How Old Must You Be to Invest in Stocks?

Investing in the stock market can build wealth over time. Understanding the rules of investment, particularly those concerning age, is important for anyone considering financial markets. Regulations exist to protect individuals, and these involve specific age requirements for direct investment.

Legal Age for Stock Investing

Individuals must be at least 18 years old to open a brokerage account and directly invest. This age requirement stems from the legal principle of contractual capacity. Investing involves entering into contracts with brokerage firms. Minors lack the legal authority to form binding contracts.

If a minor were to enter into a contract, it could be deemed unenforceable, creating legal complications for financial institutions. For this reason, brokerage firms will not permit someone under the age of majority to open an account independently. This restriction ensures all parties involved in investment transactions are legally capable of fulfilling their obligations.

While the age of majority for contractual purposes is 18 in most parts of the United States, some jurisdictions may set it at 21. Regardless of the specific age, the rationale remains consistent: individuals must possess the legal standing to engage in financial agreements. This legal framework provides a layer of protection by requiring adult oversight for financial activities.

Custodial Accounts for Minor Investing

For those under the legal age to invest directly, custodial accounts provide a pathway to participate in the stock market. These accounts are established by an adult, known as the custodian, on behalf of a minor beneficiary. The assets held within a custodial account are considered an irrevocable gift to the minor, meaning the funds legally belong to the child and cannot be reclaimed by the donor.

Two common types of custodial accounts are Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts. UGMA accounts are limited to holding financial assets such as cash, stocks, bonds, and mutual funds. UTMA accounts offer broader flexibility, allowing for a wider range of assets, including real estate, art, and intellectual property. While UGMA is recognized in all states, UTMA has been adopted by most, expanding the types of property that can be transferred.

Opening a custodial account involves providing personal details for both the custodian and the minor beneficiary. This information includes the minor’s full legal name, date of birth, Social Security Number, and address. Custodial accounts can be established at various financial institutions, including brokerage firms, banks, and mutual fund companies. Once the account is set up, anyone can contribute funds or transfer securities into it, though these contributions may be subject to annual gift tax exclusions, such as $19,000 per individual for 2025.

Managing and Transitioning Custodial Accounts

The custodian assumes responsibilities for managing the account. They are tasked with making investment decisions that are in the minor’s best interest, operating under a fiduciary duty. This oversight continues until the minor reaches the age of majority or the specified termination age for the account. Funds must be used for the benefit of the child; the custodian cannot withdraw money for personal expenses.

Custodial accounts are subject to specific tax rules, notably the “kiddie tax.” This tax applies to a minor’s unearned income, which includes interest, dividends, and capital gains generated by the investments. 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 own income tax rate. Any unearned income exceeding $2,700 is then taxed at the parents’ marginal tax rate, which is higher.

The kiddie tax applies to children under 19, or full-time students under 24 if their earned income does not constitute more than half of their support. The minor’s Social Security Number is used for tax reporting purposes.

The custodianship of the account ends when the beneficiary reaches the age of majority, which varies by state but is 18 or 21. Some states allow the custodianship to continue until age 25. At this point, control and ownership of the assets must be transferred to the now-adult beneficiary. This transition involves the beneficiary opening a new brokerage account in their own name to receive the assets, with the process initiated by the custodian or automatically by the financial institution. Assets held in custodial accounts are considered the child’s assets, which can affect eligibility for need-based financial aid for college.