How Old Do You Have to Be to Have Stocks?

Investing in the stock market can be a valuable tool for long-term financial growth and can teach important lessons about financial planning. When considering investments for younger individuals, questions often arise regarding the specific age requirements for owning stocks. While direct stock ownership for minors presents certain legal complexities, established mechanisms exist to allow younger individuals to benefit from market participation. Understanding these avenues is important for parents, guardians, and anyone looking to initiate a minor into the world of investing.

Direct Stock Ownership Age Requirements

An individual must reach the age of majority to directly own or trade stocks. The age of majority is 18 years old in most states across the United States. However, a few states have different age requirements, such as Alabama and Nebraska, where it is 19, and Mississippi, where it is 21.

This age requirement stems from the legal principle of contractual capacity. Minors typically lack the legal capacity to enter into binding contracts, and investment agreements, including those for buying and selling stocks, are considered contracts. Because of this limitation, a minor cannot open a brokerage account or directly engage in stock market transactions in their own name. This rule protects minors from potentially entering into financial obligations they may not fully comprehend.

Establishing Custodial Investment Accounts

Since minors cannot directly own stocks, a common solution is establishing a custodial investment account. These accounts allow an adult to manage assets on behalf of a minor until the child reaches a specific age, typically the age of majority. Two primary types of custodial accounts exist: the Uniform Gifts to Minors Act (UGMA) account and the Uniform Transfers to Minors Act (UTMA) account.

UGMA accounts hold financial assets like cash, stocks, bonds, mutual funds, and insurance policies. UTMA accounts offer broader flexibility, encompassing all assets permissible in an UGMA account, plus other property like real estate, intellectual property, and artwork. Most states have adopted UTMA, while UGMA accounts are available nationwide. Once assets are transferred into either account type, they become an irrevocable gift to the minor, meaning the donor cannot reclaim them.

An adult, such as a parent or grandparent, opens the custodial account and acts as the custodian. The custodian manages investments and ensures all transactions benefit the minor. To open an account, the custodian provides their personal information, the minor’s details, and both Social Security numbers. The account is registered under the minor’s Social Security number, and the custodian manages assets until the minor reaches the age of termination, when control transfers to the now-adult beneficiary.

Tax Implications for Minor’s Investments

Investments in a minor’s custodial account are subject to specific tax rules, governed by the “kiddie tax.” This tax applies to a dependent child’s unearned income, including dividends, interest, and capital gains from investments. The kiddie tax prevents adults from shifting investment income to children for lower tax rates.

For the 2024 tax year, the first $1,300 of a child’s unearned income is tax-free. The next $1,300 is taxed at the child’s rate. Any unearned income exceeding $2,600 for 2024 is taxed at the parents’ marginal income tax rate. For 2025, these thresholds increase slightly: the first $1,350 is tax-free, the next $1,350 taxed at the child’s rate, and amounts above $2,700 taxed at the parents’ rate.

The custodian ensures these tax obligations are met. If a child’s unearned income exceeds the annual threshold, they may need to file IRS Form 8615. Alternatively, if the child’s gross income is below a certain threshold (e.g., less than $13,000 in 2024 or $13,500 in 2025), parents might elect to report the child’s interest and dividends on their own tax return using IRS Form 8814. This election can simplify filing but may increase the parents’ taxable income.

Transferring Account Control to Adults

Upon reaching a specific age, the custodial account must transfer from the custodian’s control to the now-adult beneficiary. This age of termination varies by state and account type, typically ranging from 18 to 21 for UGMA accounts, and potentially up to 25 or even 30 for UTMA accounts in some states. This transfer is mandatory and ensures the assets, which legally belong to the beneficiary, come under their direct control.

The transfer process usually involves the custodian or beneficiary initiating it with the financial institution. The custodian might complete a “Transfer/Registration Change Request” form. If the beneficiary requests the transfer, they need to provide proof of age, such as a birth certificate or valid government-issued identification.

Once documentation is submitted and verified, the financial institution re-registers the account in the adult’s name. Assets can be transferred into a new individual or joint account established by the former minor. At this point, the former minor gains complete legal control over the assets and can use them for any purpose, as the custodian’s management responsibilities cease.