Custodial brokerage accounts for kids & teaching minors how to invest

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. Just as that work has been important in helping you secure your financial future, sharing your wisdom with your children can make a powerful impact on their future.

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.

A custodial brokerage account is an investment account that 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, which is usually age 18 or 21. Depending on the state in which you reside, the custodial account will be called a Uniform Transfers to Minors Act (UTMA) account or a Uniform Gift to Minors Act (UGMA) account. 

As a parent or legal guardian, you have more choices than just UGMAs and UTMAs when saving on behalf of your child. Here are a few other potential options:

• Custodial Roth IRAs. This is a retirement account for a minor who has earned income. A custodial Roth IRA can also be used for certain qualifying education expenses or a first-time home purchase.
• 529 college savings plans. These state-sponsored, tax-advantaged accounts allow parents to invest for a child's future education expenses, with earnings growing tax-free. Withdrawals are also tax-free if used to pay for qualifying education expenses.
• 529A (ABLE) account. ABLE accounts are tax-advantaged like 529 college savings plans but designed for people with qualifying disabilities which began before age 46.

Giving your child an opportunity to invest early comes with a wide range of benefits, including teaching them to handle money wisely. You may want to introduce them to investing concepts early or help them build savings for future goals such as college, retirement or other major milestones. From a practical standpoint, your "why" might be different depending on which type of custodial account you choose, but all of these accounts give you the opportunity to teach financial literacy with a real-world application:

Some of the biggest long-term savings goals for kids include funding education, building early retirement savings or planning ahead for significant life or disability-related expenses. This is where Roth IRAs, 529 plans and ABLE accounts work well because each offers its own blend of tax advantages and long‑term planning benefits.

Involving your kids in setting goals or understanding where money is invested helps foster discipline, patience and confidence around money management. Custodial accounts like UTMAs and UGMAs provide a hands-on way to teach these lessons.

Starting to save and invest early allows time and compounding growth to do much of the heavy lifting. Through the power of compounding, returns generate their own returns, and reinvesting dividends can meaningfully accelerate long-term growth, even when contributions are relatively small.

Some kids need more than long-term savings vehicles. If your child has a disability, and you'd like to help them pay for qualified expenses like education, support services, housing and transportation, you may want to consider a 529A (ABLE) account.

Parents often use UTMA and UGMA accounts as starting points for their children, but it's helpful to understand how these custodial brokerage accounts compare with other popular ways to invest for a child.

Unlike more specialized vehicles like Roth IRAs, 529s and ABLEs, brokerage accounts offer broad investment flexibility and fewer restrictions on how funds ultimately can be used. This makes them attractive for families prioritizing hands-on financial education, although the lack of tax advantages means other accounts are worth considering.

At the simplest level, any investment income in a custodial brokerage account, such as dividends, interest or capital gains, is taxed to the child, even though the parent manages the account. Special rules, such as the gift tax limit and the kiddie tax, may apply, depending on contribution amounts and investment income.

Money that a parent or anyone else contributes to a custodial account is considered a gift to the child. As long as the annual gift per donor stays within the annual exclusion amount, which is $19,000 in 2025 and 2026, no gift tax filing is required.

Your child pays taxes on investment income from the account, but only above certain thresholds. A portion of investment income is tax-free, the next portion is taxed at the child's rate, and income above that amount may be taxed at the parent's marginal tax rate.

Choosing the right custodial account requires looking beyond investment choices and tax rules. Think carefully about your kids' primary goals, how much control you want to retain, how the account may affect your child's future financial aid and whether the structure of the account aligns with your long-term intentions for your child.

Start by identifying what you want the money to accomplish:

• With tax advantages and targeted flexibility, a 529 plan or 529A (ABLE) account is best suited for education and disability-related expenses.
• A custodial Roth IRA is attractive for long-term retirement savings if your child has earned income.
• Traditional UTMA/UGMA brokerage accounts are the most flexible, making them a strong choice for general-purpose saving or teaching financial literacy.

Each account type comes with different rules around contributions, investment decisions and withdrawals. In a custodial brokerage account, the parent controls the assets until the child reaches age of majority, at which point the child gains full access. In contrast, 529 plans allow parents to remain the account owner indefinitely, providing long-term oversight. Think about whether you want your child observing, helping or fully managing the account over time.

Custodial accounts involve irrevocable gifts. Once assets are transferred, the money legally belongs to the child and cannot be taken back or redirected to another beneficiary. When the child reaches the age of majority (18 or 21, depending on your state), they gain unrestricted control—even if their goals differ from the parent’s original intent.

UTMA/UGMA assets count as the student’s assets on the FAFSA, which can significantly reduce aid eligibility. By contrast, 529 plans are considered parental assets when a parent is the account owner, resulting in a smaller financial-aid impact. Families planning for college should weigh these differences early.

Consider how each account type is taxed, whether it encourages diversified investing and how it supports financial education. Brokerage accounts offer unmatched learning opportunities, while 529s offer tax efficiency for college-focused families. Aligning tax treatment, investment freedom and teaching opportunities with your goals will help you choose the account that best supports your child’s financial future.

Opening a custodial brokerage account is straightforward, but it starts with choosing the right financial partner and reviewing the rules for UTMA/UGMA accounts in your state. Parents should compare financial advisors based on transparency, ease of use and features that support a young investor’s learning experience. Once you’ve selected a platform, the process takes only a few minutes and requires a small amount of personal information.

Must-have features to look for:

• No account minimums so kids can start investing with small, consistent amounts.
• Commission-free trading to avoid eroding small balances.
• No monthly or maintenance fees, which are especially costly for young savers.
• Fractional-share investing, allowing kids to buy pieces of big-name stocks.
• A strong mobile app so parents and kids can track progress together.
• Educational resources that teach investing basics as the account grows.

When you're ready to sign up, some of the pieces of information you'll need to have ready include your child’s legal name, birth date and Social Security number, as well as your identification and contact information. You also may need a linked bank account for initial and ongoing deposits, including a small first contribution ($10–$25) to get the account started.

When helping a child begin investing, simplicity and broad diversification are your best allies. Most custodial accounts are long-term by design, which means the investments chosen today may grow for years before the child needs the money. A mix that includes some individual stocks—preferably large, well-known companies—can help keep kids engaged and show how real businesses drive long‑term market growth. But the core of the portfolio almost always should be low-cost index funds. Broad market ETFs, such as total-market or S&P 500 funds, offer instant diversification, low fees and steady long-term return potential, making them ideal foundational holdings for young investors.

As kids get older and more involved, parents can gradually introduce more nuanced concepts such as sector ETFs or dividend reinvestment strategies. The goal isn’t to beat the market—it’s to build good habits, reinforce long-term thinking and develop early confidence in managing money as markets rise and fall.

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, but starting early helps. At first, 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 reward¹
• How to gauge their risk tolerance and manage emotional decision-making
• What the role of investing is in relation to your family's principles on debt and giving

A quarterly portfolio check-in can help kids see how their investments performed and understand why certain holdings went up or down. When a stock moves sharply, relate the change to real-world events, like a new product release, earnings report or industry news, to show how companies and markets interact. Use periods of volatility to teach patience, emphasizing that long-term investors don’t react to every dip.

Also, allowing kids to make small, low-risk mistakes, such as choosing a stock that underperforms, also can be valuable, reinforcing lessons about diversification, research and sticking with a plan.

Custodial accounts give you a powerful way to support your child’s future while teaching the fundamentals of saving and investing. Whether the goal is education, long-term growth or building financial confidence, starting early and staying consistent makes the biggest difference. With the right account, thoughtful guidance and age-appropriate investing habits, you can help your kids develop skills that last well beyond the balance in the account.