Many parents strive to get their children involved in investing at a young age. Several turn to trading accounts for this purpose. Trading accounts hold stocks, securities and other types of investments. Custodial trading accounts allow you to teach your child the importance of a dollar early on. You can introduce your children to popular investments such as stocks without giving them full control over their capital. Set your children up for financial success by reading this post on how to open trading accounts for minors.
Determine The Best Age To Start
Begin by determining the best age for your child to start learning about investing. Consider your child’s ability to learn as well as the amount of time you need for the account to grow. Experienced parents find that children struggle to learn the importance of investing before age eight. By the time your child is eight-years-old, they know that money is valuable. Hence, it is a good time to open a trading account for them. At the same time, you need to open an account early enough for the amount to increase. When you open an account early on, you can teach your child in-depth concepts by the time they are in high school. You can review stock splits, dividends and values with them. Some children even become interested in learning about hedge fund performance. Determine the best age to introduce your child to investing. Then, you can open trading accounts for minors properly.
Choose An Account Type
Another crucial step to consider entails choosing a type of trading account for your child. Typically, parents choose between two kinds of accounts: guardian and custodial. A guardian account offers you more control over the funds. You can withdraw capital as you please. However, you are also responsible for paying taxes on the account. Most parents select this type of account to earn capital for their children themselves. The second kind of minor trading account, known as the custodial account, differs drastically. Unlike guardian accounts, minors own the capital in custodial accounts. As a result, they are responsible for the taxes. Since children usually maintain lower tax rates than their parents, this is not usually a problem for families. Additionally, you can only withdraw capital from a custodial account if you plan to use it for your child. Decide on the best kind of trading account for you and your child.
Find The Right Broker
Next, find the right broker to open trading accounts for minors with. The best brokers do not charge any account fees. They also do not usually require a minimum initial deposit. These features benefit parents who do not have a large sum to deposit, but still want to get their children started. You can put capital into an account without putting yourself in a poor financial situation. You can focus on paying off home equity loans and still set your child up for a bright financial future. Assure that you maintain a stable financial status by reviewing other broker costs as well. Investigate trade commissions and index funds. Look for a broker who can offer you a plan with few charges and low-cost index funds. Then, you can open a trading account for your child successfully.
Understand The Control Guidelines
Before you open an investing account for your child, review the control guidelines. When you first open an account for your minor, you have a substantial amount of power over the funds. Once your child passes the age of a minor, you lose that control. This age differs from state to state. However, most states transfer all power over to children between ages 18 and 21. Keep this in mind as the capital in the account begins to grow. Prepare to teach your child about the large responsibility during their teenage years. That way, they know how to save the money wisely by the time they gain full control. Open a trading account with this mindset to set your kids up for financial success through investing.
Review The Tax Liability
Finally, review the tax liability associated with trading accounts for minors. While guardian accounts use your tax rate as the main controller of the account, custodial accounts function off of minors’ rates. Hence, custodial accounts also introduce children to taxes at a young age. Teach your child how their tax rate is determined as a minor. Typically, you can invest $1,050 into a custodial account tax-free. The next $1,050 investment gets taxed at your child’s rate. Once you make an investment higher than $2,100, the tax rate increases to your rate. Assure that you understand the tax liability associated with the trading account before opening one. Then, you can prepare for tax returns and teach your children about investing effectively.
Trading accounts are great for teaching minors about investing. Before you open an account for your child, determine the best age to do so. Then, choose between a custodial account and a guardian account. Once you select the best account option, seek out a reliable broker. Understand that your child will gain full control over the account once they exceed your state’s legal minor age. Furthermore, review the tax responsibilities for both you and your child. Complete these steps to open trading accounts for minors to start investing.