Opening a brokerage account for kids: How, why & what to know

Financial literacy doesn't always come easy. You've probably spent years learning the ins and outs of balancing spending, saving and giving through trial and error. And, just as that work has been important in helping you secure your financial future, sharing that work and wisdom with your children can make a powerful impact on their futures, too.

One way to share what you've learned about money management and investments is by opening a brokerage account for kids. When you start investing with your child early, time combined with compound growth can help them turn money from their part-time jobs into a foundation for their future financial security. While they're young, investing can be a low-pressure opportunity—but one they have a personal stake in—to learn which strategies work for them and which don't.

Here's what you need to know to get started.

• What is a custodial brokerage account?
• Considerations for selecting a custodial account
• How to open a brokerage account for kids
• Helping your child begin their financial journey

A custodial brokerage account is one an adult opens for a minor. The child generally owns the investments or assets. But the adult usually controls the deposit, withdrawal and investment choices until the child reaches adulthood—usually 18 or 21 depending on your state's law. Once they do, the account fully transfers to them.

Two main types of custodial accounts are designed for general investing, differing primarily by the assets they involve:

• Uniform Gifts to Minors Act (UGMA) accounts. These primarily hold financial assets such as stocks, bonds, mutual funds and certificates of deposit.
• Uniform Transfers to Minors Act (UTMA) accounts. In addition to financial assets, these can hold physical assets, including real estate, precious metals and collectibles.

In addition to UGMA and UTMAs, you can also open a custodial Roth IRA on behalf of your child, which would get them started on investing specifically for retirement savings. There are some exemptions to the retirement requirement—dollars in a Roth IRA can also be used for things like a first-time home purchase or qualified education expenses. Make sure your intended use aligns with the account type before you begin investing.

You could also open a 529 educational savings account or a 529A (Achieving a Better Life Experience, or ABLE) account, where you own the account but they're the beneficiary. With each of these, you and your child can have some market-based options for investing your money.

As with most financial decisions, you'll first want to identify your goals. You can then choose which account—a UGMA or UTMA account, custodial Roth IRA, 529 plan or 529 ABLE account—best fits you and your child's needs.

Next, think about how much control you want you and your child to have over the account decisions, such as how the money is invested, whether withdrawals can be made and spent freely, and who the owner will be. Here are some considerations to guide you:

If you want your child to have financial and/or physical assets that are entirely their own to access and spend once they reach adulthood, you may want a UGMA or UTMA account. There aren't limitations on how much the account can hold, but it's worth noting that parents and adult relatives can only gift or transfer up to $17,000 of their own assets to it each year, as of the 2024 IRS limits. Also, anything gifted or transferred into these accounts can't be changed or revoked.

If your child works any job where their compensation is recorded and you want to teach them the importance of saving for the far-off future, you may want a custodial Roth IRA. Contributions to this account, which you manage until your child becomes a legal adult, can only be made based on the child's earned income. As of 2024, the limit per year is $7,000 or the total of their annual earnings—whichever is less. Because it's a retirement account, there are penalties and fees for withdrawing money before age 59½ except for certain qualified uses, such as certain medical and education expenses, or a first home purchase.

If you want an account that's specifically used for your child's education, you may want a 529 educational savings plan. You own the account, but anyone can put money into it. The invested contributions in this account can grow tax-free and be withdrawn tax-free when used for qualified educational expenses, including tuition for K-12 schools and tuition, fees, housing, books and other supplies for post-secondary educational institutions. The state program you choose determines how much you can contribute annually and your investing options.

If your child has a disability, and you'd like them to be both owner and beneficiary of an account that helps them build sheltered finances for their future, you may want an ABLE account. A unique benefit of this account is that a balance of up to $100,000 doesn't count as an asset when determining public benefit eligibility. Like a 529, anyone can make contributions, and investment options vary based on your selected state program. The investments grow tax-deferred and can be withdrawn tax-free when used for qualified expenses like education, support services, housing and transportation.

Once you know which account fits you and your child's goals, it's time to find the right place to open it.

Your best bet is to consult a financial institution or financial advisor you trust. Keep in mind that not everyone offers custodial brokerage accounts or is equipped to give advice on them.

When deciding who to work with, use the same criteria for your child as you would for yourself. Consider these questions:

• Does the financial advisor, agent, broker, firm or institution have a good reputation?
• How easy is it to access and navigate the account? Is the online platform or app user-friendly enough to create a straightforward learning experience for your child?
• Is there a minimum starting balance, and do you have to maintain a certain balance to avoid fees?
• What are all of the associated costs? Are there account management or trading fees?

Another key factor for any new financial account is how available and knowledgeable the people are to help you. You can find several in-person and online options, but they may not have the same level of service.

With your chosen financial partner, you can open a UGMA, UTMA or custodial Roth account. While they can advise on selecting 529 plans and ABLE accounts, you'll have to get those directly from a state agency.

Have your personal details, identification, bank information and an initial deposit ready. You may need to visit an office in person if you don't have another existing account. Or you may be able to log in to your broker, agent or financial advisor's platform—or the state's program for a 529 or ABLE account—and enter this information yourself. Your account will likely be ready to go within minutes, though you may need to wait for a verification of funds.

One more thing to consider with your child is who will have account access and who has final call on decisions. You may prefer to keep the login private and supervise all transactions. Or you may want to test your child's responsibility, letting them actively manage the account. There's no right or wrong answer—it's what works best for your family. But it's crucial to make sure the rules are clear on both sides from the start.

Now comes the fun part: spending time teaching your child about investing. This time presents a golden opportunity to instill valuable lessons on financial literacy and building an investment portfolio. You have a lot of ground to cover, so you may want to focus on some foundational investing concepts:

• Understanding the basics of how the stock market works and why trying to time it isn't the best approach.
• Why maintaining a diverse asset mix is important for balancing risk and reward.¹
• How to gauge their risk tolerance and manage emotional decision-making.
• What investing's role is in relation to your family's principles on debt and giving.

It can help to share this knowledge in small doses. You may also want to set up regular check-ins with your child to discuss how their investments are doing, changes in their goals, or any questions they have.

Watching your child grow more confident in their financial journey is a wonderful gift and can set them up for long-term success. If you have questions about setting up a custodial account or deciding which is the best option for your family's needs, a local Thrivent financial advisor can help.