Investment Accounts for Kids

A great way to get kids interested and involved in investing is to open an investment account.

Here are a couple of appropriate account types:

A custodial account—If you want to give a gift of money to a minor—and at the same time introduce the world of investing—a custodial account can be a good choice. This type of account, established under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA), is set up by an adult for the benefit of a minor.

Once the account is opened, it gives you the opportunity to involve your kids in basic investing. You might talk about goals and discuss investment choices. You could also review account statements and discuss gains and losses.

Before you open this type of account:

• Review custodial account details.
   
• Learn some custodial account dos and don'ts.

A custodial IRA—If a child works and has earned income, he or she may be eligible for a custodial IRA. This account is also managed by a parent or guardian for the benefit of the child.

There are lots of great reasons to consider a custodial IRA, including:

• Opening a custodial IRA for your child can be a great way to teach important lessons about the value of saving and investing.
   
• As with all IRAs, funds invested in a custodial IRA qualify for special tax treatment. With an early head start, your child's earnings could potentially benefit from many years of tax-deferred compounding.

A custodial IRA account can be opened as either a traditional IRA or a Roth IRA.