How to Open a Custodial Brokerage Account for a Kid

Learn the steps to open a custodial investment account for your child, including what documents you need and how these accounts work.

1. Understand what a custodial account is. A custodial account is a brokerage account owned by your child but managed by you until they turn 18 or 21 (depending on your state). You make all investment decisions, but the money legally belongs to the child. Once they reach the age of majority, they gain full control of the account and can do whatever they want with the money.
2. Gather required documents. You'll need your Social Security number, your child's Social Security number, and a government-issued ID. Most brokerages also require your child's birth certificate. Have your bank account information ready for funding the account. Some firms may ask for additional identity verification documents.
3. Choose between UTMA and UGMA account types. UGMA (Uniform Gifts to Minors Act) accounts hold financial assets like stocks and bonds. UTMA (Uniform Transfers to Minors Act) accounts can also hold real estate and other assets. Most online brokerages offer UTMA accounts, which are more flexible. Check your state's age of majority rules — some states transfer control at 18, others at 21.
4. Apply online with a major brokerage. Most major brokerages offer custodial accounts with no account minimums and commission-free stock trades. The application takes 15-20 minutes and asks for both your information and your child's. You'll designate yourself as the custodian and responsible party. Account approval typically takes 1-3 business days.
5. Fund the account and understand tax implications. You can transfer money from your bank account or mail a check. Be aware of gift tax rules — you can contribute up to $18,000 per year per child without triggering gift tax reporting requirements as of 2024. Investment gains and dividends may be subject to the "kiddie tax" if they exceed certain thresholds, so keep records for tax filing.
6. Start with simple, diversified investments. Consider broad market index funds or target-date funds as starting points for long-term growth. These give instant diversification and are appropriate for a child's long investment timeline. Avoid individual stocks, complex products, or anything requiring active management. The goal is steady, long-term wealth building.