Investing for Kids: 3 Types of Accounts to Get Started 📈 - YouTube

Looking to raise the next Warren Buffet?  

Or just want to bring up kids who don’t  suck at managing their money?

Same.

I’m Laura Adams, a personal finance expert for finder.com.

And I’m here to talk about investing for kids  –– including the three different accounts  

that will set your little one on the path  toward good money habits. So let’s dive in!

You might think your kids are too young to  start investing, but it’s never too early to  

start teaching kids about money. The  earlier they build up good money habits,  

the better-equipped they’ll be to handle their finances later on.

Because #adulting is hard.

But since kids can’t open brokerage accounts  on their own, they’ll need your help. And the  

first step is to determine which account  will meet your child’s investing needs.

The two most common investment accounts  for kids are UGMA and UTMA accounts,  

which are designed for little ones without taxable  income. A third option is a custodial individual  

retirement account, which is intended for older  children earning money from a part-time job.

Uniform Gifts to Minors Act accounts allow  you to invest in stocks, bonds, mutual funds  

and insurance policies on behalf of your kid.  But this money is theirs. They take control of  

the account when they reach the age of majority  in their state –– typically between 18 and 21.

Uniform Transfers to Minors Act accounts are  similar to UGMA accounts, but they let you  

invest in a wider variety of assets, including  real estate. UTMA accounts also have a later  

termination date, sometimes as late as age 25. For both UGMA and UTMA accounts,  

the first $1,050 deposited is tax free. The  second $1,050 is taxed at the child’s tax rate,  

and anything beyond this is taxed at the parent’s  rate. Another perk? UGMA and UTMA accounts  

have no contribution limits — meaning you  can invest as much as you want each year! 

Your third option for kids’ investment accounts  is a custodial individual retirement account –– or  

IRA. Now, these accounts are only for  older children who earn their own money,  

whether it’s from babysitting and yard work or  from working at a local fast-food restaurant. 

Just because your teen worker is young  doesn’t mean they shouldn’t be thinking  

about retirement now. And a custodial IRA  will give your child a leg up. Here’s how: 

Imagine you put $50 monthly into  a custodial account. In 30 years,  

you’d have contributed $18,000, but your child  

would have over $50,000 — that's based on a 6% annual  growth rate with interest compounded monthly. 

What’s more, is that custodial IRAs are tax  advantaged. And there are two options available: 

First is the traditional IRA. With this, contributions are tax free, but withdrawals after the  

age of 59½ are taxed at ordinary income tax rate.

The second is the Roth IRA. With this your contributions get taxed upfront as they're

deposited, but anything withdrawn  after the age of 59½ is tax free. 

Since most kids don’t earn  enough to owe income tax,  

a traditional IRA’s tax-free contribution won’t  be overly beneficial. But that's precisely why  

a Roth IRA is so advantageous for kids and teens —  you’re essentially getting tax-free contributions  

and distributions if you go the Roth route. Like UGMA and UTMA accounts, custodial IRAs  

transfer to your child once they reach  the age of majority in your state.

Remember, it’s never too early to start  investing. Even little ones can begin building  

good money habits –– and start saving for their  future. To learn more about investing for kids,  

visit our page on finder.com. It’s  linked in the description box.

And if you liked this video, don’t forget  to hit the subscribe button and ring that  

notification bell so you’ll be the first  to know when new Finder videos drop.