulated by state UGMA or UTMA laws, the custodial relationship terminates. The custodian must then transfer control of the assets directly to the now-adult beneficiary. This transition involves opening a new account in the adult’s name or transferring existing assets into an account solely controlled by the former minor. Once complete, the new adult account holder has full discretion over the funds.

Regarding taxation, income and capital gains in a custodial account are generally taxable to the minor, not the custodian. This can offer a tax advantage as the minor’s tax rate is often lower.

However, “Kiddie Tax” rules, outlined in Internal Revenue Code Section 1, apply to unearned income of certain children. For 2025, the first $1,350 of a child’s unearned income is tax-free, and the next $1,350 is taxed at the child’s rate. Any unearned income exceeding $2,700 for 2025 is taxed at the parent’s marginal tax rate. These rules apply to children under 19, or full-time students under 24 whose earned income does not exceed half of their support. Parents may report the child’s interest and dividends on their own return using Form 8814 if conditions are met, such as unearned income below $13,500 for 2025.