Can I invest in the name of a minor? (2024)

FAQs

Can we invest in the name of minor? ›

Yes, you can invest in a mutual fund (MF) in the name of a minor kid in any scheme offered by any fund firm. In such a portfolio, the minor must be the first and only holder. This portfolio will not allow any joint holders. The folio's guardian should be either the child's parent or a court-appointed legal guardian.

Investing for children can be done on their behalf using a minor's account where the investment is held in an adult's name as trustee (and the child is listed as a beneficiary). These terms do not necessarily mean there is a legal or formal trust relationship in place.

Because minors are not eligible to open their own brokerage accounts, parents and guardians can open and manage custodial accounts in a child's name. Teaching children about how to manage, save, invest, and spend money may help them to establish and enjoy a solid financial future.

A custodial account lets children under the age of majority invest with a sponsor's approval. A sponsor can be any eligible investor who is over the age of majority and is a US citizen, most often a parent or relative of the young investor! Custodial accounts operate similar to an adult brokerage account.

The U.S. requires you to be at least 18 years old to purchase stocks on your own. However, while you as a minor cannot legally invest in stocks, you can own stocks in your name. This is either done through a gift (often from a relative such as a grandparent), or through what's known as a 'custodial account'.

You usually need to be at least 18 years old to participate in the stock market. However, there are some ways around that. Adults can open a custodial account with a brokerage on behalf of a child and then, in the role of custodian, invest in the stock market for them, with or without the teenager's input.

It is illegal to invest or trade other people's money, regardless of the amount, without being licensed with the SEC. Depending on what exactly you were doing with that money (like trading stock), you may need additional licenses.

About power of attorney (POA)

Such investors can use a power of attorney to make their investments. By signing a power of attorney document, you can assign a person to carry out investments on your behalf. The POA provides that person with the power to sign all investment-related documents on your behalf.

You can purchase shares within your brokerage and transfer them to the recipient, but this could incur a fee. "To avoid the fee, you can give your gift recipient cash to purchase the shares on their own," Brett Holzhauer, a personal finance expert at M1, an investing app, told CBS MoneyWatch.

By opening a Minor Trust Account, you create an informal trust. This trust makes you a trustee, the owner and operator of the account, which allows you to buy and hold shares on behalf of your child (the beneficiary of the trust).

Can I open a Roth for my child? ›

A Roth IRA for a child needs to be started and managed by a parent or other adult as a custodial account. The child needs a Social Security or other tax identification number, plus earned income. The Roth IRA stays a custodial account until the child reaches the age of majority, which is 18 in most states.

Ideally your child should have a W2 or a Form 1099 to show evidence of the earned income. However, there are some instances where this may not be possible so it's important to keep records of the type of work, when the work was done, who the work was done for and how much your child was paid.

Unlike conventional gifts, stocks have the potential for long-term growth. It can be a great way to build wealth. You can gift stocks to children through custodial accounts. For adults, you can transfer shares from an existing investment account to the recipient's brokerage account.

A custodial brokerage account is one an adult opens for a minor. The child generally owns the investments or assets. But the adult usually controls the deposit, withdrawal and investment choices until the child reaches adulthood—usually 18 or 21 depending on your state's law.

Yes, you can open a Roth IRA for someone else.