How to Open an Investment Account For Your Child

Setting up an investment account for your child is the perfect way to get your kids more interested in not only investing but in successfully managing their money. Whether it be for their college, lifetime savings, or even for curiosity, opening an investment account for a child will help determine their financial stability as they mature into a young adult. Although beginning to invest can seem quite daunting, this is far from the truth. The process of opening an investment account for your child is easy, with the benefits far outweighing the small costs.

Not only are investment accounts beneficial ways to grow savings for a minor, but they are also a perfect instrument to teach a child the value of investing. Whether it be the ideas of saving, stocks, compounded interest, or even budgeting, investment accounts unlock firsthand access to the foundation of money and how to build it. In the process, children will learn simple transferable skills, such as risks and rewards, that they can apply to other aspects of their life. Regardless, investment accounts for children give the proper headstart in creating generational wealth; learning the ways to mitigate risk while also passively increasing your savings is the best start in establishing generational wealth.

So let’s get into how to open an investment account for a child!

What is an investment account for your child?

When considering how to open an investment account, you should be aware that there are different types. An investment account for your child is a very simple structure, but it can come in many different shapes and sizes. Firstly, most investment accounts will come as ‘brokerage accounts’, which are accounts an investor can use to buy and sell stock through a bank, broker, or custodian. When opening an investment account for a child, it is often referred to as a custodial brokerage account, which is simply a brokerage account administered by a parent or guardian for a minor.

The two main types of custodial brokerage accounts are UTMA and UGMA accounts. The Uniform Transfers to Minors Act (UTMA) and the Uniform Gifts to Minors Act (UGMA) are custodial accounts allowing you to gift, save, and invest money for a minor without establishing a trust. Both accounts are virtually the same, the only difference is a UGMA can hold financial assets (cash, stocks, bonds, etc) and a UTMA can hold the same as well as physical assets (property, real estate, etc). These assets are then transferred to a minor whenever they reach the age of majority.

Both UTMA and UGMA accounts are regarded as being simpler, cheaper, and most importantly, more flexible than trust funds. Furthermore, when compared to 529 and custodial IRA accounts, there are no restrictions on the amount of money you can gift/contribute to your child’s UTMA/UGMA accounts.

How does an investment account work for kids?

When you open an investment account for a child, you need to know how it works. Simply, an investment account for a kid acts as a place to store and/or invest money that belongs to that child. Although they cannot manage it as a minor, all the money they save, whether it be through chores, jobs, or gifts, can all be depostited into the account. This same money can be either saved or invested into stocks, bonds, real estate, and more (dependent on the type of custodial account). All the assets placed into these accounts cannot be reversed, ensuring these accounts are for the benefit of the child only.

When the child reaches the age of majority (18 or 21 dependent on the state), the child has full access to manage their account. Furthermore, the money in these accounts can be used freely towards anything once the child is eligible. This money is not restricted to specific uses, whereas an IRA is solely for retirement and a 529 is for educational purposes. Yearly, parents can also gift their child up to $16,000 tax-free, and even double that amount to $32,000 if the parents file jointly.

How to choose an investment account provider for your child?

When researching how to open an investment account for a child, you will have to pick which investment account provider is right for you and your family, which may require a little consideration. Parents should look at the following: 

Managed Investment Accounts

A managed account is a specific type of investment account that is either actively or passively managed by a management firm, advisor, or other professional. Along with fees, brokers will be able to manage the account’s investments until the child reaches the age of majority. Although it is still your money and investments, professional money managers will, at a cost, organize, plan, and execute all trades and positions on your behalf. These can be actively or passively managed, meaning the investment account can either have a held portfolio created by the firm for a long-term strategy or can be actively traded in accordance with market conditions and new opportunities. Depending on the firm, these accounts can be flexible, with parents or guardians deciding upon low-risk, moderate, or high-risk portfolios and strategies.

Online Investment Accounts

In a technology-driven world, investment accounts can now be opened for your child through online services with ease! Invstr Jr is one of these industry-leading apps where you can easily open a custodial account for your child. Online and app-based investment accounts create a seamless method of opening an account, with just the basic personal information needed and, of course, the money needed to invest. These accounts generally include brokerage fees for either subscriptions or each transaction. Flexibility is also promoted, as the account holder can then choose which stocks or bonds they would like to purchase and exactly how long they would like to hold them for. Varying across all online services, the features of stocks, fractional shares, and more can be found for parents that are interested. For those who prefer to not directly manage their portfolio, some online services offer pre-made portfolios adjusted to your preferred risk tolerance.

Fees

Fees are a consideration that should be given some thought when deciding on where to open an investment account. Whether you decide on a managed or online investment account, you will certainly encounter fees. The managed investment account will generally include fees for opening the account, and a management fee ranging from 0.1% to 2.0% of the assets under management.

Minimum Investments

With most managed investment accounts, a minimum amount of money directed for investing is required to open and maintain an account. This sum of funds can range anywhere from a couple thousand to $250,000 for managed accounts. With online investment accounts, several simply require nothing with some requiring as little as $10 to start your new path in investing.

Promotions

With online investment accounts specifically, promotions are sometimes available as a monetary reward for account holders. These rewards either are acquired upon opening an account, funding the account by a certain amount, or other specifications such as referral schemes. Promotions can range anywhere from $10 to several hundreds of dollars, and multiple promotions can sometimes be claimed on a periodic basis. As promotions can be a great addition to your savings, understanding which online brokerage services provide the best promotions can help you decide which account is the best for you.

How to set up an investment account for your child?

So now that we have discussed the things you should take into consideration, let’s dive into the process of how to open an investment account for a child. The process and requirements really are simple, so don’t panic here!

All you will need is your child’s full name, date of birth, and their Social Security Number in order to open an investment account for your child. Once the account has been set up, you can manage all the actions in the account such as deposits, investments, and any assets on their behalf until they legally become an adult and can take over the management of their account. 

Is it difficult to open an investment account for my child?

‘How to open an investment account?’ is a question frequently asked, for it is often imagined to be a lengthy, difficult process. But this couldn’t be further from the truth! It truly is simple to set your children up for a head start.

As well as your details and proof of ID, all you need to set your child up for financial success with a custodial account is the three things outlined above: name, DOB, and SSN. Simple!

Because it is so easy and yet a thoughtful way to provide for your child’s future, setting up an investment account for a child can be a great gift – the kind that keeps on giving.

Invstr Jr – An investment app for minors

So now that we’ve learned how to open an investment account for a child, let’s take a look at Invstr Jr, in particular, and why it may be the best investment solution for you.

With Invstr Jr, you can open a custodial account for your child and get ahead, setting them up for financial literacy from a young age. Using the Invstr Jr account, you can make secure investments and buy stocks for your child with zero commission fees – including fractional investing from just $5 in value!* It is rated the #1 app for education and, as it is a one-stop-shop for your entire family’s financial success, there is no surprise as to why. With Invstr Jr, your child can learn financial literacy skills and learn how to invest smartly, with real-time analysis, personalized stats, and a library of educational resources. Because you are 100% in control, you can manage every moment of your child’s journey into financial freedom with real-time updates when your child requests your approval on a suggested trade, so you can feel at ease that your child is learning how to manage, spend, and save money safely.

Invstr Jr makes it easy for children and parents to understand stocks, the stock market, and portfolio management. You can even set up goals for your children such as washing the dishes or reading a book, and financially reward them for it with an amount of your choice, teaching them valuable responsibilities and saving skills. If that’s not your thing, you can set them up a one-off or recurring allowance, too!

Not to mention, with an Invstr Jr account, you get access to our free Academy – an interactive course that you and your family can take to learn everything you need to know about investing. These bite-sized lessons are 10-modules of jargon-free, easy to understand lessons and, when you graduate, you receive a certificate to prove that you’re ready to invest like a boss! If the interactive quizzes and sweet trophies aren’t enough to entertain your child, then you can even listen to the Academy lessons on-the-go.

When it comes to your child’s future, Invstr Jr is the number one, ultimate tool. Our custodial investment accounts make investing fun, easy, and most importantly, safe for your child because we truly believe at Invstr that investing is for everyone.

Conclusion

As we’ve shown, how to open an investment account for a child is a question nowhere near as daunting as it may sound, and is actually very simple. Nowadays, all it can take is a couple of clicks of a button to set your child on the right track. If you decide on a managed investment account or an online investment account such as Invstr Jr, one thing can be for certain: financial literacy. Not only can your child have extra money to pay for a car, college, or even retirement, they can learn exponentially in the process. Instilling the ideas of saving, investing, and overall financial responsibility can ensure they are set to be a successful young adult. Whether it be a couple of dollars or larger sums of cash, the long-term benefits of growing your child’s savings may not only benefit them, but can benefit their own kids and even grandkids.

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Invstr app and web services are provided by Invstr Ltd. Invstr+ advisory services are provided by Invstr Financial LLC, an investment adviser registered with the Securities Exchange Commission (SEC). Securities brokerage and custody services are provided by Apex Clearing, a broker dealer registered with the SEC and a member of FINRA and SIPC. There is no bank guarantee on securities and securities may lose value. Vast Bank N.A. a nationally chartered bank and member of the FDIC, provides the banking products, including the products and services related to digital asset accounts. As with any asset, the value of Digital assets can go up or down and there can be a substantial risk that you lose money buying or holding digital assets. You should carefully consider whether trading or holding Digital assets is suitable for you in light of your financial condition. Your digital account does not support wallet to wallet transferring of your digital assets (i.e. cryptocurrencies) outside the platform. Any Digital Assets in your digital asset account are not insured by any government entities, including but not limited to FDIC or SIPC. The Invstr Visa® Debit Card is issued by Vast Bank, N.A. pursuant to a license from Visa U.S.A Inc and may be used everywhere Visa debit cards are accepted. Invstr Ltd, Invstr Financial LLC and Invstr Securities Ltd are subsidiaries of Marketspringpad Holdings (collectively “Invstr”) and Invstr is solely responsible for the application services and website content.

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