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How to Open an Investing Account for Kids

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We can't emphasize this enough: If you have a long-term time horizon, then right now is the best time ever to put your money to work in the stock market.

And who has more time to weather the market's ups and downs than anyone? Kids!

Here's how to get them started investing in stocks:

Accounts for kids
Minors cannot enter into any legally binding contract, so here are your other options, from most to least formal:

An UGMA (Uniform Gift to Minors Act) account: Set up by a custodian (parent, guardian, or other adult), this account legally belongs to the minor, but Junior can't take control of the dough until age 18 or 21, depending on the state (the custodian can also withdraw it earlier on the youngster's behalf).

A joint brokerage account: This lets you hand over the keys to the account when the little one turns 18. Until then, the adult is legally in charge. Because of tax issues, such as capital gains, the key is whose Social Security number is on the account. We suggest that unless you're dealing with a child star, use the kid's SSN -- you're probably in the higher tax bracket.

"Piggybacking" on your account: This is a more informal arrangement where your kids "buy" stocks and funds through you. (If you're feeling particularly generous, offer to pick up the tab for taxes and transaction costs, too.) When the children turn 18, you can then transfer their shares into their very own brokerage account. In the meantime, set up a virtual portfolio (try Yahoo! Finance) so the kids can track their portion.

When setting up these accounts, pay attention to housekeeping details: You'll need the child's full name, address, and SSN. If Junior is commingling shares with you, keep track of which shares belong to whom.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 24, 2008, at 12:57 PM, YIF wrote:

    The Monetta Young Investor Fund(MYIFX) can be opened with a $100 with a $25 monthly AIP. Parents can use either a Coverdell or UGMA account. Great fund for kids to get them involved in the savings process.

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