How Old Do You Have to Be to Own Stock?

Investing in the stock market offers potential financial growth. This form of investment allows individuals to own a share of a company, participating in its success and growth. Directly participating in the stock market typically requires an individual to be of legal age, which is generally 18 years old in most places.

Age Requirements for Direct Stock Ownership

Individuals generally cannot directly own stock or open a brokerage account if they are under the age of 18. This restriction stems from the legal principle of contractual capacity. Minors are typically considered to lack the full legal capacity to enter into binding contracts, which is a fundamental requirement for engaging in financial transactions like buying and selling securities.

Brokerage firms are mandated to verify the age of account holders to ensure that all parties entering into investment agreements have the legal ability to do so. Consequently, an adult must be involved in some capacity for a minor to participate in stock ownership.

Enabling Stock Ownership for Minors

While direct stock ownership is not permissible for minors, specific legal structures exist to allow them to hold investments. The most common methods involve custodial accounts established under either the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). These accounts enable an adult, known as the custodian, to manage assets for the benefit of a minor beneficiary.

The custodian, often a parent or guardian, is responsible for making investment decisions and managing the account’s assets prudently until the minor reaches the age of majority. These accounts can hold various types of assets, including stocks, bonds, mutual funds, and cash. Funds within these accounts must be used for the minor’s benefit, such as for education, healthcare, or other legitimate expenses. Upon the minor reaching the age of majority, the custodian is legally obligated to transfer control of the assets directly to the now-adult beneficiary.

Tax Implications of Minor Stock Ownership

Investment income generated within custodial accounts for minors is subject to specific tax rules, notably the “kiddie tax.” This tax applies to a minor’s unearned income, such as dividends and capital gains from stocks, if it exceeds certain thresholds. For the 2025 tax year, the first $1,350 of a child’s unearned income is generally tax-free.

The next $1,350 of unearned income is taxed at the child’s own tax rate. Any unearned income exceeding $2,700 is then taxed at the parent’s marginal tax rate, which is typically higher than the child’s rate. This rule aims to prevent families from shifting investment income to children in lower tax brackets to reduce their overall tax liability. Income from these accounts is typically reported on IRS Form 8615, “Tax for Certain Children Who Have Unearned Income.”

Transferring Custodial Assets to Adulthood

When a minor beneficiary of a UGMA or UTMA account reaches the age of majority, the custodian’s management responsibilities conclude, and the assets must be transferred directly to the beneficiary. The specific age of majority for these transfers can vary by state, typically being 18 or 21 years old. This transfer is an irrevocable event, giving the former minor full legal control over the assets.

Upon transfer, the custodial account is typically converted into a standard individual brokerage account in the beneficiary’s name. The beneficiary then assumes complete control over the investment decisions and any associated tax obligations. This transition marks the point where the individual can engage in direct stock ownership and manage their investments independently, without custodial oversight.