How to Buy Stock for a Child (And Why it’s a Smart Money Move)

Buying stock for kids is an excellent way to jump-start their investment portfolio and save for their future.

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Updated May 13, 2024
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One of the best ways to set children up for financial success is to introduce and teach important money lessons from an early age. This may mean helping them manage a bank account, explaining the wonders of compound interest, or teaching them about family budgeting.

But while the majority of parents do talk to their kids about money, a much smaller percentage introduce the idea of investing money in the stock market. When you consider how valuable the growth of an investment portfolio could be over a child’s lifetime, though, it’s easy to see why investing with your child might be a great decision.

Let’s talk about the different ways you can invest on a minor’s behalf, where to start, and exactly how to buy stock for a child when you’re ready.


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How to buy stock for a child: 5 options

There are a few options to choose from if you are looking to buy stock for a child, whether he or she is your own child or a grandchild, sibling, niece/nephew, etc. Here are five investment routes to consider.

1. Give the gift of stock

On the day of my 11th birthday, a single share of Amazon stock had a price tag of just over $4.

Though I do remember that birthday very well, I don’t remember what my parents or grandparents bought me that year; it probably amounted to somewhere in the $40 price range. Just imagine if, rather than buying me the latest trendy toy or a new pair of shoes, my grandma had opted to give me 10 shares of Amazon instead.

Today, that 11th birthday gift would be worth nearly $376,200.

Unfortunately, I don’t have a bunch of well-aged Amazon stocks lying around. It’s easy to see, though, how gifting the children in your life with a share of stock can be potentially lucrative. This gift can also garner their own interest in investing and help establish their investment portfolio for the future.

Companies like Stockpile allow you to give stock gift cards in any amount from $1 to $2,000. You can choose from a wide range of individual stock options — such as Apple, Disney, Facebook, and more — either by purchasing a physical gift card or by simply printing out a gift certificate from your home computer.

You (or another adult) can then set up a custodial account on Stockpile, at which time the recipient can redeem their Stockpile gift for full or fractional shares and begin trading. Minor children can track their stock’s progress over time and even make their own (approved) stock purchases for additional shares.

Once they come of age, the account ownership switches over to the now-adult child and hopefully they will have a nice investment portfolio upon which to build.

2. Open a custodial brokerage account

Whether you’re interested in purchasing specific company stocks or diversifying your child’s investments, opening a custodial brokerage account is an easy place to start.

Custodial accounts are also referred to as UTMA/UGMA accounts, which stands for Uniform Transfer to Minors Act and Uniform Gifts to Minors Act. These accounts act as an irrevocable trust for minors, allowing them to own assets (such as stocks or shares of a mutual fund or exchange-traded funds) that are managed by a parent or guardian until the child reaches a certain age.

Platforms like Stash, Acorns, and UNest make it easy to establish and fund custodial brokerage accounts to begin investing for a child. With Stash,2 for instance, you can purchase whole or fractional shares of stocks or opt for ETFs (exchange-traded funds),3 starting with as little as $1.4 You’ll need the Stash+ plan in order to manage custodial accounts, which runs $9 per month.5

Acorns Early allows you to open custodial accounts for kids in just minutes, which are invested in aggressive ETF-based portfolios. Acorns offers automatic recurring investments with the opportunity for bonus investments. The Acorns Personal Plus plan is only $6 per month, while the Premium plan is $12 per month. UNest is a beginner-friendly custodial account option designed to help parents build savings for their kids.

Funds held in a custodial investment account can generally be utilized for the child’s own expenses without penalty. This may include educational costs as well as things like music lessons, sports training, or even clothes and school supplies.

*It’s important to note that custodial accounts are considered an asset belonging to the child. Depending on the value of the account, this could impact financial aid decisions for college down the line.

3. Opt for a Roth IRA

If your child is older and has earned income — either from their first job, a side hustle such as a paper route, or helping you with tasks at your own business — they might qualify for a custodial IRA. There are two IRA options to choose from but for children, a Roth typically makes the most sense.

Traditional IRAs are funded with pre-tax dollars but are taxable upon withdrawal in retirement, whereas Roth IRAs are funded with taxed dollars and can be withdrawn in retirement tax-free. As long as your child is in a lower income bracket today than you expect them to be when they reach retirement age (which is the case for most kids), a Roth is probably the smarter choice.

IRAs are custodial, meaning that a parent or guardian manages the account until the child comes of age, which is age 18 or 19 in most states. You can contribute up to $6,500 in 2023 or the amount the child actually earned over the year, whichever is lower. The limit is $7,000 in 2024.

The child can choose to withdraw from those funds at retirement. They can also withdraw contributions without penalty before age 59½ as long as the account has been open for five years and the money is used for qualified educational expenses or for buying a new home for the first time.

4. Consider dividend reinvestment plans (DRIPs)

A dividend reinvestment plan, or DRIP, is another great option for slowly building a child’s wealth over the long term.

DRIPs involve shares that are typically purchased directly from the company, rather than through a brokerage. Any dividends that are paid out are automatically reinvested into more shares, helping your child build not only their overall value but also the number of shares they own, without requiring a lot of hands-on effort.

DRIPs can be purchased on a custodial (UGMA/UTMA) basis, with ownership transferred to the child when they come of age.

5. Open a 529 plan

If your primary goal is investing for a child’s future educational expenses, a 529 plan is a long-trusted route to consider.

These tax-advantaged, college savings accounts allow parents, grandparents, other relatives, and even friends to contribute and invest toward a child’s K-12 and college education expenses. The funds will grow tax-free over time and can then be withdrawn to pay for things like tuition, books, and lab fees.

Each 529 plan, or qualified education plan has its own fees, rules, and tax benefits. There are two types of 529 plans available (prepaid tuition plans and education savings plans), and every state plus the District of Columbia offers at least one. While each state typically offers 529 plan options, you do not need to choose the plans offered by your home state. It’s best to compare fees and investment options across plans to decide which plan makes sense for your family.

It’s important to note that some plans are designed for children who will attend a school within that same state. Additionally, the funds held in a 529 account are counted as a parental asset on the FAFSA.

How to choose a stock for your child

Picking the right investment vehicle (and stocks) for your child depends on a number of personal factors. The best choice may be different from one parent to the next. Here are our recommendations for how to choose a stock for your child.

Consider your goals

Are you hoping to foster an interest in investing? Do you want to begin building wealth for your child’s future? Or do you hope to fund an education savings vehicle that will grow over time?

Maybe the answer is all three.

Take some time to decide why you want to invest for your child in the first place, and what you primarily hope to gain from the experience. That will help you choose the best investment method.

Look at your budget

Your budget may guide you down one investment path over another. If you’re hoping to invest $10,000 a year for your child, for instance, a Roth IRA (alone) probably isn’t the best choice due to its $6,500 annual contribution limit for 2023 and $7,000 limit for 2024. And if you’re only wanting to invest a few dollars a month, the monthly cost of a brokerage account may not be worthwhile.

Consider the cost of the best brokerage accounts, initial investment requirements, the typical returns, and what you are able to contribute to the account before making your decision. In some cases, you may also choose to diversify your child’s investments.

Pick stocks that interest your child

If you are going the individual stock route — rather than investing in ETFs or other tax-advantaged accounts — you could have an opportunity to really pique your child’s interest.

You can choose to invest in companies that your child is into, such as Disney, Apple, Nike, Hasbro, Mattel, and the like. Many platforms will allow your older children to sign in and track their investments, as well as make their own stock-buying decisions (with your approval). All of this can help develop an interest, education, and appreciation for investing that could follow your child well into adulthood.

FAQs about buying stock for a child

Can you gift stock to a child?

Yes, you can absolutely gift shares of stock to your child(ren), as well as children who are not your own. This can be done by gifting shares that you already own (just make sure to research the tax implications of this beforehand), purchasing stocks for a child, or contributing to investment funds on their behalf.

Gifts of up to $17,000 in 2023 or up to $18,000 in 2024 are not subject to gift taxes.

Do you need to pay taxes on gifted stock?

You can give stocks or other investment funds to a child without needing to pay taxes on the gift, as long as the total amount given annually does not exceed $17,000 in 2023 or $18,000 in 2024. This means that you can contribute up to $18,000 a year to each child in your life without any gift tax penalty, though that total amount may be subject to change based on IRS regulations.

What's the best way to buy stock for a child?

The best stock for a child is the one that could potentially grow healthily over a long period of time and, ideally, pique their interest in investing. The biggest benefit that child investors have is time in the market; they might be able to afford to have a portfolio that is a bit more aggressive and, in turn, has the opportunity for greater growth. Keep in mind, though, that all investments are subject to the risk of loss.

If your goal is to teach your children about investing and get them involved in the process, you may want to let them choose specific stocks that interest them. Consider buying fractional shares of companies like Disney or Apple, for instance, and letting them track performance.

The bottom line

Time is the most valuable aspect when it comes to buying stock for your child.

They will be building their portfolio for many, many decades, and their investments have plenty of time to grow. Of course, like any other investment, those investments will also be subject to losses, depending on asset and stock market performance. Don’t necessarily try to time the market when it comes to your child’s investments, and don’t treat their portfolio the same way you’d treat your own. Remember, their time horizon for investing will likely be longer than yours.

Consider being slightly more aggressive with their investments, have fun with the experience, and be sure to teach your child about investing along the way. Doing so will plant seeds of financial wisdom that will last for life.

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Author Details

Stephanie Colestock

Stephanie Colestock is a credit card expert, travel rewards aficionado, and writer who enjoys teaching people how to be financially independent and confident about their money choices. If it has to do with credit, credit cards, or traveling the world on points, you'll find Stephanie writing about it. She also enjoys teaching people how to reach financial independence, regardless of obstacles in their path (such as the crippling student loan debt she once held). Stephanie graduated from Baylor University, and is currently working toward her CFP certification. Her work can be seen on sites such as Forbes, Dough Roller, and Johnny Jet, among many others.