What Age Can You Buy Stocks?

Investing in stocks allows individuals to own a portion of publicly traded companies. This form of investment offers the potential for capital appreciation and dividend income, making it a common strategy for building personal wealth over time. Understanding how to participate in the stock market is a key step for many seeking to grow their financial resources.

Legal Age for Investing

In the United States, the legal age for entering into financial contracts, including opening investment accounts and purchasing stocks, is generally 18 years old. This age is consistent across most states, establishing legal capacity for such agreements. The requirement ensures that individuals are deemed mature enough to understand the implications and responsibilities associated with financial transactions.

This age aligns with the legal concept of majority, where a person gains full legal rights and responsibilities. Before reaching this age, individuals lack the legal standing to independently execute contracts or assume investment obligations. Brokerage firms are prohibited from opening standard investment accounts for minors.

Investing for Minors

Individuals under 18 cannot directly open investment accounts but can participate through custodial accounts. These accounts are managed by an adult custodian for the minor’s benefit. The two primary types of custodial accounts are the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA) accounts.

UGMA accounts hold financial assets like stocks, bonds, mutual funds, and cash. UTMA accounts offer more flexibility, permitting a broader range of assets, including real estate and other tangible property, in addition to financial instruments. The custodian has a fiduciary duty to manage the assets prudently for the minor’s benefit, making all investment decisions until the minor reaches the age of majority.

Upon reaching the age of majority, which is typically 18 or 21 depending on the specific state law governing the account, control of the assets is legally transferred from the custodian to the now-adult beneficiary. Assets within these accounts are irrevocably owned by the minor; they cannot be reclaimed by the custodian. Contributions may have gift tax implications, and earnings are taxed at the minor’s rate, often subject to “kiddie tax” rules.

Opening an Investment Account

Opening an investment account, for an adult or a minor, involves a straightforward process. The first step is selecting a reputable brokerage firm offering the desired account type. Many online brokerages provide a wide range of investment options and competitive fee structures.

Applicants typically need to provide personal identification information, such as a Social Security Number, date of birth, and a government-issued identification like a driver’s license. For custodial accounts, both custodian’s and minor’s information is required. After completing the application, funds can be transferred through various methods, including electronic transfers, wire transfers, or checks.