What is a kids brokerage account?

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If you are interested in helping your kids grow more confident in managing money and you want to set them up on the path to financial success, you may have been thinking about introducing them to investing. Maybe you’ve even thought about opening a brokerage account for them. But what exactly is a kid’s brokerage account, and how does it differ from a regular brokerage account for adults? Is it even possible to open a brokerage account for a minor? Don’t panic, because the answer is yes!

First, let’s unpack what a kid’s brokerage account is.

What is a brokerage account for kids?

A kid’s brokerage account is more accurately called a custodial account. This is a brokerage account that parents or legal guardians can open on behalf of their child. The child owns the assets in the account, but parents can manage it until the child turns 18 (or 21, depending on the state). Following this, the account will be transferred to the beneficiary and they will take over the ownership of it.

How does a brokerage account work?

Let’s explore kids’ brokerage accounts further by breaking down the differences between brokerage firms, brokerage accounts, and custodial accounts so we can understand what they mean and what their functions are.

A brokerage firm is a regulated business that offers broker or stockbroker services to its clients. This means that a brokerage is a company that helps to arrange a transaction deal, streamlining the process of investing and buying shares. They often charge a fee or commission for their services.

Now that that’s out of the way, a brokerage account is a kind of taxable account made with a brokerage firm. As an investor, you can deposit money into the account for the purpose of trading – buying and selling assets. The money in the account is used by the brokerage firm to complete transactions for you. Brokerage accounts allow you to hold your investments, assets, and money in a safe place where you own everything in the account. There are multiple types of brokerage firms and brokerage accounts, such as full-service firms and accounts which offer advisory services. This leads us to custodial accounts.

A custodial brokerage account is, in essence, a brokerage account with a minor’s name attached, since they can’t open their own as they are not of age. A parent or guardian can open a custodial account on a minor’s behalf. Until the beneficiary reaches maturity, assets, capital gains, and tax liabilities belong to the parent or guardian, who has total ownership and control of how money is spent and invested. Additionally, any adult can contribute to the account. 

What are the pros and cons of a brokerage account for kids?

Let’s weigh up some of the pros and the cons of a kid’s brokerage account (a custodial account). Just like with anything in life, there are some advantages and disadvantages to custodial accounts, so you should take time to understand if a custodial account is right for you and your family.


  • Custodial accounts are simple to open and set up. To open a custodial account, all you need is your child’s Social Security Number, their full name, and their date of birth. Additionally, they are easy to maintain and manage on an ongoing basis.
  • Custodial accounts have no income, withdrawal, or contribution limits. This means that they can be a great way to provide different assets and they also don’t have distribution penalties or criteria for withdrawals.
  • You have lots of control over the account for the benefit of the minor. This means it will be secure, and you can relax without having to worry the minor is going to do something wild like spend all the money! You can manage all of the actions for the account like deposits and you can decide which assets to invest in.
  • Custodial accounts are very flexible and anyone can make contributions. This makes an account, or making a deposit in one, a great gift for a loved one.
  • There’s more than meets the eye with a custodial account for kids. It is not only a place to store money and assets, but it also doubles as an educational tool. For example, it can help teach kids about spending and saving as well as how to invest.


  • Custodial accounts are allowed the first $1150 of unearned income untaxed, but they are not tax-free. When the intended minor of the account reaches maturity, they will owe taxes on any realized account gains at their regular tax rate.
  • Custodial accounts are irrevocable. You cannot change the beneficiary once the account has been established. Likewise, any gifted assets cannot be taken back.

The process for opening a custodial account is very simple, and we have a guide on How To Open An Investment Account For Your Child, so be sure to check it out if you’re interested!

How does a brokerage account differ from other accounts for kids?

Let’s compare how custodial accounts are different from other kid’s brokerage accounts, such as Coverdell Education Savings Accounts, 529 Plans, and IRAs. To do this, we need to talk about UTMAs and UGMAs. Stay with me, it’s simple!

UTMA and UGMA Accounts:

There are two different types of custodial accounts – Uniform Transfers to Minors Act (UTMA) and Uniform Gift to Minors Act (UGMA). UTMA investments can include pretty much any type of asset from real estate to intellectual property to works of art. UGMA accounts are limited to assets and investments that involve cash, securities, and insurance policies. Both types of custodial accounts are set up in the minor’s name with a custodian that oversees account action until the minor becomes a legal adult.

Coverdell Education Savings Account (ESA)

This is a special account that is solely cash-funded. Its purpose is to help pay for your child’s education, and it helps families to afford education expenses. A drawback to this account is that its funds can only be used for qualified educational expenditure and it is restricted by income and contribution limitations.

529 Plans

Like Coverdell Education Savings Accounts, 529 plans are designed to help with educational expenses from kindergarten through to grad school. These accounts are typically opened by a parent or guardian on behalf of a minor. A limit of this, however, is that the funds can only be used for education spending and the fees may be high.

Custodial IRA

A custodial IRA is like a UTMA/UGMA in that an adult opens and manages the account on behalf of a minor. However, this type of account is solely for tax-advantaged retirement savings, which can be limiting. In addition to a contribution maximum, if you withdraw the money before age 59½, it is subject to ordinary income taxes plus a 10% tax penalty.

To sum up, custodial accounts (UTMA and UGMA) are regarded as being simpler, cheaper and, most importantly, more flexible than other plans. Also, in comparison to 529 plans and ESAs, there are no restrictions on the amount of money you can gift/contribute to your child’s custodial account.

Final Thoughts

And that’s a wrap! For more details on custodial accounts, you can check our What is a Custodial Account blog.

We believe that one of the best ways to give your child a head start is to invest in their future.  Invstr Jr is a custodial account service that is the ultimate app for families who want to learn financial literacy together. Bankrate awarded it the #1 Investment App for Education, and it’s no surprise why. In addition to its custodial account benefits, Invstr Jr makes it easy for children and parents to learn about the stock market, portfolio management, and saving and spending skills. Our investing app for kids is a custodial account taken to another level where you can carry out trades with your child, by their suggestion, or on their behalf. You have total oversight with live updates when your child requests to make an investment.

You can access Invstr’s free Academy, an interactive 10-module course written by market experts that covers everything there is to know about investing. It’s jargon-free, easy to understand, and you get a certificate when you graduate!

What’s more, you can set up short or long-term goals for your kids such as walking the dog or reading a book, and reward them when they achieve them. This gives them valuable motivation to learn how to earn and save money. You can even set them Academy targets so you can reward them for learning!

Invstr Jr makes it easy and fun to invest together by providing fractional investing from just $5, with zero commission fees*. As well, parents are exempted from paying a gift tax of up to a maximum of $16,000 per year.

Opening a custodial account can be a great way to set your child up on the right track. Not only can this help secure their future with savings for a car, a college education, or even retirement, but they can learn amazing financial skills and responsibility. Invest in your family’s future and give your kids the bright start they deserve.

Happy investing!

All investing involves risk and can lead to losses.
Past performance does not guarantee future results.
Invstr Financial LLC (Invstr) is registered as an advisor with the SEC. Securities trading is offered to self-directed investors by Social Invstr LLC, a member of FINRA.

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Investing involves risk and can lead to losses. Past performance does not guarantee future results.

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