If you are under 18 and want to invest, you cannot open a brokerage account on your own. The way to invest under 18 is to have a parent or guardian open a custodial account in your name. The three common vehicles are a custodial brokerage account under the UGMA or UTMA laws, a custodial Roth IRA if you have job income, and a 529 plan for education savings. You are the legal owner of the money in each case; the adult just manages it until you reach the age when the account passes to you.
Why an Adult Has to Open the Account
Almost every state sets the age of legal majority at 18.1Legal Information Institute (LII) / Cornell Law School. Legal Age Below that age, you cannot be held to a contract, and a brokerage agreement is a contract. If a 16-year-old opened an account and then wanted out of a losing trade, the firm would have almost no way to enforce the terms. Brokerages avoid that risk by requiring an adult custodian on the account.
The custodian is not the owner. In every custodial setup, the minor owns the assets. The adult makes the investment decisions and handles the paperwork until the account transfers over. That ownership distinction drives how the money is taxed, how it affects financial aid, and what happens when you turn 18.
Custodial Brokerage Accounts (UGMA and UTMA)
The default option is a custodial brokerage account under one of two state laws: the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). Most states use the UTMA, which is broader.2Cornell Law School Legal Information Institute (LII). Uniform Transfers to Minors Act UGMA accounts hold cash and securities like stocks and bonds. UTMA accounts can also hold real estate and other tangible property. For most families who just want to buy stocks and funds, the difference does not matter in practice.
A few rules apply to both. Every contribution is an irrevocable gift. A parent or grandparent who puts money in cannot take it back. The custodian has to manage the account for the minor’s benefit and cannot pull funds out for personal use or for ordinary parenting expenses like food and housing. Investments must be handled with reasonable care under the Prudent Investor Rule, which calls for diversification and attention to risk and time horizon rather than speculation.3Cornell Law School. Uniform Prudent Investor Act
Anyone can contribute. Grandparents, aunts, uncles, and family friends can all put money in. There is no annual contribution limit on UGMA or UTMA accounts, though gifts above the annual gift tax exclusion may require the donor to file a gift tax return.
Custodial Roth IRA
If you have earned income from a job, freelance work, or self-employment, a custodial Roth IRA is often the single best place to put savings. The 2026 contribution limit is $7,500 or your total taxable compensation for the year, whichever is less.4Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Earn $3,000 from a summer job, and you can contribute up to $3,000. Earn $10,000, and you can contribute up to $7,500.
The income has to be real taxable compensation. W-2 wages qualify, and so does self-employment income from work like lawn care, tutoring, or pet sitting. The dollars put into the Roth do not have to be the same dollars you earned. A parent or grandparent can fund the contribution as a gift as long as you actually earned at least that much during the year. Many families use this to their advantage: the teenager spends the paycheck, and a parent quietly matches it into the Roth.
The payoff is time. Contributions grow tax-free, and qualified withdrawals in retirement are tax-free. A 15-year-old who puts in $5,000 and never adds another dollar still has decades of compounding ahead. Contributions (not earnings) can be withdrawn at any time without tax or penalty, which keeps some flexibility if the money is ever needed before retirement.
529 Education Savings Plan
A 529 is not technically your account; the parent or grandparent owns it, and you are named as the beneficiary. It is worth knowing about because it competes with a UTMA whenever college is the goal.
Money in a 529 grows tax-free, and withdrawals for qualified education expenses like tuition, room and board, and books are also tax-free. Many states offer a deduction or credit for contributions. Gains inside a UTMA, by contrast, are taxable every year and get no special break for being spent on school.
The trade-off is flexibility. A 529 is restricted to education spending, with some exceptions. A UTMA can be spent on anything once control transfers. If the money is almost certainly going to college, a 529 is usually more tax-efficient. If you want broader options later, a UTMA fits better.
Under the SECURE 2.0 Act, unused 529 funds can now be rolled into a Roth IRA for the beneficiary. The rules are strict: the 529 must have been open at least 15 years, contributions from the last five years are ineligible, rollovers are capped at the annual IRA limit each year, and there is a $35,000 lifetime maximum per beneficiary. The beneficiary also needs earned income at least equal to the rollover amount.
What You Can and Cannot Invest In
A custodial brokerage account can hold the usual menu: individual stocks, bonds, mutual funds, ETFs, and CDs. Government bonds often fill the conservative slice of a minor’s portfolio because they are less volatile than stocks.
What custodial accounts generally cannot do is take on high-risk strategies. Margin trading, where you borrow from the broker to amplify positions, is off the table. Short selling is similarly unavailable. Most brokerages limit options trading in custodial accounts to basic strategies at most, and complex options with the risk of unlimited loss are not permitted.5FINRA.org. FINRA Rules 4210 – Margin Requirements The custodian has a fiduciary duty to act prudently, and speculative bets that could wipe the account out do not meet that bar.
Cryptocurrency is uneven. Some brokerages now allow crypto purchases in custodial accounts and some do not. Check the specific broker’s rules before opening.
Taxes on the Earnings
Investment income in a UTMA or UGMA belongs to the minor and goes on the minor’s return. For small amounts, that is a benefit, since the child’s bracket is low. Above a threshold, the IRS applies the so-called kiddie tax, which taxes the child’s unearned income at the parent’s marginal rate.6Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed
The 2026 tiers:
- The first $1,350 of unearned income is covered by the child’s standard deduction and is not taxed.
- The next $1,350 is taxed at the child’s own rate, which is usually very low.
- Anything above $2,700 is taxed at the parent’s marginal rate, which can reach 37%.7Internal Revenue Service. Topic No. 553, Tax on a Child’s Investment and Other Unearned Income (Kiddie Tax)
The kiddie tax applies to children under 18, and also to 18-year-olds and full-time students up to age 23 whose earned income does not cover more than half their own support.6Office of the Law Revision Counsel. 26 USC 1 – Tax Imposed The rule exists to stop families from parking large portfolios in a child’s name to use the child’s lower bracket. For most custodial accounts with modest balances, it is not a serious concern. It starts to bite when the account throws off thousands in annual dividends or capital gains.
Effect on College Financial Aid
This is where families get caught off guard. On the FAFSA, assets in a UTMA or UGMA count as the student’s assets and are assessed at 20% when figuring expected family contribution.8Federal Student Aid. Student Aid Index (SAI) and Pell Grant Eligibility A $50,000 UTMA can trim financial aid eligibility by $10,000.
Parent-owned assets like a 529 or a regular savings account are assessed at a maximum of 5.64%. The same $50,000 held by the parent in a 529 reduces aid eligibility by roughly $2,800. For families likely to qualify for need-based aid, that gap matters, and it is worth weighing before funneling large sums into a custodial account. The gift is irrevocable, so there is no legal way to pull the money back into the parent’s name later.
How to Open the Account
Most major brokerages offer custodial accounts, and the application is done online. The custodian needs to provide information for both the adult and the minor:
- Social Security numbers for both, for tax reporting.9Internal Revenue Service. Filing Requirements, Status, Dependents
- Dates of birth for both, which also set when the account passes to the minor.
- Residential addresses for identity verification and regulatory compliance.10FINRA.org. FINRA Rules 4512 – Customer Account Information
- Government-issued ID for the adult custodian, such as a driver’s license or passport.
After the application is submitted and identities are verified, the custodian links a bank account and funds the brokerage account by electronic transfer. Many brokerages set no minimum deposit, so you can start with as little as $5 or $10. Check the fee schedule, though most large firms have dropped commissions on stock and ETF trades.
What Happens When You Turn 18 or 21
Once you reach the termination age set by your state’s law, the custodian has to hand over full control of the account. The default is 18 in some states and 21 in others, and a handful of states let the donor set the termination age higher, sometimes as late as 25.2Cornell Law School Legal Information Institute (LII). Uniform Transfers to Minors Act The transfer is automatic. The custodian has no authority to delay it, even if they think the young adult is not ready for the money.
From that point on, the former minor has full discretion. They can keep investing, cash out, or spend it however they want. There is no requirement to use the money for school or anything else. That is the biggest practical risk of a UTMA: a well-intentioned gift made when the child was five becomes unrestricted cash at 18 or 21. Families who want more control sometimes use a formal trust with distribution conditions, but trusts cost more to set up and run.
A custodial Roth IRA works differently at the age of majority. It simply converts to a standard Roth IRA in the young adult’s name, and the usual retirement rules keep applying. Earnings are subject to the early withdrawal penalty until age 59½, though contributions can always be pulled out tax- and penalty-free.