A custodial brokerage account is the practical bridge between “learning about investing” and actually doing it. Until age 18 (or 21 in some states), the account is in the child’s name but controlled by an adult custodian. After the age of majority, control transfers to the child. The mechanics are simple, most major brokers offer them, and they unlock the most powerful lesson in personal finance: watching real money compound over time.
The Two Main Account Types for Minors
- UGMA/UTMA custodial accounts — a regular taxable brokerage account in the child’s name. Adult controls it; child gets full control at age of majority. Can hold any investments — stocks, ETFs, bonds, mutual funds. Money belongs to the child legally. See Custodial Accounts for the full picture
- Custodial Roth IRA — a Roth IRA opened on behalf of a minor with earned income. The teen must have W-2 or self-employment income to qualify. Contribution limit is the lesser of the kid’s earned income or the annual Roth limit ($7,000 for 2024). Tax-free growth and tax-free qualified withdrawals. See Roth IRA for Minors
Most families with a working teen use both: a custodial Roth IRA for retirement-bound long-horizon money, and a UGMA/UTMA for everything else.
Where to Open One
The major retail brokers that offer custodial accounts (UGMA/UTMA + custodial Roth):
- Fidelity — no account minimum, no commissions on stocks/ETFs, no annual fees. Custodial Roth + UGMA both offered. Quality mobile app. Often the most-recommended option
- Charles Schwab — similar feature set. No account minimum, no commissions. Both account types offered. Strong customer support
- Vanguard — lower cost on Vanguard mutual funds; some restrictions on what can be held. Good if you’ll be using Vanguard index funds primarily. UGMA + custodial Roth offered
- E*TRADE / Merrill Edge — competitive options if the parent already has accounts there
- Acorns Early — UGMA-style account inside a kids’ investing app. Easier interface but monthly fee ($5+). Less flexible than the major brokers
- Greenlight Investing — kids’ debit card app with limited investing inside. Fees apply; limited investment options
For most families, Fidelity or Schwab is the realistic choice. Free, full-feature, accessible for $1.
What You Need to Open It
- Custodian’s identification — Social Security number, address, employment info, possibly a driver’s license number
- Child’s identification — Social Security number, date of birth, full legal name. For a custodial Roth, also documentation of the child’s earned income
- Bank account for funding — to transfer in money. Can be the parent’s account
- About 15 minutes — the application process is online and reasonably straightforward at most major brokers
How Much to Start With
- $25–$100 is plenty to start — the goal is the educational experience, not building wealth in month one
- $1,000 buys a sensible starter portfolio — enough to own a few ETFs and watch them move
- Recurring contributions matter more than the starting balance — $25/month for 10 years adds up to $3,000 of contributions but possibly $4,500 of value at 7% return. Steady beats huge
First Investments to Consider
For a kid’s first investments, simple wins:
- A total-market index ETF — VTI (Vanguard Total Stock Market), ITOT (iShares Core Total US), or similar. Owns the entire US stock market in one fund. Low fees, broad diversification, sleep-at-night quality
- An S&P 500 ETF — VOO, IVV, SPY. Owns the 500 largest US companies. Slightly narrower than total-market but similar long-term return
- A target-date fund — if simplicity is the priority. Picks a stock/bond mix based on a target year (e.g., 2070 for a kid retiring in 50 years) and rebalances automatically
- One company the kid recognizes — a single share of Disney, Apple, or Lego (Lego is privately held; if interested, find a public alternative). Not the portfolio — just a fun ownership tie to a name they know
What to avoid as first investments: speculative stocks, crypto, leveraged ETFs, meme stocks, options. The starter portfolio teaches calm, long-horizon ownership.
The Tax Implications
- UGMA/UTMA accounts: investments grow under the kiddie tax. First ~$1,300 of investment income is tax-free; next ~$1,300 taxed at child’s rate; above that, taxed at parents’ rate. For most kid accounts, the first thousands of dollars of income face very low tax
- Custodial Roth IRA: all growth is tax-free, all qualified withdrawals are tax-free. The cleanest tax setup available for a kid’s investments
- FAFSA impact — UGMA/UTMA assets count as student assets, assessed at 20% for need-based aid. Custodial Roths don’t count as FAFSA assets. Worth knowing if college aid will matter
Common Mistakes
- Picking too aggressively — loading the account with a few hot stocks. The lesson becomes “investing is exciting and risky” rather than “investing is steady ownership”
- Checking the account too often — daily checking trains anxiety. Monthly is plenty
- Forgetting the account exists — the other extreme. The kid should look at it every few months and understand what’s in it
- Letting the parent pick everything — the goal is the kid learning to think about ownership. Even imperfect kid choices teach more than parent-optimal ones
- Treating the account as the parent’s — UGMA/UTMA money legally belongs to the child. Spending it on family expenses creates legal and ethical problems
The Bottom Line
Opening a custodial brokerage account for a teen takes about 15 minutes online at Fidelity, Schwab, or Vanguard. Start with $25–$100 of real money in a simple total-market ETF. Add a custodial Roth IRA if the teen has earned income. Pair the account with conversations about ownership, compounding, and patience. The teen who watched a small custodial account grow from $200 to $400 over 3 years understands the math of investing in a way that no classroom lesson can match. Real money + small stakes + long horizon = the foundation of every future investing decision.
Further Reading
This article is educational only and is not investment, financial, tax, or legal advice. Investing involves risk, including possible loss of principal. Past performance does not guarantee future results. Product features, fees, and rules change over time. Consult a qualified financial advisor for guidance on your specific situation.