6 BEST INVESTMENT ACCOUNTS FOR KIDS AND TEENS
Updated: Oct 5
What you'll learn:
Can I Open An Investment Account For My Child?
So, you're looking for the best investment account for your kids and wondering where to start but you're feeling a little lost in the sea of information out there. Don’t worry, you’ve landed in the perfect spot! Imagine your child, tween, or teen having a strong financial future because of the choices you made on their behalf today? Did you know that you can start investing for your child today using what you have? You don't have to have thousands to start. You can start with $5, $25, $100, $1000... whatever amount you choose!
What Are The Best Investment Accounts for Kids And Teens?
The best investment accounts for kids and teens to open are:
Ready to open an investment account for your child?
KidVestors families can access multiple investment account options for their children in one place through the KidVestors Parent Portal, powered by FutureMoney. Keep reading to compare the different types of accounts and find out how KidVestors families can get started.
What Are Custodial Brokerage Accounts ?
A custodial brokerage account is an investment account that a parent or guardian opens and manages on behalf of a minor. The adult controls the account until the child reaches the legal age of adulthood, at which point ownership transfers to the child. These accounts allow kids to invest in stocks, ETFs, and other assets, making them a great way to introduce investing at an early age.
When it comes to choosing a custodial brokerage account, you have plenty of options. Here are some of our favorite picks:
KidVestors: Open a custodial investment account along with other investent account options such as 529s, all in one place.
Charles Schwab ( Now Owns TD Ameritrade): Known for its robust platform and excellent customer service.
E-Trade: Offers a user-friendly interface and comprehensive research tools.
Fidelity: Provides a wide range of investment options and educational resources.
Ally Invest: Low-cost trading and a variety of account options.
What Is A Custodial Roth IRA ?
Give your child a head start and help them begin putting money aside for their retirement by opening a custodial Roth Individual Retirement Account. A custodial Roth IRA is a retirement savings account that parents or guardians can open for a minor. The account is managed by the adult until the child reaches adulthood, at which point they take full control. Contributions are made with after-tax dollars, and the money grows tax-free, making it a powerful tool for kids to start building wealth early.
However, your child must have verifiable earned income. You can open an account on behalf of your child at most major brokerages and retirement companies. We shared more about this here.
Pros:
Does not reduce FAFSA aid eligibility unless funds are withdrawn (which would affect FAFSA eligibility the following year).
Cons:
The child must have verifiable earned income to open an account.
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What Is A UGMA And UTMA Account ?
UGMA (Uniform Gift To Minors Act) and UTMA (Uniform Transfers To Minors Act) are two types of custodial brokerage accounts that you can open on the behalf of your child. UGMA/UTMAs are held in the name of the custodian (parent or guardian) and are transferred to the child at the age of majority (18 or 21 depending on your state).
Once your child reaches the age of majority, they have full control of the assets and can spend the funds however they please.
Pros:
1) Flexible spending and
2) Contributions (not earnings) can be withdrawn at any time without penalty.
Cons:
Because contributions are made with after-tax dollars, UGMA/UTMAs do not have the same tax benefits that 529 plans offer. The assets are also counted as the child's and can reduce their FAFSA aid eligibility up to 20%.
What Are 529 College Savings Plans ?
529 plans are tax-advantaged college savings plans that allow you to contribute money towards your child's educational expenses (tuition, room, & board) which can be used at traditional institutions, trade schools, and some secondary education schools.
You might be thinking, what happens if my child doesn't go to college or a trade school? The good news is that you remain the owner on the account and can transfer funds to another beneficiary (family member) if your child ends up no longer needing the funds.
Pros:
Can be used towards eligible educational expenses and reported as the parent's asset, not the child's. Some states even offer grant matching (similar to a 401k match but for education).
Cons:
Since the assets are counted as the parent's, it has a lower impact than UGMA/UTMA accounts. However, having a 529 plan still reduces a student's FAFSA aid eligibility up to 5.4%.
Bonus:
Did you know that if your child no longer needs the funds when it's time for them to attend college, you can rollover unused 529 funds into their custodial Roth IRA without penalty? Read more about this here.
Below are a list of 529 accounts for your child by state:
What Is A Coverdell Education Savings Account ?
A Coverdell Education Savings Account (CESA) is a tax-advantaged account for saving for a child’s education, including K-12 and college expenses. Contributions grow tax-free and withdrawals are tax-free when used for eligible education costs.
Pros:
Flexibility to use funds for both K-12 and higher education.
Tax-free growth and withdrawals for qualified expenses.
Cons:
The contribution limit is low ($2,000 per year), and it phases out for higher-income earners. Plus, funds must be used by age 30 or they face penalties.
What Is A Trump Account?
Trump Accounts are child investment accounts that would give every newborn in the U.S. a $1,000 seed investment from the federal government, starting now through the end of 2028. Trump Accounts are automatically invested in the State Street SPDR Portfolio S&P 500 ETF, also known by its ticker symbol, SPYM. This is an exchange-traded fund, or ETF, that tracks the S&P 500 Index.
Families are not required to contribute more, but could have the option to do so, depending on final plan details.
To be eligible for the seed investment, children must be born in the U.S. between now and December 31, 2028, however all children under 18 are eligible to open an account. Control of the account stays with the parent or guardian until the child reaches adulthood.
Pros:
$1,000 government-funded head start in building wealth
Can potentially grow into tens or even hundreds of thousands by adulthood
Encourages long-term investing and financial literacy
Cons:
Limited to children born within a specific time window
Investment growth may be subject to market risk
Political shifts could impact the longevity or structure of the program
Trump Accounts aim to boost generational wealth through early investment.
Compare Kids Investment Account Options
Feature | UTMA/UGMA | Brokerage | Roth IRA | 529 Plan | Coverdell ESA | Trump Account | |
Flexible use | ✓ | ✓ | ✗ | ✗ | ✗ | ✗ | |
Education-focused | ✗ | ✗ | ✗ | ✓ | ✓ | ✗ | |
Retirement-focused | ✗ | ✗ | ✓ | ✗ | ✗ | ✓ | |
Tax advantages | ✗ | ✗ | ✓ | ✓ | ✓ | ✓ | |
Requires earned income | ✗ | ✗ | ✓ | ✗ | ✗ | ✗ | |
Parent/guardian controls account | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | |
Child eventually gets control | ✓ | ✓ | ✓ | ✗ | ✗ | ✓ | |
Can invest in the market | ✓ | ✓ | ✓ | ✓ | ✓ | ✓ | |
Annual contribution limit | ✗ | ✗ | ✓ | ✗ | ✓ | ✓ | |
Government seed money | ✗ | ✗ | ✗ | ✗ | ✗ | ✓ |
Factors to Consider When Choosing an Investment Account
Selecting the right investment account for your child involves careful consideration of several key factors:
a. Your Child's Age: The age of your child can significantly impact your choice of investment account. For younger children, custodial accounts may be suitable, while older kids can benefit from Roth IRAs.
b. Investment Goals: Consider your long-term goals for the account. Are you primarily saving for education, retirement, or a combination of both? If saving for education is your goal, you may want to consider a 529 plan. If putting money aside for your child's retirement, you might want to consider opening a custodial Roth IRA. Always start with the end in mind!
c. Risk Tolerance: Understand your child's and your own risk tolerance. Younger children may have a longer investment horizon, allowing for more aggressive investment strategies.
d. Tax Considerations: Examine the tax benefits and implications associated with each account type.
e. Contribution Limits: Be aware of the contribution limits for each account, as they can vary significantly and update annually.
f. Investment Options: Consider the investment choices available within each account type, ensuring they align with your financial goals.
Open Your Child's Investment Account In One Place with KidVestors
After learning about all these different account options, you might be wondering: Where do I actually get started opening a child investment account? Do I really need to go to a different provider for each one?
That’s something we wanted to make easier for KidVestors families.
When you join KidVestors, you’re not only giving your child access to financial education. Parents and guardians can also access the above investment account options for themselves and their children directly through the KidVestors Parent Portal, thanks to our partnership with FutureMoney.
Through KidVestors, eligible families can explore and open multiple account types in one place, including 529 plans, custodial investment accounts, Roth IRAs, Traditional IRAs and more.
So while your child or teen is learning about investing, budgeting, credit, entrepreneurship, and other financial concepts through KidVestors, you can start putting some of those lessons into action by building toward their financial future too.
Your child learns. You take action. All in one place.
Paid Partnership Disclosure: FutureMoney is a paid partner of KidVestors, and KidVestors may receive compensation for qualifying referrals. FutureMoney is an independent third-party financial services provider. KidVestors is not a broker-dealer or registered investment adviser and does not provide investment advice. Investment accounts and services are provided by FutureMoney and/or its applicable financial service providers. Investing involves risk.
Best Tips for Maximizing the Benefits of Kids' Investment Accounts
To make the most of your chosen investment account for your child, follow these tips:
a. Start Early: The power of compounding works best when you start early. The longer your investments have to grow, the greater the potential for significant returns.
b. Diversify Your Portfolio: Diversification can help spread risk and potentially increase returns. Consider a mix of assets, such as stocks, bonds, and mutual funds, within your chosen account.
c. Regular Contributions: Consistent contributions, even if they are relatively small, can make a big difference over time.
d. Teach Financial Literacy: Use this opportunity to educate your child about investing, saving, and the importance of financial planning.
e. Review and Adjust: Periodically review you and your child's investments and make necessary adjustments based on your child's age, financial goals, and market conditions.
Thankfully, by opening any of the above accounts and following the above tips can set your child on the right track. So, let's give our children the future that they deserve!
Want access to these investment options? Become a KidVestors family.
FINANCIAL EDUCATION & INVESTING FOR KIDS AND TEENS
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