Can a Person Below 18 Years Invest in Mutual Funds?

by Patrick Gleeson, Ph. D., Registered Investment Adv
Parents can help kids to start investing by setting up a custodial account for them.

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.

About the Author

Patrick Gleeson received a doctorate in 18th century English literature at the University of Washington. He served as a professor of English at the University of Victoria and was head of freshman English at San Francisco State University. Gleeson is the director of technical publications for McClarie Group and manages an investment fund. He is a Registered Investment Advisor.

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