Investing Simple Logo
Get 1 Free Stock Worth Up To $200 From Robinhood!
Sign up with Robinhood, deposit any amount and get 1 Free Stock. It takes less than 3 minutes to sign up and claim your Free Stock Bonus.
Earn 5.00% APY with M1 High-Yield Savings Account
M1 Plus members can earn 5.00% APY on their deposits with no minimum balance required.
Webull free stock promotion
Get Up To 5 Free Stocks From Webull
Open a new Webull brokerage account today and deposit any amount of money to receive 5 free stocks. Webull offers commission free stock, ETF, option and crypto trading.
Written by Ed Canty, CFP® on July 30, 2023
FTC Disclosure: Some of the links on this site are affiliate links. Read our full disclaimer here.

How to Invest As A Minor Or Teenager (Under 18 Years Old)

Investing is one of the most exciting topics, especially if you are a teenager and the world ahead of you is wide open.

Learning how to invest as a minor can give you a tremendous head start for your financial future. 

Early investing can have huge benefits, and teens who learn responsible money habits can have a huge advantage over their peers. If you are a teenager and want to learn more about finances, you can start with the basics and gradually learn the art of financial planning, saving, and investing. 

Take it from the expert, Warren Buffett. He once said, “the best time to plant a tree was 20 years ago, the second-best time is now.”

Here are a few ways to start investing as a minor.

Don't forget to grab your free stock worth up to $200 from Robinhood today!

Learn More: Robinhood Retirement 3% Match

Robinhood is a popular "all-in-one" investing app.

While they are most well-known for their commission free stock trading, they've recently shaken up the Retirement Investing World too.

Introducing Robinhood Retirement; home of the biggest IRA match on the market.

Robinhood IRA Boost

Here's what you need to know:

  • Robinhood offers 2 types of retirement accounts - the Roth IRA and Traditional IRA
  • All Robinhood investors will get a 1% Match on what they Contribute or Transfer
  • Robinhood Gold members will get a 3% Match - the biggest on the market

And don't worry, this comes with a Portfolio Builder Tool. You don't have to construct your investment portfolio from scratch if you don't want to.

Lastly, you'll even get a free stock worth up to $200 when you open a new Robinhood account using our link.

Best Free Stock Promotions

Robinhood Logo1 Free Fractional Share Worth Up To $200Learn More
Webull LogoEarn Up To 75 Free Fractional SharesLearn More
Moomoo Logo7 Free Stocks When You Deposit $100+Learn More
Acorns Logo$20 Bonus When You Invest $5+Learn More

Can You Invest If You Are Under Age 18?

Most people don’t think they can begin investing until they are an adult or over age 18.

This may be true, but there are certain types of accounts offered to minors that can be established by a parent or guardian. Some of these accounts can help you save for long-term goals such as education and retirement. 

The most common type of account is a custodial account.

Check out our video on investing as a teenager below!

Setting Up a Custodial Account UGMA/UTMA

Minor accounts, created in part by the Uniform Transfers To Minors Act and the Uniform Gift To Minors Act (UTMA/UGMA), are excellent options if you are investing for your teenager.

You can establish these minor accounts and begin investing within them almost immediately. This money can be used for any purpose including education expenses as well as any other needs the child may have. 

The profit from these investment accounts will be taxed according to the child's tax rate or potentially the parent's tax rates if the child makes enough money and is subject to kiddie tax limitations.

Custodial UGMA/UTMA accounts are one of the excellent options for teenagers who want to begin investing. The parents have the final decision over the account until the child reaches 18 or 21 (depending on the State). 

At the age of majority, ownership of the account will be transferred fully to the child and the parent will no longer have any control over the account.

The child will be free to cash out the account for whatever they please, so it's important to talk with your child about the intended purpose of the account beforehand.

Retirement Plans for Teenagers and Minors

Retirement plans are a great way to save for your future.

No matter what, if you are investing for a teenager or an adult, it's never too early to start planning for retirement. The earlier you begin planning, the better off you will be. This is thanks to something called compound interest!

There are many different types of retirement accounts, but the most popular are the Traditional IRA or the Roth IRA.

Traditional IRA

The Traditional IRA is a tax-deferred retirement account. This means you contribute to the account with pre-tax dollars.

When you take distributions in retirement from a Traditional IRA, you will pay ordinary income taxes. 

Roth IRA

Roth IRAs are slightly different, as contributions are after-tax.

This means the account grows tax-free and when you take distributions in retirement they will be completely tax-free. 

For both Traditional and Roth IRAs you cannot take a qualified distribution until age 59 ½. If you take an early distribution, you will be subject to a 10% penalty and income taxes.

However, there are certain exceptions to the early withdrawal penalty. You can read more about these exceptions here.

Typically, younger people tend to gravitate toward Roth IRAs because they assume that they are in a lower tax bracket now than they will be in the future.

For example, if you're currently paying 12% in taxes and assume that in the future you'll be in a 25% tax bracket, you'd be better off to pay the 12% now instead of 25% later.

Minor Traditional IRAs and Minor Roth IRAs

With both Traditional IRAs and Roth IRAs, your child will need to have earned income. Without earned income, you are not allowed to contribute to an IRA.

So if you're thinking of contributing to a Roth IRA for a younger child you might need to find creative ways for them to earn income.

For most situations, the Roth IRA will be best since children are in a low tax bracket now (typically 0%) and will be at a higher tax bracket later in life when they take distributions from the account. This way the dollars within the minor Roth IRA may never get taxed. 

Opening a Minor Roth IRA

You can set up Minor Roth IRAs at a variety of brokers.

There are many options available so we recommend doing as much research as possible before jumping in:

  • Vanguard
  • Fidelity
  • Charles Schwab
  • TD Ameritrade

Coverdell Education Savings Accounts and 529 Plans

You can also invest in qualified education savings accounts for your teen. Planning for your teen's education is a good way to stay ahead of hefty college expenses.

529 Education Savings Plan

This is a savings plan offered by most states that allows individuals to save for college or k-12 education expenses. You may also use 529 plans to pay student loans and internship programs.

The annual contribution limit for 529 plans is $15,000 and most States offer a tax deduction for your contribution. There is also the ability to contribute five years' worth of contributions at once and fund up to $75,000 into a 529 plan in one year.

Distributions within these accounts are tax-free by the IRS if used for qualified education expenses. Parents, guardians, grandparents, or even family friends can establish a 529 account and choose their specified beneficiary. 

If a child decides not to attend college or there are excess funds in a 529 plan, the funds can easily be transferred to another family member or be withdrawn for non-education usage.

If you choose to withdraw funds for non-education expenses, there will be a 10% penalty on any earnings in the account.

Coverdell Education Savings Account (ESA)

An ESA is a savings plan established by the federal government which allows individuals to contribute up to $2,000 per year per beneficiary.

Unlike a 529 plan, there is no tax deduction for the contribution. This should give you pause when considering this over a 529 plan.

Similar to a 529 plan, distributions will be tax-free if used for qualified education expenses. However, the ESA must be used before the beneficiary reaches age 30 or you will be subject to tax and penalties.

Contributions to ESA accounts may also be subject to income phase-out limitations. This means if you make over a certain amount of money, you will not be eligible to contribute. 

Similar to 529 plans, these funds can either be used for K-12 private education or college expenses.

Currently, there are not many compelling reasons to choose an ESA over a 529 plan.

How to Invest As a Teenager or Minor: Final Thoughts

Investing as a teenager has never been easier.

However, if you are under age 18 then you may need the assistance of a parent or guardian.

Whether you are trying to save for retirement, education, or your future, there are many options available for teenagers.

If you’d like to learn more about investing basics check out our Beginners Guide to Investing in the Stock Market.

Article written by Ed Canty, CFP®
Ed is a CERTIFIED FINANCIAL PLANNER™. At his day job, Ed helps clients plan for retirement, manage their investments, and navigate their tax situation. In his free time, Ed enjoys golfing, traveling, fishing, and wrenching on his old car.

Read more

Power Your Investing

Choosing the right product and service is essential for your investing. Here are some of the tools and services to help your portfolio grow.
Robinhood provides an easy-to-use free trading platform for beginner investors. Robinhood has $0 account minimums. Get a free stock when you open an account below.
Try Robinhood
M1 Finance
M1 Finance offers a free investing platform where users can build portfolios of stocks and ETFs. Users can also choose from a variety of pre-built portfolios offered for free.
Try M1 Finance
Passively invest in private real estate deals with as little as $10. Fundrise allows you to own residential and commercial real estate across the U.S. starting at a 1% annual fee.
Try Fundrise
Copyright © 2018 – 2024 Investing Simple LLC. All Rights Reserved.
Investing Simple is a financial publisher that does not offer any personal financial advice or advocate the purchase or sale of any security or investment for any specific individual. Members should be aware that investment markets have inherent risks, and past performance does not assure future results. Investing Simple has advertising relationships with some of the offers listed on this website. The information on Investing Simple could be different from what you find when visiting a third-party website. All products are presented without warranty. For more information, please read our full disclaimer.
Website managed by Stallion Cognitive™

Get 1 Free Stock Worth Up To $200 From Robinhood!

Don't Miss This Opportunity!

Investing Simple readers can claim a free stock from Robinhood worth up to $200 when they open a brokerage account and deposit any amount.

For US Residents only. Investing Simple is affiliated with Robinhood, and we may earn a commission when you sign up for Robinhood.

linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram