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They may not be able to vote, legally drink, or even be old enough to get behind the wheel. However, teens can have some privileges when it comes to the stock market.
If parents choose to, they can open an investment account for their child or children. Here’s what they need to know:
Choosing the Right Account
It’s not as simple as going to a broker and saying you want to open an account for your child — parents should carefully consider the type of account and how the child will be involved in the investing process.
A good starting point for parents to consider when opening an account for their child is to determine the type of taxable income or wages the child currently has.
If the child is not earning any taxable income or wages, then a custodial brokerage account is probably the best option. The account will technically be the parents’ names, but once the child turns 18 or 21 (depending on state law), then they will be able to take full responsibility for the account.
If the child does have taxable income or wages, then a custodial IRA could be an option. A Roth IRA is especially a good idea for kids because contributions the child makes to the account will grow without having to pay any taxes. There is actually no age restriction when it comes to a child having a Roth IRA account; however, there is a contribution limit. Contributions must be $6,000 or the total of earned income for the year, whichever contribution is lower (for example, if a child makes $3,000 a year at a job, they can not contribute more than $3,000 into their Roth IRA).
Choosing the Right Broker
There are several brokers who will guide you and your child through the investment process. If you are already using a broker, you can ask if the company also manages child investment accounts and if they don’t, you can ask for their recommendation on a brokerage that does.
If your child has an investment account and you have concerns about where their money is going, contact the lawyers at Weltz Law. We’ve helped families make sure their money is protected and going where you want it to go. Our attorneys are advocates for your rights — reach out today for a free consultation.
