To open a brokerage account for someone under 18, a parent or legal guardian opens a custodial account in the child’s name and manages it on their behalf. The child is the legal owner of the assets; the adult signs the paperwork, makes every trading decision, and carries the legal responsibility until the child reaches the age set by state law. Most major brokerages let you complete the application online in about 15 minutes once you have the documents ready.
Why a Minor Can’t Sign for the Account
Anyone under 18 generally lacks the legal capacity to sign a binding contract, and in most states a minor who does sign one can void it at any time without penalty. A brokerage account is built on that kind of agreement: trading terms, fee disclosures, risk acknowledgments. No firm will take that exposure, so the law and industry practice route minors through a custodian.
Choose Between a UGMA and a UTMA Account
Two state-level statutes create the framework: the Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA). Both set up a fiduciary relationship in which the custodian manages assets the child legally owns. Contributions are irrevocable gifts, and the custodian cannot take the money back for personal use.
A UGMA account holds only financial assets: cash, stocks, bonds, mutual funds.1Cornell Law School. Uniform Gifts to Minors Act (UGMA) A UTMA account covers all of that plus real estate, royalties, patents, fine art, and other non-financial property. Because it covers more, the UTMA has been adopted in some form by every state except South Carolina, and it’s the default option at most brokerages.2Social Security Administration. POMS SI 01120.205 – Uniform Transfers to Minors Act
As custodian, you have a fiduciary duty to manage the account in the child’s interest. Funds can pay for anything that genuinely benefits the child, not just education. What they cannot cover is basic support a parent is already legally required to provide, such as food and housing.
What You Can Trade Inside the Account
Most brokerages let custodial accounts hold stocks, ETFs, mutual funds, bonds, and CDs. Margin trading is off the table because it creates a debt obligation a minor’s account can’t legally support. Options are usually restricted as well, though some firms allow limited strategies. The default is fully paid, straightforward investments.
What to Gather Before You Apply
Federal anti-money-laundering rules require broker-dealers to collect a taxpayer ID number, name, date of birth, and a residential or business street address for every account holder. A P.O. box alone won’t work.3eCFR. 31 CFR 1023.220 – Customer Identification Programs for Broker-Dealers Have this ready for both you and the child:
- For the child: full legal name, date of birth, and Social Security number or ITIN.
- For you as custodian: full legal name, date of birth, Social Security number, residential street address, employer, occupation, and a government-issued photo ID.
- For funding: your bank’s routing number and your checking or savings account number.
Accuracy matters. A name that doesn’t match tax records or a transposed digit in a Social Security number usually triggers an automatic rejection. The employment and occupation questions exist to flag conflicts: if you work for a broker-dealer or an exchange, or you’re a senior officer at a public company, additional disclosure rules may apply.
Opening the Account Step by Step
Filling Out the Application
Nearly every major brokerage handles custodial applications entirely online. You complete the primary applicant section with your own information and then designate the child as the minor beneficiary. The form asks you to pick UGMA or UTMA; in most states, UTMA is the default and broader choice. At the signature stage, an electronic signature executes the account agreement. Federal law treats it as legally equivalent to a handwritten one for financial contracts, so no notary is needed.4Office of the Law Revision Counsel. 15 USC Chapter 96 – Electronic Signatures in Global and National Commerce Act
Verification and Approval
Once you submit, the brokerage runs identity verification against public records and credit databases. Approval typically takes one to three business days. The firm may email you asking for a scanned ID or a utility bill if the automated check flags something. When you’re approved, you’ll get a confirmation email with your account number and login instructions. A clean record on the custodian’s side is what matters; the child has no credit history and isn’t being checked.
Funding and First Trades
Link your bank account using its routing and account numbers. ACH transfers usually settle in two to three business days; some firms accept wires for faster availability. Many major brokerages now require no minimum to open a custodial account, though specific mutual funds inside the account may have their own minimums, often $1,000 to $3,000. Once funds settle, you can begin buying investments on the child’s behalf.
Contribution Limits and Gift Tax
Every dollar you put in is an irrevocable gift to the child. For 2026, the annual gift tax exclusion is $19,000 per recipient, so each parent can contribute up to $19,000 to the same child’s account without filing a gift tax return, and other relatives can each contribute up to the same limit separately.5Internal Revenue Service. What’s New – Estate and Gift Tax Going over doesn’t automatically create tax owed, but you have to file IRS Form 709, and the excess counts against your lifetime gift and estate tax exemption.
How the Kiddie Tax Works
Dividends, interest, and capital gains in the account count as the child’s unearned income and may be subject to the kiddie tax. For 2026:
- The first $1,350 of unearned income is tax-free, covered by the child’s standard deduction.
- The next $1,350 is taxed at the child’s own rate, usually the lowest bracket.
- Anything above $2,700 is taxed at the parent’s marginal rate.
The kiddie tax applies to children under 18, to 18-year-olds who don’t earn more than half their own support, and to full-time students aged 19 to 23 who don’t earn more than half their own support.6Internal Revenue Service. Instructions for Form 8615 – Tax for Certain Children Who Have Unearned Income If your child’s unearned income tops $2,700, file Form 8615 with their return. If the total gross income stays under $13,500 and consists only of interest and dividends, you can fold it into your own return with Form 8814. A growth-oriented, buy-and-hold portfolio with few dividends generates fewer taxable events than one built around income.
When the Account Transfers to the Child
Custodianship ends when the child reaches the age set by state law. In most states that’s 21 for UTMA accounts, though some set it at 18 and a handful let the donor extend it to 25. UGMA accounts generally terminate at 18. At that point the brokerage transfers full control to the now-adult beneficiary, who can keep investing, cash out, or spend the balance. There is no legal way to impose conditions or claw money back once the custodianship ends. As the transfer date approaches, the brokerage will usually notify you; missing the window can leave the account frozen until the transfer is completed. The former minor can also request an accounting of how you managed the funds, so keep clean records of contributions, withdrawals, and spending from day one.
Consider a Custodial Roth IRA if the Child Has Earned Income
If your child has real earned income from a job, freelance work, or a side gig, a custodial Roth IRA is worth opening alongside a standard custodial brokerage account. The child can contribute up to $7,500 for 2026 or their total earned income for the year, whichever is less.7Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Wages from babysitting, lawn mowing, or a part-time retail job count; allowance doesn’t. Growth is tax-free, the kiddie tax doesn’t apply, and the account converts to a standard Roth IRA under the child’s control at 18.
The Financial Aid Tradeoff
Custodial accounts can quietly reduce college financial aid eligibility. Because the child legally owns the assets, the FAFSA counts the balance as a student asset and assesses it at 20% per year in the expected family contribution calculation. Parent-owned assets, including 529 plans, are assessed at a maximum of roughly 5.64%. If college funding is a priority, some families keep custodial balances modest and route the bulk of education savings through a 529. Once money is in a custodial account, you can’t move it to a 529 to sidestep this: the funds belong to the child, and any use of them still has to benefit the child.