A:

An underage person cannot open a brokerage account on his or her own. However, it is possible for an underage person to have a brokerage account with his or her own name attached to it, but in order for this to happen, a parent or guardian must also be involved with the account.

There are a few different ways this can happen. First off, the parent or guardian of an underage child can open what is called a guardian account for the child. Essentially, this is an account in the parent's name, with legal title to the assets in the account and all capital gains and tax liabilities produced from the account belonging to the parent. In this situation, the parent has total ownership and control of the brokerage account, and attached the child's name to the account without any legal standing coming with.

Another way a child can have a brokerage account in his or her name is through what is called a custodial account. In this type of account, the child owns the assets contained within the account, but the parent has control of the investment decisions and any withdrawals which might be made. However, it's important to note that with this type of account, withdrawals or capital gain tax liabilities are taxed in the child's name - not the parent's. Of course, this can be an advantage over the guardian account (in which taxes fall under the parent's name, at their marginal tax rate), since children often pay little to no taxes due to their typically low annual incomes.

And lastly, If a child has already been earning an annual income and filed their taxes, then they would be eligible to open an IRA account with their parent's help. But this is only in the cases where a child has claimed earned income for at least one year already, since IRA accounts require that the account owner have earned income.

It's generally a good idea to start you children down the path to financial independence early on in their lives - for more on this topic, check out Boomerangs: Why Some Kids Never Leave The Nest and The Generation Gap.

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RELATED TERMS
  1. Natural Guardian

    A child's parent. In divorce situations, the parent with custody ...
  2. Guardian IRA

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  3. Custodial Account

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  4. Income Shifting

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  5. Guardian

    An individual who has been given the legal responsibility to ...
  6. Child Tax Credit

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