How Old Do You Have to Be to Invest in Stocks?

Investing in the stock market offers individuals a path to potentially grow their wealth over time. It allows participants to own a piece of publicly traded companies, benefiting from their growth and profitability. Many people consider investing as a way to achieve long-term financial goals, such as saving for retirement, a down payment on a home, or funding education. The earlier one begins investing, the more time their money has to compound and potentially increase in value.

Legal Age for Investing

To independently invest in stocks, an individual must meet the legal age of majority. This age is generally 18 years old in most U.S. states, though some states set it at 19 or 21. Reaching the age of majority signifies that a person is legally considered an adult and can enter into binding contracts, including opening a brokerage account.

The requirement for individuals to be of legal age stems from the legal concept of contractual capacity. Minors are generally considered to lack full contractual capacity, meaning contracts they enter into are often voidable. Brokerage firms require investors to be legal adults to ensure the enforceability of their agreements.

Investing as a Minor

While individuals need to be 18 to open their own brokerage account, minors can still invest in stocks through specific legal structures. Custodial accounts are the primary mechanism for minor investment, established and managed by an adult on behalf of the minor. These accounts operate under state laws known as the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA).

Under both UGMA and UTMA, an adult, known as the custodian, has a fiduciary duty to manage the assets in the account for the minor’s benefit. The assets placed into these accounts are an irrevocable gift to the minor, meaning they legally belong to the child, even though the custodian controls them until the child reaches a specified age. A key distinction between the two acts lies in the types of assets they can hold: UGMA accounts are generally limited to financial assets like cash, stocks, bonds, and mutual funds, while UTMA accounts are broader and can include real estate, intellectual property, and other tangible assets.

Setting Up a Custodial Investment Account

Establishing a custodial investment account involves a straightforward process initiated through a brokerage firm. Selecting a financial institution that offers UGMA or UTMA accounts is the first step. Once a firm is chosen, the designated custodian will need to complete an application form.

This application process requires specific personal information for both the custodian and the minor beneficiary. Essential documents include their Social Security numbers, legal names, dates of birth, and current addresses. The custodian will also need to provide information for a linked bank account, which will be used to fund the custodial account. After the application is approved, the account can be funded through various methods, such as electronic transfers or checks.

Managing and Transferring Custodial Accounts

Once a custodial account is established, the custodian assumes responsibilities for managing the investments. The custodian is tasked with making investment decisions, which must be in the best interest of the minor beneficiary. They are also responsible for handling any tax reporting related to the account’s income.

As the minor approaches the age of majority, the assets held in the custodial account must be transferred to them. The age at which this transfer occurs varies by state, ranging from 18 to 21, though some states permit the transfer to be delayed until age 25. Upon transfer, the now-adult beneficiary gains full legal control over all assets in the account and can use them for any purpose they choose.

Custodial accounts are subject to specific tax rules, notably the “kiddie tax.” This rule applies to unearned income, such as interest, dividends, and capital gains, generated within the account. For 2025, the first $1,350 of a child’s unearned income is tax-free, the next $1,350 is taxed at the child’s rate, and any unearned income above $2,700 is taxed at the parents’ marginal tax rate. The kiddie tax was implemented to prevent families from shifting income to children to take advantage of lower tax brackets.