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

Investing in the stock market offers a path to long-term wealth accumulation and financial literacy. While direct participation has age restrictions, various mechanisms allow minors to begin their investment journey. Understanding these legal frameworks is important for parents and guardians looking to support a younger person’s financial future.

Minimum Age for Personal Investment Accounts

Individuals must reach the age of majority to independently open and manage a brokerage account for stock investments. In most U.S. states, this age is 18, signifying legal adulthood and the capacity to enter binding contracts. Some states, however, set the age of majority at 19 (e.g., Alabama and Nebraska) or 21 (e.g., Mississippi).

Brokerage firms cannot establish direct accounts for individuals below this age because minors lack the contractual capacity for financial transactions. Any contract entered into by a minor could potentially be voided. This necessitates alternative arrangements for their investments.

Investment Options for Minors

For individuals under the age of majority, custodial accounts provide a primary avenue for stock market participation. An adult, known as the custodian, establishes these accounts for a minor beneficiary. The two prevalent types are Uniform Gifts to Minors Act (UGMA) accounts and Uniform Transfers to Minors Act (UTMA) accounts, both designed to facilitate asset transfer to minors without a formal trust.

UGMA accounts hold financial assets like cash, stocks, bonds, mutual funds, and life insurance policies, and are available in all 50 states. UTMA accounts offer broader flexibility, including all assets permissible in UGMA accounts, plus physical assets such as real estate, vehicles, and fine art.

While UTMA accounts provide wider asset versatility, they are not adopted in every state; Vermont and South Carolina, for instance, operate solely under UGMA statutes. In both UGMA and UTMA structures, the assets contributed become an irrevocable gift to the minor. The custodian assumes a fiduciary responsibility to manage these assets prudently, making investment decisions solely for the minor’s benefit until the minor reaches a specified age.

Managing Minor Accounts and Asset Transfer

The custodian of an UGMA or UTMA account manages the assets on behalf of the minor beneficiary. This role involves making investment decisions, maintaining records, and ensuring all transactions are conducted in the minor’s best interest. The custodian must act with the same care and judgment that a prudent person would exercise in managing their own financial affairs.

Assets placed into an UGMA or UTMA account are irrevocable gifts and legally belong to the minor. They cannot be reclaimed by the donor or custodian. Funds withdrawn from the account must be used for expenses that directly benefit the minor, such as education or healthcare, rather than for the custodian’s personal use.

Custodianship terminates when the minor reaches a specific age, at which point full legal control of the assets automatically transfers to the now-adult beneficiary. This age varies by state, typically ranging from 18 to 21 years old, though some states permit UTMA accounts to extend custodianship until age 25. Upon transfer, the former minor gains complete discretion over the funds.

Tax Considerations for Minor Investments

Investment income generated within UGMA and UTMA accounts is generally taxable to the minor beneficiary, not the custodian or donor. However, the “Kiddie Tax” can alter this taxation depending on the amount of unearned income the minor receives.

The Kiddie Tax applies to a minor’s unearned income, which includes dividends, interest, and capital gains from investments. For the 2024 tax year, the first $1,300 of a child’s unearned income is tax-free, and the subsequent $1,300 is taxed at the child’s own tax rate. Any unearned income exceeding $2,600 is then taxed at the parent’s marginal tax rate. For the 2025 tax year, these thresholds adjust to $1,350 for the tax-free portion, $1,350 at the child’s rate, and amounts above $2,700 taxed at the parent’s rate.

This tax applies to children under age 18 at the end of the tax year, or to full-time students aged 18 to 23 if their earned income does not exceed half of their support. Parents may elect to include their child’s unearned income on their own tax return using IRS Form 8814 if certain conditions are met, such as the child’s gross income being below $13,000 for 2024 or $13,500 for 2025, and consisting solely of interest and dividends. Otherwise, Form 8615 must be filed with the child’s tax return.