Investment accounts for minors: how to open one and what parents need to know

How to open an investment account for your children

Getting started with a custodial account for your child is simpler than you might think. Follow these steps to open an account and begin building their financial future.

Step 1: Compare providers to determine the best fit.

Consider fees, tools, investment choices, accessibility, and comfort level. Be aware that custodial account earnings may be subject to the “kiddie tax,” meaning a portion could be taxed at the parent’s rate.

Step 2: Gather all required documents

This includes the minor’s Social Security number, custodian identification, and proof of address. Check with your brokerage to determine specific document requirements.

Step 3: Complete an application to open the account

You can do this either online or in person. If you’re looking for a simple, family-friendly option, you can open an investment account with Greenlight directly through the app.

Step 4: Fund the account with an initial investment

Add an initial investment amount and decide whether you want to automate future contributions. Note that large contributions may have gift tax implications, so consult a tax advisor if needed.

Step 5: Choose your investments

If you’re choosing a brokerage or custodial account, choose which investments to purchase. Many accounts offer stocks, ETFs, and mutual funds.

Step 6: Monitor your account

If you’ve chosen an account that involves your child in the process, encourage them to monitor progress, ask questions, and build their financial literacy.

Types of investment accounts for minors

If you want to introduce your kids to investing or they’re already eager to get started, minors have limited options for opening investing accounts. They can’t open an account on their own, so they need a custodian, such as a parent or guardian, to open the account with them. Here’s an overview of the types of accounts you can open for a minor and how to open one.

1. Custodial accounts (UGMA and UTMA)

The basics

Custodial accounts are held in a parent or guardian’s name for the benefit of a child and transferred into the child’s name once they reach age 18 or 21, depending on the state’s rules.

How the money grows

There are no contribution limits, though contributions above the annual gift tax exclusion ($19,000 per person, or $38,000 for married couples in 2026) may be subject to gift taxes.

Why it’s worth it

Custodial account funds can be used for anything benefiting the child, not just education. However, the account balance may affect college financial aid eligibility.

2. College savings: 529 and Coverdell ESA

The basics

529 and Coverdell ESAs are both tax-advantaged savings accounts designed to help families set aside money for a child’s education. They work similarly, with a few exceptions.

How the money grows

Both accounts grow tax-deferred, and withdrawals for qualified education expenses are tax-free. Coverdells are capped at $2,000/year but offer more flexible investment options and can be used for K-12 expenses, and 529 plans allow unlimited contributions with no income limits.

Why it’s worth it

Both accounts make saving for education more tax-efficient and flexible than a standard savings account. Unused 529 funds can be transferred to a family member or rolled into a Roth IRA. Coverdells are more versatile in how funds can be spent, though money must be distributed by the time the beneficiary turns 30.

3. Brokerage account in parent’s/guardian’s name

The basics

A brokerage account held in a parent or guardian’s name serves as an educational investing tool for kids and parents. Children can research companies and propose trades, but parents make the final call on every transaction.

How the money grows

When a child makes a stock trade, parents can see the pending transaction and choose to either place the trade or reject the request. While the child is researching companies and learning about investing, the parent makes the final investment decision whenever any securities are purchased or sold.

Why it’s worth it

With parental oversight built in, it’s a low-stakes way to teach investing fundamentals in real time. In some cases, funds don’t automatically transfer to the child once they reach adulthood. Greenlight's investing app lets kids and teens explore stocks and exchange-traded funds (ETFs) and propose trades with parental oversight.

4. Custodial Roth IRA for working minors

The basics

If your child has earned income, through a summer job, for example, you can open a custodial Roth IRA on their behalf. Contributions for 2026 are limited to $7,500 or 100% of the child’s total earned income for the year, whichever is less.

How the money grows

Just like a standard Roth IRA, money grows tax-free. Contributions can be withdrawn penalty-free at any time, but early withdrawal of investment gains triggers a 10% penalty and counts as taxable income. Once the child reaches adulthood, the account can be converted to a regular Roth IRA.

Why it’s worth it

Starting a Roth IRA early gives a child decades of tax-free compound interest.

Choosing the right investment account

To decide which account is best for you and your minor child, ask yourself the following questions.

Investment goal

Am I investing for education, retirement, or general savings? Your end goal shapes everything. A 529 is for college, a Roth IRA is a retirement head start, and a UGMA/UTMA or investing app gives you the flexibility to use funds however your child’s future unfolds.

Tax treatment

Do I need an account that lets me defer taxes in the future? Some accounts let your money grow tax-deferred, while others, like the Roth IRA, grow tax-free. This can mean thousands of dollars over time.

Contribution flexibility and limits

What type of flexibility do I need in making contributions? Custodial accounts let you contribute as much as you want (gift tax rules aside), while a Coverdell caps you at $2,000 per year and a Roth IRA is limited to your child’s earned income, so know your limits before you commit.

Impact on college financial aid

Would the account potentially affect my child’s financial aid eligibility? Assets held in a custodial account in your child’s name are weighted more heavily in financial aid calculations than a 529 or parent-owned account, which could reduce the aid package your child receives.

State-specific rules

How does my state handle each type of account when it comes to taxes and transfer of account? Some states offer tax deductions for 529 contributions and others don’t, and UTMA vs. UGMA transfer ages vary by state.

Parental control vs. child ownership

Do I want the account to automatically transfer to my child at adulthood, or do I want more parental control? Custodial accounts legally become the child’s property when they hit adulthood, but a parent-owned brokerage account stays in your hands.

Earned income requirement

Does my child have the earned income needed for the Roth IRA? Your child must have a W-2 or self-employment income to qualify, even babysitting works.

Time horizon

How old is my child, and when do they need the money? A newborn’s 529 can ride out market swings over 18 years, while a 15-year-old’s account needs a more conservative approach since tuition is just around the corner.

Help your child accelerate their financial growth

Even though minors typically can't open investment accounts on their own, that doesn’t mean they can’t invest. Decide the best route for your child to begin their investing journey, involve them in the process, and make adjustments as you go.

With hands-on educational tools, no hidden fees, and parental oversight, Greenlight's money app allows kids and teens to explore investing, earning, and saving. It’s a collaborative, low-risk way to introduce kids to investing fundamentals and teach money management lessons.

© 2025 Greenlight Investment Advisors, LLC (GIA), an SEC Registered Investment Advisor provides investment advisory services to its clients. Investing involves risk and may include the loss of capital. Investments are not FDIC-insured, are not a deposit, and may lose value.