Custodial Brokerage Accounts for Your Kids

Updated: July 21, 2025

Written by Emmanuel Modu, Author of TeenVestor: The Practical Investment Guide for Teens and Their Parents

Custodial accounts are accounts for minors (generally those less than 18 years old) set up by parents, guardians, and other adults. Custodial accounts are necessary because they are the only way for minors to enter into any financial transactions (such as opening bank accounts or stock trading accounts).

The two main types of custodial accounts parents use for their kids are custodial bank accounts and custodial brokerage accounts. We will be providing a list of the best custodial brokerage accounts in this article. Establishing a custodial account is just the beginning.

But the real move is to teach your kids how to invest. For more information on this, check out our course: TeenVestor Stock Certification Course. Investing principles learned at an early age will help your kids avoid financial heartaches in the future. The online course teaches teens the fundamentals of investing in the stock market. In the meantime, keep reading for the top custodial brokerage account for kids.

Rules Related to Opening Custodial Accounts

A custodial account is held with an adult as the custodian, but in the eyes of the law, the assets in the account belong to the child and are held in his name. The child, however, can’t get his hands on the account’s assets until he reaches his majority – 18 years old in some states and 21 in others.

The custodian who establishes the account – typically a parent, grandparent or other relative – has management responsibility over the account. In other words, the custodian must be involved in all decisions to buy or sell securities or reinvest earnings generated by the account, even though the investments in the account belong to the minor. The beauty of establishing a custodial account is that part of the earnings and gains in the account are taxed at a low rate on the average.

Before Opening a Custodial Account

Before opening a custodial account, you should:

1. Choose online brokers that offer affordable custodial accounts (more on this below);

2. Understand the advantages and disadvantage of custodial accounts;

3. Understand taxes associated with custodial accounts for your kids; this is an often ignored aspect of custodial accounts.

Criteria for Choosing a Custodial Brokerage Account

To open a custodial account to help your kids start investing, you first have to choose an online broker that allows affordable custodial accounts suitable for teens. These types of accounts are called custodial brokerage accounts.

The things you have to look for when searching for an online broker include:

• No stock trading fees – you should find online brokers that charge $0 to buy and sell stocks.

• Low balance stock trading accounts – make sure the online broker does not require the maintenance of a sizeable minimum balance in a trading account; there are many that offer $0 minimum balance.

• Brokers that allow for fractional shares – if your Teenvestor (teen investor) wants to invest as little as $5 in reputable companies with high stock prices, he can only do so if the online broker allows him to buy fractions of a share stock.

• Funding Stability — there have been quite a few brokers catering to teen investors that have gone bankrupt. Examples include Flyte (formerly Loved Investing), One, Stack, and others. Oftentimes these brokers are not well funded and they rely on teen investors maintaining substantial balances in their accounts to boost profitability. We tend to avoid these companies when recommending custodial brokerage accounts.

Top Ten Custodial Brokerage Accounts

Here is a short list of the top 10 affordable custodial brokerage accounts brokers that are best for your kids. I've linked directly to each company's custodial account section:

Robinhood is conspicuously missing from this list for one simple reason — it doesn’t offer custodial brokerage accounts. For more details about each of these accounts, please go to the bottom of this page.

Newer Companies That Offer Custodial Brokerage Accounts

You can see that some of the companies such as Fidelity and Charles Schwab are traditional online brokers that have been around for a long time. Other companies such as Stockpile and M1 Finance are newer online brokers, some of which were formed just in the past 10 years.

Some of these new custodial brokerage accounts charge a small monthly fee for helping young and new investors put together an investment portfolio or set up very simple investment strategies.

Information You Need to Open Custodial Accounts

Opening a custodial account with online brokers is very simple. The basic information you will need to open up a custodial account are as follows:

1. The contact information, birth date, and Social Security number of your child.

2. Your driver's license number (if you have one).

3. Your Social Security Number.

4. Your employer's name and address (if applicable).

5. Bank information so you can move money into the custodial account if and when necessary.

UGMA and UTMA Accounts

There are two types of custodial accounts: the UGMA (named for the Uniform Gifts to Minors Act) and the UTMA (named for the Uniform Transfers to Minors Act).

These two types of accounts are very similar in nearly all respects. The most significant difference between the two is the date at which control of the account passes to the child. A custodian loses control over an UGMA account once the child reaches his majority – 18 or 21, depending upon the state. By contrast, a custodian is permitted to postpone transfer of control of an UTMA account to a child, depending upon the state, until 25.

Whether you establish an UTMA or an UGMA account, these accounts have very strict rules that prevent custodians from using them as their personal piggybanks. Furthermore, while you can withdraw money from the account for your child’s benefit, the assets in an UGMA account can’t be used to pay for things that you are legally obligated to provide to support your child (such as food, clothing, etc.). However, UTMA accounts are more liberal than UGMAs in that they permit funds in the account to be spent for the support of the child.

Disadvantages of a Custodial Account

Criticisms of custodial accounts for children generally fall into three categories.

First, even though you may have contributed to the custodial account to help your child get started as an investor, the assets belong to him. This means that if you wish to close the account and reclaim the assets, you may not only end up paying taxes at your own tax rate on the gains in the portfolio, but you may also find the IRS scrutinizing your actions.

Second, custodial accounts raise thorny issues of “control.” Some parents worry that their Teenvestor, upon reaching his majority, will squander the account’s assets once he assumes control of the account. Finally, substantial assets in custodial accounts can reduce a college-bound Teenvestor’s eligibility for financial aid or cause tricky estate tax problems if the custodian dies before the child reaches his majority.

Advantages of a Custodial Account

Custodial accounts offer substantial advantages, which we believe outweigh the disadvantages discussed above.

The most important advantage of a custodial account is that it enables your Teenvestor to learn how to invest responsibly, early in life, under your supervision. In addition, use of a custodial account will protect more of your Teenvestor’s investment income than if he did not have such an account.

This is because, as owner of the assets in the account, some of the investment income generated by the account will most likely not be taxed at all, or will be taxed at his rate. We recommend that you keep the balance in the custodial account modest to minimize concerns such as the adverse tax consequences associated with account closures, loss of custodial control over account assets, reduced financial aid or increased estate taxes.

Are Your Kids Ready to Invest?

Are They Ready to Invest? Take our quiz by clicking on the image.

Some kids may not be ready to leap into stock investing. We recommend waiting until they are in their teen years before introducing them to investing. This way, they will be mature enough to truly appreciate the potential risks and rewards of investing in the stock market., How would you know if your kids are ready to become stock investors? It depends on the lessons they have already learned up to this point. Have they shown any skills in handling money, no matter how small the amount is at their disposal?

Parents who can afford to do so can help their teens manage money by giving them a regular allowance, no matter how small their budget. I emphasize providing allowance on a fixed schedule to help them plan for long-term expenses and things they may want to buy.

By providing allowance on a fixed schedule, you help them think about the future and refrain from immediately craving gratification. Your kids can’t plan for future expenditures if they are unsure when they will receive their allowance. You may also want to consider tying allowance to chores around the house. I discourage parents from paying for tasks their kids should be doing anyway, such as cleaning up their room or the bathroom they use. These chores should be tasks above and beyond what you would typically expect of your teen. Overall, basic money management skills, including the ability to save (through a bank account), are precursors to your kids beginning their investing journey. Here is a quiz to help determine if your kids are ready to invest in the stock market.

7 Steps to Investing as a Teenager

Before your teens can begin investing through custodial accounts, they should consider the following 7 steps which we further describe in this link:

1. Gain Basic Knowledge -- go to sites that specialize in teaching teens about stocks basics (see: www.teenvestor.com)

2. Stick to Their Interests at the Beginning -- looking for companies that suit their interest will keep them engaged; later, they can expand your investment universe.

3. Find out Exactly What Companies Do -- they should know the business in which their company of interest is engaged; get company annual reports.

4. Get Basic/Simple Financial Data -- getting and basic financial measures will help them avoid serious investment mistakes; finance.yahoo.com is helpful.

5. Experiment With Dummy, Mock, Virtual, or Fake Portfolios -- several companies offer free dummy trading portfolio platform to help them step gently into stock investing without risking their money; here is the link to how to set up a dummy portfolio.

6. Choose an Appropriate Online Broker (Offering Custodial Accounts) -- online brokers with no fees and no minimum are ideal; here is alink on online brokers.

7. Avoid Scams-- stay away from penny stocks or anyone who promises returns that are too good to be true.

Practicing With a Dummy Stock Portfolio

Setting up a dummy trading portfolio (also called a mock or virtual portfolio) is one way Teenvestors can overcome the fear of taking that first step in investing. Using fake dollars and virtual stock market simulators that pull stock prices from the real market, young investors can get a taste of the ups and downs of the stock market.

TeenVestor’s Dummy Portfolio Portal

MockPortfolios.com is our free portal for teen investors can create their own dummy trading portfolios so they can start buying and selling stocks using virtual dollars.

Before they can create their own dummy portfolios with MockPortfolios.com, they have to join one of the stock competitions we’ve created within the game’s platform. Each competition has its rules and regulations about what type of stocks they can buy, the amount of initial virtual cash they can play with, etc. Click on the image below for MockPortfolios.com.

Other Dummy Portfolio Portals

Some of the dummy trading portfolio portals we are familiar with are as follows:

MarketWatch Virtual Stock Exchange

Wall Street Survivor

How the Market Works

TD Bank’s Virtual Stock Market

Online Stock Courses

After opening a custodial investment account but before seeding the account with cash, you should consider having your kids take a stock investment course. There are many courses offered on the Internet to teach stock investing. You can find them at sites like Udemy, LinkedIn Learning, Coursera, and many others.

However, you will not find any that are specifically designed for teens and that is comprehensive enough to give young investors the basic skills they need to begin investing in stocks. Many of these courses, even the beginner courses, are too advanced for very young investors.

Some online brokers have developed programs on their sites to teach basic investment concepts but once again, these are inadequate mainly because they are too advance for kid investors.

An excellent program for teaching kids stock investing is the TeenVestor Stock Certification Course. Designed for kids ages 13, this self-paced course uses text, video and audio lessons to teach the basics of stock investing.

Teen Investors and Taxes

An in-depth discussion of the tax rules that apply to your Teenvestor’s investment activities is certainly beyond the scope of this document. However, it’s important that you know about the basic tax rules that govern when an income tax return must be filed for your Teenvestor.

As a parent, you should monitor the amount of income that your Teenvestor receives. The IRS defines investment income (also known as unearned income) as the combination of interest, dividends and capital gains. Investment income should not be confused with earned income, which includes salaries, wages, taxable scholarships and grants. Let’s examine three circumstances when your child receives 1) only unearned income 2) only earned income, and 3) both unearned and earned income. The IRS describes the circumstances under which your child must pay taxes in the following publication: Publication 929.

If Your Child Receives Only Unearned Income

In most instances, your Teenvestor, as a single dependent, will not be required to file or pay taxes on the first $1,100 of investment income (i.e. unearned income). However, once his investment income exceeds $1,110 he must file a tax return or, as discussed below, you may choose to include his investment income on your own tax return.

This unearned income will be reported on his tax return, and the amount owed will be calculated on Form 8615, which is to be attached to his return.

The truth is that it is very unlikely that your Teeevestor will make more than $1,100 in unearned income because that would take a lot of investments to make such profits in any assets like stocks and bonds. In addition, this type of income is generally recognized when stocks and other assets are actually sold. So, if your Teenvestor invests in stocks but does not sell it, there is no unearned income associated with that investment. Sure, he may get dividends on stocks, but that will most likely be a tiny amount.

Parents can elect to include the investment income of their Teenvestors who are under 19 years of age (or under age 24 if the child is a full-time student) on their own returns. Parents can make this election if their Teenvestor’s investment income is more than $1,100 and less than $12,400. If you elect to report this income on your own tax return, your Teenvestor won’t have to file a separate return. A parent’s tax return that includes the investment income of children must be accompanied by a completed Form 8814.

If Your Child Receives Only Earned Income

Your Teenvestor has to file a tax return if his earned income is more than $12,400. Some tax experts recommend that they file a tax return anyway if he makes less than this amount since he may be able to get money back if too much tax has been withheld.

If Your Child Receives Both Earned and Unearned Income

Gross income is used to determine whether your Teenvestor has to file a tax return when he has both investment income and earned income. Gross income, also known as “before-tax” income, is loosely defined as the total of earned income and investment income before any deductions for taxes are taken. Tax returns are required to be filed if your Teenvestor’s gross income for the year exceeds the greater of a) $1,100 or b) his earned income plus $350, up to a total of $12,400.

Once your Teenvestor’s earned income (typically, wages from employment) exceeds $12,400, a tax return must be filed regardless of whether he has any investment income. In addition, if your Teenvestor does not have any investment income and is self-employed – that is, if he is an entrepreneur – he will have to file a tax return if his net profit exceeds $400.

Determining the Appropriate Tax Bracket (Includes the Kiddie Tax)

Obviously, understanding when your Teenvestor is required to file a tax return is just one piece of the puzzle. It is also important to understand how to figure the tax rate that will be applied to his investment income.

Your Teenvestor is required to pay taxes on investment income exceeding $1,100. The tax rate that will apply to this income depends upon whether your Teenvestor is younger than 19 or not. If he is under 19 and has investment income, he is subject to the kiddie tax. Technically speaking, the kiddie tax is not actually a tax but rather a restriction that seeks to prevent parents from transferring their investment assets to their children under 19 to shield their income from taxes.

Under the kiddie tax, investment income over $1,100 and up to $2,200 will be taxed at your Teenvestor’s tax rate. For most Teenvestors, this should probably be 10%. Any investment income over $2,200 will be taxed at the parent’s tax rate