What Age to Start Investing: Key Insights for Young Investors

Investing early can significantly impact long-term financial growth through compounding. The sooner money is invested, the more time it has to grow, potentially turning small contributions into substantial wealth. However, many young investors are unsure when and how to start, as well as what options are available at different ages.

Understanding the best time to begin investing requires considering legal requirements, tax implications, and account types designed for younger individuals.

Minimum Age Requirements for Investing

The ability to invest independently depends on legal age restrictions, which vary based on the type of investment and jurisdiction. In the United States, individuals must be at least 18 years old to open a brokerage account in their own name. Financial contracts, including those required for trading stocks, bonds, and mutual funds, are legally binding agreements that minors cannot enter into without a guardian’s consent. Some states extend this restriction to 19 or 21, depending on local laws.

Despite these age limits, younger individuals can invest through alternative means. Many brokerage firms offer joint accounts with a parent or guardian, allowing teenagers to learn about market dynamics while under supervision. Some platforms also provide educational tools to help young investors build financial literacy before they reach the age of independent investing.

Cryptocurrency and alternative assets present different challenges. While traditional brokerages enforce strict age requirements, decentralized finance (DeFi) platforms and crypto exchanges often lack robust age verification processes. This has led to a growing number of underage investors participating in digital asset markets, sometimes without fully understanding the risks. However, major U.S.-based exchanges like Coinbase and Kraken require users to be at least 18 to comply with financial regulations.

Custodial Accounts

For minors who want to invest but cannot open brokerage accounts in their own name, custodial accounts offer a structured alternative. Established under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA), these accounts allow an adult—typically a parent or guardian—to manage investments on behalf of a minor until they reach the age of majority. Unlike joint accounts, where both parties have control, custodial accounts are legally owned by the minor, but the custodian makes investment decisions until the child assumes full ownership, usually at 18 or 21, depending on state laws.

Custodial accounts offer flexibility in investment choices, allowing funds to be allocated to stocks, bonds, mutual funds, and ETFs. Unlike education-specific accounts such as 529 plans, custodial accounts have no restrictions on how the funds are ultimately used. Once the minor takes control, they can use the money for any purpose, whether it’s further education, starting a business, or purchasing a home.

These accounts do come with considerations. Contributions to UGMA/UTMA accounts are irrevocable gifts, meaning assets placed in the account legally belong to the minor and cannot be reclaimed. Additionally, because these accounts are counted as the child’s assets for financial aid purposes, they can have a greater impact on eligibility for need-based aid. The Free Application for Federal Student Aid (FAFSA) assesses student-owned assets at a higher rate—up to 20%—whereas parental assets are considered at a maximum of 5.64%, which can reduce financial aid awards.

Tax Implications by Age

Investment taxation varies based on age, income level, and asset type. For younger investors, one of the most relevant tax considerations is the “kiddie tax,” which applies to unearned income—such as dividends, interest, and capital gains—earned by minors. Under the 2024 tax code, the first $1,300 of a child’s unearned income is tax-free, and the next $1,300 is taxed at the child’s rate. Any unearned income above $2,600 is taxed at the parent’s marginal tax rate. This rule prevents high-income families from shifting large amounts of investment income to their children to take advantage of lower tax brackets.

As young investors transition into adulthood, taxation shifts based on their filing status and income sources. Once they begin earning wages from part-time jobs or internships, they may owe taxes on both earned and unearned income. If their total annual income remains below the standard deduction threshold—$14,600 for single filers in 2024—they may not owe federal income tax. However, investment income is still subject to taxation, and capital gains tax rates vary based on how long an asset is held. Short-term capital gains—profits from investments sold within a year—are taxed at ordinary income rates, while long-term capital gains benefit from lower rates, ranging from 0% to 20%, depending on taxable income.

For those entering the workforce full-time, employer stock options and equity compensation introduce additional tax complexities. Incentive stock options (ISOs) and non-qualified stock options (NSOs) are taxed differently; ISOs may qualify for favorable long-term capital gains treatment if held for at least two years from the grant date and one year from the exercise date, while NSOs are taxed as ordinary income upon exercise. Understanding these distinctions is important for young professionals receiving stock-based compensation, as mismanaging sales and holding periods can lead to unintended tax liabilities.

Retirement Accounts for Early Investors

Starting to save for retirement at a young age can significantly enhance long-term financial security due to compounding. Even small contributions made early can grow substantially over decades. Several tax-advantaged retirement accounts are available to young investors, each with distinct benefits and rules regarding contributions, withdrawals, and tax treatment.

Roth IRA

A Roth IRA allows individuals to contribute after-tax income, meaning withdrawals in retirement are tax-free if certain conditions are met. For 2024, the contribution limit is $7,000 for individuals under 50, and contributions can only be made from earned income, such as wages or self-employment earnings. This makes it an attractive option for teenagers and young adults with part-time jobs.

A key advantage of a Roth IRA is its flexibility. Contributions (but not earnings) can be withdrawn at any time without penalties or taxes, making it useful for both retirement savings and potential short-term financial needs. Additionally, qualified withdrawals of earnings—such as those made after age 59½ and after holding the account for at least five years—are entirely tax-free. Early withdrawals of earnings may be subject to a 10% penalty and income tax unless an exception applies, such as using up to $10,000 for a first-time home purchase.

Traditional IRA

A Traditional IRA offers tax-deferred growth, meaning contributions may be tax-deductible in the year they are made, but withdrawals in retirement are taxed as ordinary income. The same $7,000 contribution limit applies in 2024, and, like a Roth IRA, contributions require earned income. However, deductibility depends on whether the account holder or their spouse is covered by a workplace retirement plan and their modified adjusted gross income (MAGI).

For young investors, the tax deduction may not be as beneficial if they are in a low tax bracket, making a Roth IRA the preferable choice. However, a Traditional IRA can be advantageous for those expecting to be in a lower tax bracket in retirement. Required minimum distributions (RMDs) begin at age 73, meaning account holders must start withdrawing funds and paying taxes on them, unlike a Roth IRA, which has no RMDs during the account holder’s lifetime. Early withdrawals before age 59½ generally incur a 10% penalty plus income tax, though exceptions exist for qualified expenses such as higher education costs and first-time home purchases.

401(k)

A 401(k) is an employer-sponsored retirement plan that allows employees to contribute pre-tax income, reducing their taxable income in the contribution year. The 2024 contribution limit is $23,000 for employees under 50, and many employers offer matching contributions, effectively providing free money for retirement savings. Some employers also offer a Roth 401(k) option, which functions similarly to a Roth IRA but with higher contribution limits and no income restrictions.

One of the main benefits of a 401(k) is automatic payroll deductions, which make saving effortless. However, early withdrawals before age 59½ are subject to a 10% penalty and income tax unless an exception applies, such as hardship withdrawals or qualified medical expenses. If an employee leaves their job, they can roll over their 401(k) into an IRA or a new employer’s plan to maintain tax advantages and avoid penalties. Understanding vesting schedules is also important, as some employer contributions may require a certain number of years of service before they fully belong to the employee.