How to Open a Brokerage Account for a Teen

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May 12, 2026

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Teens can't open brokerage accounts directly. An adult must open a custodial brokerage account, like a UTMA or UGMA, to invest for them until they reach adulthood.

TL;DR

To invest for a teen, you'll likely open a custodial account (UGMA or UTMA), which you manage until they're 18 or 21.

These accounts can hold stocks, ETFs, and mutual funds, giving teens a real-world look at investing.

Taxes are a thing, especially the "Kiddie Tax," so keep an eye on contribution limits and income thresholds.

If your teen earns money, a Roth IRA can be a fantastic, tax-advantaged option for their future.

Starting early, even with small amounts, teaches valuable financial lessons and harnesses the power of compound interest.

What We'll Cover

Quick Comparison: Custodial Accounts vs. Other Options for Teens

So, what *is* a custodial brokerage account for a teen, anyway?

UGMA vs. UTMA: What's the Difference?

Who can open one, and who controls the money?

Why even bother to open a brokerage account for a teen? (My story, for real)

The magic of compound interest

Learning responsibility early

Alright, how do I actually *open* a brokerage account for my teen? Step-by-Step

Pick a Brokerage

Gather Your Info (and their info)

Fill Out the Application (It's not as scary as it sounds)

Fund the Account (The fun part!)

What kinds of investments can a teenager hold in their brokerage account?

Can a teen *manage* their own brokerage account? (The custodian's role)

What about taxes on a teen's brokerage account? (The "Kiddie Tax" is a thing)

Are there any downsides to opening a custodial account?

What if my teen has a job? Should they open a Roth IRA instead?

Other Ways to Teach Teens About Money (Beyond the Brokerage)

FAQ

Quick Comparison: Custodial Accounts vs. Other Options for Teens

When you're thinking about how to set up your kid for future financial wins, it's not just one path. There are a few ways to go, each with its own quirks. This table gives you a snapshot of the main players you'll probably bump into while you're figuring this out.

Feature	Custodial Account (UGMA/UTMA)	Custodial Roth IRA	529 College Savings Plan
Purpose	General investments for the child's benefit	Retirement savings for the child	Education expenses (college, K-12 tuition)
Who Owns It	Child (but custodian controls until age of majority)	Child (custodian controls until age of majority)	Parent/account owner (beneficiary is the child)
Eligibility	Any minor (no earned income required)	Minor with earned income (e.g., a summer job, babysitting)	Any minor
Contributions	No annual limit (but gift tax rules apply over $18,000/year)	Limited to earned income or IRS max (whichever is lower)	No federal limit, but state limits can be high
Tax Treatment	Investments grow tax-deferred; "Kiddie Tax" applies	Contributions are after-tax; grows tax-free, withdrawals tax-free in retirement	Contributions may be state tax-deductible; grows tax-free, qualified withdrawals tax-free
Control Transfer	Child gains control at 18 or 21 (state dependent)	Child gains control at 18 or 21 (state dependent)	Owner retains control forever (can change beneficiary)
Investment Options	Stocks, bonds, ETFs, mutual funds, real estate, etc.	Stocks, bonds, ETFs, mutual funds	Varies by plan, usually limited to pre-selected portfolios
Financial Aid Impact	Counted as child's asset (significant impact)	Counted as child's asset (significant impact)	Counted as parent's asset (less impact)

So, what is a custodial brokerage account for a teen, anyway?

Okay, let's cut through the jargon a bit. When we talk about opening a brokerage account for a teen, what we're really talking about is a custodial account. Think of it like a learner's permit for investing. Your kid isn't old enough to "drive" the account on their own, right? They don't have the legal standing or the know-how yet. So, you, the adult, are the one in the driver's seat as the "custodian." You make the decisions, you hit the gas and the brakes, but the car — the money and the investments — that ultimately belongs to your kid, the "beneficiary."

These accounts are set up under something called the Uniform Gift to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). They're basically legal frameworks that allow an adult to hold and manage assets for a minor until that minor reaches a certain age, usually 18 or 21, depending on your state. It’s a pretty smart way to get them started because the money grows in their name, even if they can't touch it directly yet. It also teaches them about the world of money without them being able to blow it all on, I don't know, a thousand gumballs or something.

For more on these, you can check out this article I wrote: How to Invest for Kids Under 18? Custodial Accounts.

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UGMA vs. UTMA: What's the Difference?

You'll hear UGMA and UTMA tossed around interchangeably sometimes, and while they're similar, there's a subtle but important difference that's worth knowing. It largely comes down to what kinds of assets you can put into them.

Feature	UGMA (Uniform Gift to Minors Act)	UTMA (Uniform Transfers to Minors Act)
Types of Assets	Can hold financial assets: stocks, bonds, mutual funds, ETFs, cash, insurance policies.	Can hold any kind of property, including financial assets plus real estate, fine art, royalties, patents, and other tangible/intangible property.
Flexibility	Less flexible in terms of asset types.	More flexible; allows for a wider range of assets.
State Adoption	Adopted by all 50 states and D.C.	Adopted by most states, but not all (e.g., South Carolina, Puerto Rico)
Transfer Age	Custodianship usually ends at age 18 or 21 (state dependent).	Custodianship can sometimes extend up to age 25 in some states (though typically 18 or 21).

Most folks just stick to stocks and ETFs, so an UGMA account is usually perfectly fine. But if you’re, say, trying to transfer ownership of a rental property to your kid someday, then an UTMA would be the one you'd need. Just make sure your state actually allows UTMA accounts. A quick search on your state's laws will tell you.

Who can open one, and who controls the money?

Anyone can open a custodial account for a minor—a parent, grandparent, aunt, uncle, even a family friend. But once it's set up, you become the custodian. That means you’re the one calling the shots on the investments, managing the account, and making sure the money is used for the minor's benefit. You're basically the money manager until they hit the age of majority.

The critical thing to remember is that while you control it, the money is legally the minor's. You can't just take it back if you change your mind. It's an irrevocable gift, meaning you can't undo it once it's done. And once your teen reaches 18 or 21 (depending on your state's laws), that control shifts entirely to them. No more driving lessons from you, they get the keys and they’re on their own.

Why even bother to open a brokerage account for a teen? (My story, for real)

Okay, so this is where I get a little real with you. Back in 2022, when I got the dreaded "we're letting you go" call, it hit me like a truck. And not just emotionally, but financially. See, I’d been working hard, sure, but I hadn't been working smart when it came to my money. I’d been living paycheck to paycheck, convinced I had plenty of time to "get serious" about savings and investments.

The day I got laid off, I checked my bank account. Want to know what was in there? A grand total of $87. Yes, eighty-seven dollars. Not a typo. No savings, no emergency fund, zero investments. Just that paltry $87 to my name. My stomach dropped. I panicked. How was I, a 30-year-old adult, going to pay rent, buy groceries, literally exist? That's when the wake-up call hit me like a 2x4. I swore right then that I would never be in that position again, and I would make damn sure anyone I cared about, especially future kids, wouldn't either.

That's why opening a brokerage account for a teen isn't just about handing them some money. It's about giving them a head start I never had. It’s about teaching them financial literacy, the power of saving, and how money can actually work for them. If someone had guided me, even just with a small amount of money in a simple S&P 500 fund when I was 16, I wouldn't have been in that awful spot. It’s about preventing that gut-wrenching feeling of financial vulnerability.

The magic of compound interest

You hear "compound interest" thrown around a lot, and it sounds kinda boring, right? But honestly, it’s like this hidden superpower for your money. It's when your money starts earning money, and then that money starts earning money too. It snowballs.

Imagine you put $1,000 into an account for your kid when they're 10 years old. If it earns, say, a pretty standard 7% return per year (which is historically average for the stock market, though returns are never guaranteed, obviously), by the time they're 60, that $1,000 could be worth well over $30,000 without another dime added. If you added just $50 a month to that, it would be hundreds of thousands.

The key is time. The earlier you start, the more time that money has to multiply itself. It’s like baking a cake. You can wait until the last minute and rush it, or you can get the ingredients in the oven early, let it slowly rise and bake, and end up with something incredible. Starting early for a teen means their money has literally decades to grow before they even think about retirement. That's a huge head start.

Learning responsibility early

Beyond just the numbers, there’s a massive lesson in responsibility that comes with having a brokerage account. Even if you, the custodian, are making the investment choices, you can involve your teen in the process. Talk to them about why you're choosing an S&P 500 index fund over, say, a single stock. Explain market volatility. Show them statements, talk about diversification.

My cousin, Sarah, started a UGMA for her son, David, when he turned 13 in 2023. He got $500 for his birthday, and Sarah suggested they put it into a low-cost S&P 500 ETF. David actually looked up what "S&P 500" meant online, and now, almost a year later, he asks to see "his stock" (even though it's technically a fund of 500 companies). He's seen that $500 grow a bit, and he's already asking about adding his lawn-mowing money to it next summer. That's real, tangible learning that no textbook can replace. He’s not just getting money; he’s getting an education.

Alright, how do I actually open a brokerage account for my teen? Step-by-Step

Okay, so you're in. You're ready to get this done. Good for you! The process isn't nearly as intimidating as it might sound. It’s pretty standard, actually, especially if you've ever opened a bank account or an investment account for yourself.

I’ve written a longer piece that covers general account opening in depth, which you can find here: Open a Brokerage Account: Step-by-Step Guide. But for a custodial account specifically, here’s the rundown.

Step 1: Pick a Brokerage

This is where you decide where you want to actually open the account. There are a bunch of options out there, but for most people, especially for a custodial account, you'll want a reputable, well-established brokerage firm. Think names like Fidelity, Charles Schwab, or Vanguard. They all offer custodial accounts (UGMA/UTMA) and usually have $0 commission trades on stocks and ETFs, plus no account minimums for getting started. That's a big deal when you're just dipping your toes in.

When you're picking, think about:

Fees: Look for low or no annual fees, and $0 commission trading.

Investment Options: Do they offer a wide range of ETFs, mutual funds, and individual stocks?

Education Resources: Do they have good tools and information that you can use to teach your teen?

Customer Service: If you have questions, can you easily get help?

Many financial sites like NerdWallet or Investopedia have "best brokerage" lists that can help you compare.

Step 2: Gather Your Info (and their info)

This is the paperwork part. It's not fun, but it's necessary. You'll need information for both yourself (as the custodian) and your teen (as the beneficiary).

For you, the custodian, you'll generally need:

Your Social Security Number (SSN)

Date of birth

Residential address

Government-issued ID (like a driver's license number)

Employment information

For your teen, the beneficiary, you'll need:

Their Social Security Number (SSN) — this is super important

Their date of birth

Their residential address (if different from yours, but usually it’s the same)

If your teen doesn't have an SSN yet, you'll need to get one. You can find information on how to do that on the USA.gov or SSA.gov websites. It's a key piece for any financial account.

Step 3: Fill Out the Application (It's not as scary as it sounds)

Most brokerages let you do this entirely online now, which is a lifesaver. You’ll go to their website, look for "Open an Account," and then specifically select "Custodial Account" or "UGMA/UTMA."

The application will ask you for all that info you just gathered. It'll also ask you to designate yourself as the custodian and your teen as the beneficiary. You might have to electronically sign some documents and agree to terms and conditions. Just read everything carefully—it's boring, I know, but it’s your money (and your kid’s future money) we’re talking about.

Step 4: Fund the Account (The fun part!)

Once the account is open, it's time to put some money in it. You can do this in several ways:

Electronic Funds Transfer (EFT): Link your bank account and transfer money directly. This is usually the easiest and fastest way.

Check: You can mail a check to the brokerage.

Wire Transfer: If you're transferring a large sum, this might be an option, though usually not necessary for starting out.

Transfer from another account: If you have an account at the same brokerage, you might be able to transfer funds internally.

Remember, you're the one making the deposits, but the money is a gift to your child. So make sure you're comfortable with that.

What kinds of investments can a teenager hold in their brokerage account?

Okay, so the account is open, and you've got some cash in there. Now what? This is where the real fun begins – picking investments. In a custodial account, your teen can hold pretty much any common investment product you’d find in a regular brokerage account. We’re talking:

Individual Stocks: Pieces of actual companies, like Apple or Tesla.

Exchange-Traded Funds (ETFs): These are like baskets of stocks or bonds, often tracking an index like the S&P 500.

Mutual Funds: Similar to ETFs, but typically managed actively by a fund manager.

Bonds: Loans to governments or companies, usually less volatile than stocks.

Actually wait, that's not quite right for a teen just starting out. While you can invest in anything, for most teens, and especially for teaching them, I'd suggest starting with something simple and broad. Individual stocks can be super exciting, sure, but they can also be really volatile and make for a stressful learning experience if the stock tanks. I mean, my friend Mark's kid, Chloe, convinced him to buy some GameStop stock with her birthday money back in 2021, thinking it was a surefire win because everyone was talking about it. Well, it went up, and then it really came down, and Chloe learned a hard lesson about hype and risk when half her birthday money vanished. It was a teachable moment, but maybe not the gentlest intro to investing.

For most people, a broad market ETF (like one that tracks the S&P 500) or a target-date mutual fund is a much more solid starting point. They're diversified, lower risk, and let you focus on the long-term growth and the concept of patience, which is truly the hardest part of investing. The SEC.gov website has some really good primers on understanding different types of investments. Keep it boring to keep it profitable, as they say.

Can a teen manage their own brokerage account? (The custodian's role)

Short answer: No, not really, not directly. As the custodian, you are the one who has legal control over the account and makes all the trading decisions. The brokerage firm will only interact with you. Your teen, the beneficiary, doesn't have the legal standing to place trades or withdraw money until they reach the age of majority in your state. This is typically 18, but in some states, it might be 21.

This setup is actually a good thing. It means you can guide them without letting them make impulsive decisions—like, say, emptying the account to buy the latest video game console or a ton of speculative crypto (which, by the way, I learned about the hard way with some losses I could potentially write off — see Lost Money in Crypto? Can I Write It Off on Taxes?). You're there to teach them about long-term thinking, diversification, and not panicking when the market dips.

Honestly, I'm still figuring this out with my younger cousins, how much input to give them versus how much I should just make decisions for them. I think it’s a fine line between helping them to learn and protecting them from their own inexperience. Maybe as they get closer to that 18-year mark, you can start involving them more directly in investment research and even "practice" trades (without actually executing them) to get them ready for when the account officially becomes theirs. That transfer of control at age 18 or 21 is automatic, by the way. You don’t have to do anything special; the brokerage will handle the legal transfer of ownership once the milestone birthday passes.

What about taxes on a teen's brokerage account? (The "Kiddie Tax" is a thing)

Alright, taxes. Nobody's favorite topic, but it's super important to understand when you're dealing with a custodial account for a teen. It's not as simple as "they're a kid, so no taxes!" Unfortunately, that's not how it works.

The IRS has something called the "Kiddie Tax," which was put in place to prevent high-income earners from sheltering investment income by transferring assets to their children. Basically, it means that above a certain income threshold, a child's unearned income (like from investments) is taxed at their parent's marginal tax rate, not the child's usually lower rate.

Here's a simplified breakdown for 2023 (these numbers change, so always check IRS.gov for the latest):

First $1,250 of unearned income: Tax-free. Sweet!

Next $1,250 of unearned income: Taxed at the child's tax rate (usually 10%). Still pretty good.

Unearned income *above* $2,500: This is where the Kiddie Tax kicks in. Any income beyond this amount is taxed at the parent's marginal income tax rate, which could be significantly higher.

This applies to things like capital gains (when you sell an investment for a profit) and dividends (payments from companies whose stock you own). It’s not about the money you put in, but the money the investments make. Keep an eye on those thresholds. It means for most kids starting out, with smaller balances, they might not owe much, if any, tax. But as the account grows, it becomes a bigger consideration.

Are there any downsides to opening a custodial account?

While I'm a huge advocate for getting teens into investing early, it's also important to be real about the potential drawbacks of custodial accounts. Nothing's perfect, right?

It's Irrevocable: This is the big one. Once you put money into an UGMA/UTMA, it's legally your child's. You cannot take it back. Even if you have a financial emergency, that money is off-limits to you. So, don't put money in there that you might need for yourself later.

Impact on Financial Aid: This is a huge factor for college-bound teens. Money in a custodial account is counted as an asset of the child. When applying for federal financial aid (FAFSA), a child's assets are assessed at a much higher rate (20%) than a parent's assets (up to 5.64%). This means having a significant balance in a custodial account could seriously reduce the amount of financial aid your child qualifies for. This is often why parents opt for 529 plans, which are considered parent assets (and have their own rules, like what to do with 529 Money After a Scholarship: What to Do). For more on financial aid, check out the Consumer Financial Protection Bureau (CFPB).

Lack of Control at Maturity: When your child hits 18 or 21, they get full, unrestricted access to the money. No strings attached. If they're not financially savvy or responsible, they could blow it all in a heartbeat. That's why involving them in the process and teaching them about money management from an early age is so important.

These aren't dealbreakers, but they're definitely things to weigh against the benefits.

What if my teen has a job? Should they open a Roth IRA instead?

This is a fantastic question, and for many teens, the answer might be a resounding "YES!" If your teenager has earned income from a job—think babysitting, mowing lawns, a part-time retail gig, or a summer job—they are eligible to contribute to a Roth IRA. And a Roth IRA for a teen is, in my opinion, one of the most powerful financial tools you can set them up with.

Here’s why it’s so awesome:

Tax-Free Growth & Withdrawals: Contributions go in after-tax, but the money grows completely tax-free, and qualified withdrawals in retirement are also tax-free. Imagine the power of tax-free growth over 50+ years!

Early Access to Contributions: While it’s a retirement account, the contributions can be withdrawn tax-free and penalty-free at any time for any reason. So if your teen contributes $2,000, they can take out that $2,000 later for, say, college tuition or a down payment on a house, without touching the earnings. The earnings, however, are meant for retirement.

Compound Interest on Steroids: Like with custodial accounts, time is your best friend. A few thousand dollars invested in a Roth IRA during their teen years could literally be worth hundreds of thousands, or even millions, by the time they retire. This ties directly into topics like Retire Early on $50k Salary: Is FIRE Realistic? because early Roth contributions are key for long-term wealth building.

My buddy, Dave, has a son named Ethan who’s 16. Last summer, Ethan earned about $2,000 mowing lawns for neighbors. Dave sat him down and explained a Roth IRA. Ethan was a little hesitant, wanting to spend the money. But Dave offered to match $500 of whatever Ethan put in. Ethan contributed $1,000, Dave kicked in his $500 match (from his own savings, not from Ethan's earnings, just to be clear that the Roth contribution limit is based on Ethan's earned income), and now Ethan has $1,500 growing tax-free for his future. He sees it as "future me" money. That's a huge win.

The contribution limit for a Roth IRA (and all IRAs) for 2024 is $7,000, or your teen's earned income for the year, whichever is less. So, if your teen earns $3,000, they can only contribute up to $3,000. It's a powerful option to consider alongside or instead of a custodial account, depending on their circumstances and your goals.

Key takeaways for How to open a brokerage account for a te

Other Ways to Teach Teens About Money (Beyond the Brokerage)

Look, a brokerage account is great, but it’s just one piece of the puzzle. Financial literacy is a skill that's built over time, through different experiences. You can't just open an account and expect them to become a Wall Street wizard overnight.

Here are some other things you can do:

Pocket Money and Budgeting: Give them an allowance or pay them for chores, but make them responsible for budgeting it. If they want a new game, they have to save for it. This teaches delayed gratification and the value of a dollar.

Bank Accounts: Help them open a checking and savings account. Teach them how to use a debit card responsibly, balance a checkbook (even if nobody uses them anymore, the concept is valid), and understand bank fees. The FDIC has a great "Money Smart for Young People" program that's actually pretty good for this.

Talk About Money: Be open about your own finances (within reason, obviously). Explain why you make certain spending choices, how you save for big purchases, and why you invest. Normalize talking about money, don’t make it a taboo subject.

Involve Them in Family Finances: Let them help plan a family vacation budget, or choose between two options for a home repair. Giving them real-world scenarios makes the lessons stick.

Side Hustles: Encourage them to earn money! Mowing lawns, babysitting, tutoring, selling crafts online—any legitimate way to earn money is a fantastic lesson in entrepreneurship and the effort required to make a buck.

Charitable Giving: Teach them the importance of giving back. Set aside a small portion of their money for a cause they believe in. It helps build empathy and a broader understanding of money's impact.

All these things, when combined with the practical experience of a brokerage account, create a much more well-rounded financial education. And that's what we really want for our kids, isn't it? A foundation they can build on for their whole lives.

FAQ

Q: Can a 16-year-old open their own brokerage account?

A: No, a 16-year-old cannot legally open a brokerage account on their own because they are considered a minor. An adult (typically a parent or legal guardian) must open and manage a custodial account (UGMA or UTMA) on their behalf until the teen reaches the age of majority, which is usually 18 or 21 depending on the state.

Q: What's the best brokerage for a teen?

A: There isn't a single "best" brokerage, but popular and highly-rated options for custodial accounts include Fidelity, Charles Schwab, and Vanguard. Look for brokerages with $0 commission trades, no account minimums, a wide range of investment options (especially low-cost ETFs and mutual funds), and strong educational resources.

Q: How much can a teen invest without paying taxes?

A: For unearned income (like dividends or capital gains) from investments in a custodial account, the "Kiddie Tax" rules apply. For 2023, the first $1,250 of unearned income is tax-free. The next $1,250 is taxed at the child's rate. Anything above $2,500 is taxed at the parent's marginal tax rate. It's not about how much you invest, but how much the investments earn.

Q: What happens when my child turns 18 or 21?

A: When your child reaches the age of majority in your state (usually 18 or 21 for UGMA/UTMA accounts), the custodial account automatically transfers into their full legal control. The custodian no longer has any say in how the money is managed or spent, and the assets belong entirely to the now-adult child. The brokerage will usually notify you and your child and guide you through any necessary paperwork to re-register the account in their name.

Q: Can I use this money for college tuition?

A: Yes, money in a custodial account can be used for college tuition and other expenses that benefit the minor. However, because it's legally the child's asset, it will count heavily against them when applying for financial aid, potentially reducing the amount of grants and scholarships they receive. This is a key difference from a 529 college savings plan, which is generally considered a parent's asset for financial aid purposes.

Q: How much should I invest to live off dividends alone?

A: That's a complex question with a lot of variables! It depends on your desired income, the dividend yield of your investments, and your overall financial goals. Generally, you'd need a substantial portfolio—often in the seven figures—to generate enough dividend income to cover all your living expenses. For a deep get into that, check out this: How much to invest to live off dividends alone?

Look, I didn’t have any of this growing up. My parents were great, but money wasn't something we talked about much, and certainly not investing. When I got laid off and realized I had basically zero savings, I felt a deep sense of regret for all those years I could have been building something, even small. My landlord, Mr. Henderson, a retired plumber, used to tell me stories about how he started putting a little bit into utility stocks decades ago, just $50 here, $100 there, and how that consistency paid off huge. Made me wish I'd started so much earlier.

So if you’re reading this, and you’re thinking about setting up your teen, don’t wait. Don’t let them make the same mistakes I did. Give them the knowledge, give them the tools, and give them the head start that I—and so many others—never got. It's probably one of the best "gifts" you could ever give them, really.

Affiliate disclosure and financial disclaimer: I'm not a financial advisor - just a guy who made a lot of money mistakes and learned from them. Some links here may earn me a small commission, but I only recommend stuff I'd tell my friends about.

Open a Brokerage Account: Step-by-Step Guide

How to Invest for Kids Under 18? Custodial Accounts

529 Money After a Scholarship: What to Do

Retire Early on $50k Salary: Is FIRE Realistic?

Lost Money in Crypto? Can I Write It Off on Taxes?

How much to invest to live off dividends alone?