If you're interested in building a diversified investment portfolio and signing up for a brokerage account in order to trade stocks in the US, you may be curious about the legal minimum age to purchase stocks.
Especially as the sooner that you start investing, the quicker that your investment portfolio will grow and the sooner that you'll be able to retire.
How old do you have to be to buy stocks:
In order to be able to purchase stocks on your own, you'll need to be at least 18 years of age. However, it's still possible to purchase stocks under the age of 18 if one of your parents or guardians is willing to open up a custodial account for you. In most cases you'll only need to make a small deposit of $100 in order to open up a stock trading account with the help of a custodian.
As not all brokerage firms offer custodial accounts, if you're under 18 it's a smart idea to search for firms which offer custodial accounts. Some key examples, of brokerage firms which offer custodial accounts include TD Ameritrade and Charles Schwab.
Here's a quick video showing how this can be done with TD Ameritrade.
Also keep in mind that most app based stock platforms do not allow individual's under 18 to sign up for trading accounts.
Even if your age forces you to invest with the help of a custodian, you'll still be able to make your own financial decisions and to choose to purchase and sell stocks. As long as your custodian agrees on the transactions which you want to make.
If you're able to demonstrate to your custodian that you're capable of making wise investment decisions, they will usually give you the freedom to make your own decisions in regards to your trading account.
How much power do you have over your account if you're under age:
You do have the power to choose asset classes and specific stocks for your custodian to invest in. You can even, manage the allocation of your portfolio's funds.
For example, you may want to invest 50% of your funds into traditional stocks and 50% of your portfolio's funds into relatively low risk ETF funds.
State imposed restrictions:
It's also important to keep in mind that the state which you are a resident in can also prevent you from purchasing stocks without a custodian.
As in Alabama, Nebraska and Delaware you have to be at least 19 years old to invest without a custodian.
While if you live in Mississippi you'll have to wait till you turn 21, to invest in stocks without the permission of a parent or guardian.
Can you contact your investment broker if you're under age?:
No, if your trading account is managed by a custodian, you're not able to contact your investment broker and all correspondence with your chosen broker has to be through your account's custodian.
Can the custodian of your account transfer money out of your account without your permission:
No, if you're too young to legally open up a trading account on your own, your custodian will not be able to transfer money or assets from your account to one of their personal accounts.
As your chosen custodian can only invest the money in your account with your best interests in mind.
While your custodian will have the power to sell shares for a profit, they won't be able to transfer the proceeds from the sale to their personal bank account.
Instead, they'll be able to keep the proceeds in your account or to purchase new stocks with the profits of any sales which are made.
Are there taxes on custodial accounts:
Yes, there are taxes on custodial accounts. Once, your assets produce more than $1000 of profit you'll need to file a tax return. Regardless of your age.
Keep in mind that the tax rate which will be applied to your account's profits will be determined by your custodian's current tax rate. In order to avoid paying an exorbitant amount of tax, it's advisable to select the parent with the lowest annual income as the custodian of your account.
When can you gain full access to your custodial account:
If you elect to open up a custodial account, you'll be granted full access to your account in most states when you turn 18. As soon as you can legally purchase stocks in your state, you'll be granted full access to your trading account.
If you don't bring in your own income, you have to wait until you turn 18 years old, to open up an IRA account without a custodian. However, there are numerous benefits associated with opening up an IRA account at a young age.
As an example, if you open up a Roth IRA as a minor, you won't have to pay taxes on your investments into your Roth IRA account.
You'll also be able to make withdrawals from your account at any time. So it's well worth considering asking a parent or guardian to assist you in opening up a Roth IRA account.
Especially if you're interested in retiring at a young age.
However, if you bring in your own income and are under 18 years of age, you can legally open up a Roth IRA account without needing to name a custodian.
As any American citizen or resident who earns an income, has the right to open up an IRA account.
How to choose a trading account:
Whether you're old enough to purchase stocks on your own or you're interested in opening a stock trading account with a custodian, it's a wise idea to open a trading account with a brokerage firm which offers low fees.
If you're 18 years old or older, you'll be able to open up a trading account with no issues, unless you live in Alabama, Nebraska, Delaware or Mississippi where the legal age to trade stocks is over the age of 21.
If you're currently too young to legally open up a trading account, you can still open up a trading account with the help of a designated custodian.
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