Last Updated: February 1, 2023
The stock market can be a great way to invest your money and see it grow over time, but how old do you have to be to buy stocks?
There are restrictions on buying stocks and in this article, we will discuss the age requirements and provide information on what type of accounts minors can use to engage in stock trading. We will also mention some things you should consider before entering the stock market.
So, let’s begin.
How Old Do You Have to Be to Buy Stocks?
To avoid any misunderstandings, we must note that in the US, there are no age restrictions imposed by the stock market—what prevents those who are legally underage from buying stocks are actually the rules on opening investment accounts.
The required age to open a brokerage account is 18, and minors must have a cosigner if they wish to open an account. We should also mention that although being unable to open a brokerage account means children can start investing only when they’re old enough, this doesn’t prevent them from owning stock. A person under the age of 18 or 21 can inherit stocks or receive them as a gift and become a stock owner without the opening an investing account.
To invest in the stock market in the US, you technically have to be at least 18 years old, since individuals must be able to enter a legal contract to become investors and traders. Although the minimum age for stock trading and other investments is more or less the same across the US, some states have set higher age restrictions—in Alabama, Delaware, and Nebraska, you need to be at least 19 to open an account and invest in stocks, while in Mississippi you can start investing once you reach the age of 21.
Other than these, overall in the US, a parent or legal guardian is required to make transactions on behalf of the child until they’re at least 18 years or older.
|DID YOU KNOW: When investing in stocks, you should always take the volatility and the company’s reputation into account. If you’re looking to invest in lower-cost stocks, take a look at the best cheap-priced stocks for 2022.
Can Minors Invest in Stocks?
As we mentioned, although there’s no minimum age to buy stocks, minors in the US aren’t able to open a brokerage account, but need parents and guardians to open a custodial account and invest in a child’s name.
There are different types of custodial accounts that can make investing for minors possible. Let’s take a look at what they are and how to use them:
1. Custodial Accounts UTMA/UGMA
With a custodial account, the parent initially has control over the withdrawals and investments, but the child owns the assets within the account. Once the child reaches the age of 18 or older, depending on the state’s laws, they’ll be able to take full control of the account.
However, the minor can benefit greatly even before reaching the legal age to invest in stocks, as the investment earnings will generally be taxed at child’s tax rate. This is due to the fact that although the parent is in control of the account, the assets are essentially owned by the child.
The initial $1,050 in earnings is free of tax, while the following $1,050 fall under the child’s tax rate. However, keep in mind that earnings over $2,100 are taxed at the parents’ rate.
There are two types of custodial accounts:
- The Uniform Transfer to Minors Act (UTMA) account
- The Uniform Gift to Minors Act (UGMA) account
No matter how old you are, if you wish to start investing, you can make use of either of these accounts. The UTMA is more flexible, as it may include all kinds of assets such as intellectual property, real estate, works of art, and so on, while the UGMA account is mainly used for mutual funds, insurance policies, stocks, or cash.
2. Custodial IRA
Another option for minors who want to invest in the stock market is a custodial IRA. Custodial accounts make a good choice for a child who is already earning an income, although the investment assets will be managed by the adult.
Children are able to contribute to their IRA account as much as they make. In the case of having a top-rated IRA account, it doesn’t matter at which age children choose to invest in stocks as much as it matters for children to become financially literate as early as possible.
The Roth IRA account is a better option than the traditional IRA, as it includes penalty-free withdrawal in case of education expenses. Roth IRAs are especially useful for minors, as they’re in one of the lowest tax brackets. Overall, the custodial Roth IRA is a good choice for investing in bonds, stocks, and mutual funds.
3. 529 Plan
529 plans are investment accounts specifically designed for education expenses. They’re sponsored by the state, and as long as the money doesn’t leave the account, the earnings grow tax-free.
In some cases, withdrawals related to educational expenses might be free of tax, mostly at the federal level and sometimes even at state level.
If your child is below the minimum age to buy stocks, you can do so for them with the 529 savings account. As a parent or any other family member, you can gift them up to $15,000 a year. Minors are assigned as the beneficiary of the account, and similarly to a standard brokerage account, it can be used to buy and sell stocks.
4. Educational IRA (ESA)
Like the 529 account, an educational IRA may also be opened by a parent or an immediate family member, allowing those not old enough to be put down as beneficiaries.
For certain educational expenses, the ESA is also tax-free, but the maximum contributions are limited to $2,000. Once money has been invested into this type of account, beneficiaries of any age are able to buy stocks, mutual funds, and bonds.
|No age restrictions are imposed by the stock market in the US.
|Minors under the ages of 21 or 18 can’t open a brokerage account on their own.
|Parents can put their children as account beneficiaries and control the withdrawals and investments until the child is of age.
|Custodial accounts come with both flexibility and limitations.
What to Consider Before You Start Investing in Stocks?
If you’re considering buying stocks for your children or you’re a young adult of age able to open a brokerage account of your own, keep in mind that no matter at what age you decide to buy stocks, there are a few things to consider when choosing a broker.
The first thing you must do when on the lookout for a brokerage firm is ask about their fees. Whether real-time data fees or trading commission is involved, make sure you’re comfortable with the costs associated with opening an account with a company by comparing the fees charged by different brokers.
Minimum Balance Requirements
Another thing you must pay attention to are the minimum balance requirements that come with investment accounts. Think about how much money you’re willing to invest and remember fees might apply if you fail to meet the requirements.
Whether you’re a parent investing in your child’s name or someone of legal age looking to invest in stocks, it’s always a good idea to ask for a demo of the brokerage firm’s online platform. Investing in an account that’s difficult to navigate isn’t something you want to do, especially when it comes to a trading platform.
Resources and Tools
If you have little or no investing experience, it’s important to ask your brokerage firm of choice about the educational resources and tools they offer.
Since you’ll be investing your hard-earned money, you also want to make sure you’ll receive adequate customer service.
|DID YOU KNOW: Experts advise to invest no more than 10% to 15% of your annual income. If you’re new to stocks and trading, you can benefit from checking out some of the best beginner-friendly stock brokerages.
The stock market has no age limit, and what makes investing a good idea is mainly the fact that the sooner you start, the better your investments might play out in the long run, as you’ll be giving them more time to grow.
Although minors aren’t able to legally open investment accounts of their own, as we mentioned, they can become an account holder with the help of a parent or immediate family member by initially being placed as beneficiaries. To learn more about the world of investment and make informed decisions, you can also take a look at the best apps for investing and stocks that are expected to hit the roof in 2022.
There’s no minimum age to invest in stock market, but there are age restrictions on opening a brokerage account. As we mentioned earlier, the age limit differs from one state to another.
To start investing in stocks, you first need to open up a savings account. For this, minors under the age of 18 in the US need the assistance of their parents or legal guardians, as they aren’t eligible for a brokerage account of their own.
How old do you have to be to buy stocks can be simply answered by saying there are no age restrictions—however, it gets a bit more complicated than that, as minors can’t open a savings account on their own. This means that if you want to invest in the market without the help of your parents, you need to be at least 18 years.