Can a Person Below 18 Years Invest in Mutual Funds?

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If you're under 18, you can begin investing in mutual funds through a custodial account. Beginning to invest early in life can be beneficial for a number of reasons. For one thing, in the process you'll acquire a lot of valuable knowledge about personal finances that will help you manage money better when you're on your own. Another benefit is that money you save early on has longer to grow and can actually contribute substantially to your eventual retirement.

Custodial Accounts

When you're under 18 you'll need to have a parent or guardian set up a custodial account in your name at a brokerage, whether a brick-and-mortar brokerage or an online brokerage. The adult is only the custodian of record; the money belongs to you and you are the only person who can take money out of the account.

Changing Account Status

When you reach 18, you can remove the custodian's name from the account, at which point it becomes your individual account. From age 14 on, you have to pay income tax on the money you earn in the account. Congress has determined that a minor child's income is taxed at the rate of the parents' income.