Yes, you can open a brokerage account for your child, but the account structure depends on their age and what you want to teach them

You have three main routes: a custodial account (the most common), a 529 education savings plan (if you're saving for college), or a Roth IRA (if your child has earned income). Each one has different rules about who controls the money, when your child can access it, and what kinds of investments you can hold inside.

The custodial account is the most flexible. You open it in your child's name, you manage it until they reach the age of majority (18 or 21, depending on your state), and then it becomes theirs to control. You can buy stocks, mutual funds, and ETFs. There's no income requirement, no age minimum, and no contribution limit—though the IRS taxes the earnings above a certain threshold each year.

If your goal is teaching your child to invest or building wealth for them, a custodial account is usually the right choice. If you're specifically saving for college, a 529 plan offers tax advantages but locks the money into education use. If your teenager has a job and you want to teach them retirement saving, a Roth IRA is worth considering.

Key Takeaways

  • A custodial account lets you open a brokerage account in your child's name and manage it until they reach age 18 or 21, depending on your state.
  • You control all investment decisions and withdrawals while the account is custodial, but the money legally belongs to your child and counts as their income for tax purposes.
  • Most major brokerages (Fidelity, Schwab, Vanguard, E*TRADE) offer custodial accounts with no minimum deposit, though some have account fees.
  • Earnings above $1,300 per year (as of 2024) are taxed at your child's rate if they have no other income, or at your rate if earnings exceed $13,000.
  • Once your child reaches the age of majority, the account becomes theirs to control, and you lose all authority over it.

How a custodial account works and who controls the money

When you open a custodial account, you are the custodian—the adult who manages the account. Your child is the beneficiary. The account is registered in your child's name and Social Security number, but you make all the investment decisions, place all the trades, and approve all withdrawals until your child reaches the age of majority in your state.

This is different from opening an account in your own name and telling your child they can use it someday. A custodial account is legally your child's property from day one. That matters for taxes: the earnings and dividends belong to your child, not you. It also matters if you die or face creditors—the account is protected because it's not your asset.

You cannot use the money for your own purposes. You can only spend it on things that benefit your child directly: education, medical care, housing, or other support. Using custodial funds to pay your mortgage or credit card bill is a violation of the custodial agreement and can have tax consequences.

Opening a custodial account: what you need and where to do it

Most major brokerages let you open a custodial account online in about 15 minutes. You'll need your child's Social Security number, your own identification, and a funding method (bank account or wire transfer). Fidelity, Schwab, Vanguard, E*TRADE, and Interactive Brokers all offer custodial accounts with no minimum deposit.

When you apply, you'll select "custodial account" as the account type and specify your state. The brokerage will ask you to confirm that you understand the rules: the money is your child's, you manage it until they reach the age of majority, and then it transfers to their control. Some brokerages require you to sign documents in person or have them notarized, but most now accept electronic signatures.

After the account opens, you can fund it immediately. You can contribute as much as you want each year—there's no legal limit. However, the IRS taxes earnings above a certain threshold, and if you give your child money as a gift, there are annual gift tax limits (currently $18,000 per parent per year, though this does not require you to file a tax return unless you exceed it).

Tax rules: what you owe on earnings and dividends

Your child does not owe income tax on the money you put in—that's not income. But they do owe tax on earnings: dividends, capital gains, and interest. The tax rate depends on how much your child earned that year and whether they have other income.

As of 2024, the first $1,300 of your child's investment earnings are tax-free (this is called the standard deduction for dependents). The next $1,300 is taxed at your child's rate, which is usually lower than yours. Anything above $2,600 is taxed at your rate (called the "kiddie tax"), even though the account is in your child's name.

You'll file a tax return for your child each year if their earnings exceed $1,300. You can use IRS Form 8615 to calculate the kiddie tax. If your child has no other income and the account earns less than $1,300, you typically don't need to file a return for them.

These thresholds change each year, so check the IRS website or your tax preparer before filing. The point is: a custodial account is not tax-free, but it's usually more tax-efficient than holding investments in your own name and then giving them to your child later.

What happens when your child turns 18 or 21

On the date your child reaches the age of majority in your state (18 in most states, 21 in a few), the custodial account automatically converts to a regular account in their name. You lose all authority. You cannot make trades, withdraw money, or see the account balance without their permission.

Your child can do whatever they want with the money: spend it, invest it, give it away, or leave it alone. You have no say. This is why it matters to teach your child about investing before that date arrives—if they don't understand what they're looking at, they may make poor decisions with a large sum of money.

Some parents worry about this loss of control. If you're concerned your child will spend the money unwisely, a custodial account may not be the right tool. A trust, set up with an attorney, gives you more control over when and how your child can access the money, but it costs more to set up and maintain.

Custodial accounts versus 529 plans and Roth IRAs

A 529 plan is a tax-advantaged savings account specifically for education. Money grows tax-free, and withdrawals for college tuition, room and board, books, and some K-12 tuition are tax-free. However, if you withdraw money for non-education purposes, you pay income tax plus a 10% penalty on the earnings. A custodial account has no such restriction—you can use the money for anything that benefits your child.

A Roth IRA is a retirement account. Your child must have earned income (from a job) to open one, and contributions are limited to the amount they earned that year (up to $7,000 in 2024). Money grows tax-free and can be withdrawn tax-free in retirement. But if your child withdraws money before age 59½, they pay a 10% penalty on the earnings (though they can withdraw contributions penalty-free). A Roth IRA is best if your goal is teaching your child to save for retirement, not building general wealth.

For most parents who want to save money for their child without a specific purpose in mind, a custodial account is the most flexible. For college savings, a 529 plan offers better tax treatment. For a working teenager, a Roth IRA teaches retirement discipline.

Common mistakes and what to avoid

The biggest mistake is treating a custodial account like your own account. You cannot borrow from it, use it to pay household bills, or invest it in risky ventures hoping to multiply it quickly. The money is your child's, and you're the trustee. If you misuse it, you can face legal consequences and tax penalties.

Another common error is opening the account and then ignoring it. Custodial accounts still require annual tax reporting if earnings exceed the threshold. You'll receive a 1099 form from the brokerage, and you'll need to file a tax return for your child. If you don't, the IRS may come looking for the taxes owed.

A third mistake is opening a custodial account without thinking about financial aid. Money in a custodial account counts as your child's asset when they apply for college financial aid, which can reduce the amount of aid they receive. A 529 plan, by contrast, is treated more favorably under financial aid rules. If college aid is a concern, talk to a financial advisor before opening a custodial account.

Frequently Asked Questions

Can I open a custodial account if my child is under 13?

Yes. There is no age minimum for a custodial account. You can open one for an infant. However, very young children cannot understand investing, so the account is really a tool for you to build wealth on their behalf. Some parents use custodial accounts to teach older children (ages 10 and up) about investing by letting them help choose stocks or funds.

What if I want to keep control of the money after my child turns 18?

A custodial account automatically transfers to your child's control at the age of majority. If you want to keep control longer, you need a trust, which requires an attorney to set up. A trust is more expensive but gives you the flexibility to specify when your child can access the money (age 25, 30, or whenever you choose).

Can I withdraw money from a custodial account for my child's education?

Yes, you can withdraw money for education expenses: tuition, books, room and board, and related costs. You can also withdraw for other things that benefit your child: medical care, housing, or general living expenses. The money is your child's, so you can use it for their benefit, but not for your own purposes.

Do I need to report the custodial account to the IRS when I open it?

No, you don't need to report it when you open it. However, if the account earns more than $1,300 in a year, you'll need to file a tax return for your child and report the earnings. The brokerage will send you a 1099 form at tax time.

What happens to a custodial account if I die?

The account belongs to your child, not to your estate. It passes directly to your child and is not subject to probate. However, if your child is still a minor, a court may appoint a guardian to manage the account until they reach the age of majority. You can name a successor custodian in your will to avoid this.