How to Open a Stock Market Account for My Child
Published April 29, 2021.
Opening a stock market account for a child can be an excellent way of getting them started with investment. It can also assist with the process of ensuring that your child becomes financially independent. Below we will explain how you can open a specialist account for a young person.
Firstly, it should be noted that a child cannot possess their own brokerage account, but it is possible if a parent or guardian is present and involved in the process.
The first way to do this is to open what is referred to as a guardian account. This is an account in the parent's name, with all liabilities effectively assumed by the guardian. This means that the parent or guardian assumes ownership of the account while attaching the child's name to it.
Another option for young people in the stock market is to open a custodial account. This is slightly different from a guardian account in that the child involved will own all of the assets. Nonetheless, there are naturally some restrictions, and the parent or guardian involved effectively controls all the investment decisions and withdrawals from the account.
In addition, liabilities are actually taxed in the name of the child with this type of account. This can be considered an advantage in comparison to a guardian account, as children obviously rarely pay any taxes anyway. However, it does come with legal ramifications.
A final option is to open an IRA account, but this is only an option if a child has filed taxes on a previous occasion and has been active for over one year.
These accounts are widely available in the United States, although there can be restrictions from state to state.