Kids and Brokerage Accounts

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Can kids have brokerage accounts? Well, they can't have brokerage accounts of their own, but you can still get them started early.

Here's how: You can set up a trust fund. You'll have to manage it yourself or pay someone to do so. It eventually becomes the property of your child, but he or she can't take control of it until reaching an age you specify -- even if it's something like 43.

Stocks bought for youngsters are frequently set up in UGMA (Uniform Gift to Minors Act) accounts. The investments belong to them, but they can't take control of them until age 21. Until then, the custodian (probably you) calls the shots. Custodians can withdraw money from the account for the youngster's benefit. (From our friends at Fairmark, here's some info on UGMA and its cousin, UTMA.)

You can also open a simple joint brokerage account, which you control until the child turns 18. Note, though, that whoever's Social Security number is on the account will face taxes on any gains. Since your children are probably in a lower tax bracket, their Social Security numbers might be the best ones to use.

A great way to get kids started is through dividend reinvestment plans (Drips) and direct stock purchase plans. They allow you to buy small amounts of stock, a little bit at a time, directly from the company. That means you get to bypass the brokers. These plans often operate like an UGMA or joint account. Just ask a company you're interested in if it offers such plans. And before opening an account, learn more about these plans. Hundreds of well-known companies offer them -- among them Pfizer (NYSE: PFE), PepsiCo (NYSE: PEP), Coca-Cola (NYSE: KO), Microsoft (Nasdaq: MSFT), Johnson & Johnson (NYSE: JNJ), Avon (NYSE: AVP), and Hasbro (NYSE: HAS).

For more details on how to save and invest for your children, drop by our newly revised College Savings Center.

To get your kids interested in saving and investing their money (and perhaps to ensure that you'll be treated to a first-class nursing home one day), consider giving them a copy of our new book, The Motley Fool Investment Guide for Teens: 8 Steps to Having More Money Than Your Parents Ever Dreamed Of. Also have your young ones drop by our newly overhauled and revised corner of Fooldom for teens.

Coca-Cola, Microsoft, and Pfizer are Motley Fool Inside Value recommendations. Hasbro is a Motley Fool Stock Advisor pick. Check out either newsletter -- the Gardner brothers' Stock Advisor or Philip Durell's bargain-hunting Inside Value -- with a free, no-risk trial.