How to Buy Stocks for a Child: Custodial Accounts Explained

November 5, 2026 Invest Clarity Path Team

Many parents and grandparents want to buy stocks for a child. They may want to give a birthday gift that can grow over time, or start a small fund for the future. The idea is simple, but the rules are not the same as opening an account for yourself. A young child cannot open a normal brokerage account in their own name. In the United States, families usually use a special type of account instead. This guide explains how that account works in simple words, and what to think about before you open one.

Direct answer

An adult cannot open a normal brokerage account in a child’s name. In the United States, the usual route is a custodial account, called UGMA or UTMA depending on the state. An adult opens and manages the account, but the money legally belongs to the child. The child takes control at the age set by state law, 18 or 21.

What is a custodial account?

A custodial account is an investment account that an adult opens for a child. The adult is called the custodian. The custodian manages the account, chooses the investments, and looks after the money until the child is old enough to take control. The child is called the beneficiary, and the money in the account is legally the child’s money, even while the child is still young.

This is the key point. A custodial account is not the same as a parent’s own account. Money in a parent’s own account still belongs to the parent. Money in a custodial account belongs to the child. The adult can manage it, but cannot use it for their own bills or take it back later.

UGMA or UTMA: what is the difference?

You will often see two names: UGMA and UTMA. UGMA stands for Uniform Gifts to Minors Act, and UTMA stands for Uniform Transfers to Minors Act. They are two types of state law that create custodial accounts. Which one is used depends on the state where the account is opened.

In simple terms, the two types work in a very similar way. The main difference is what the account can hold. A UGMA account is usually limited to financial assets such as stocks, bonds, and funds. A UTMA account can often hold a wider range of assets in some states. For most families who only want to buy stocks and funds, the difference is small.

Who owns the money?

The child owns the money. This is true from the day the money goes into the account. The custodian manages the money, but must use it for the child’s benefit. That means the money should be spent only on things that help the child, if it is spent at all, and not on the adult’s own needs.

What can a custodial account hold?

In general terms, a custodial account can hold stocks and funds. That includes shares of single companies and funds that hold many stocks or bonds together. It can also hold other common investments, depending on the firm and the state law. The money is invested in the child’s name, and it can grow or fall in value over time, just as it would in any other investment account.

How does an adult open and manage one?

An adult, usually a parent or grandparent, opens the account with an investment firm. The adult gives their own details as the custodian and the child’s details as the beneficiary. The adult then adds money and chooses how to invest it, and can add more money over time.

The custodian should keep clear records of money added and any money taken out. If money is taken out, it should be used for the child’s benefit, such as education costs or other needs of the child.

When does the child take control?

The child takes control when they reach the age set by the law of the state where the account was opened. In general terms, this is 18 or 21, depending on the state and the type of account. At that age, the account becomes an account in the young adult’s own name, and the custodian no longer manages it.

How does tax work?

Tax is one area where a custodial account is different from a parent’s own account. The account earns income in the child’s name, so income such as dividends or interest is generally taxed as the child’s income. The custodian may need to file a tax return for the child, depending on how much income the account earns.

There is also a special tax rule for children’s unearned income, often called the kiddie tax in plain words. Unearned income means income from investments, rather than income from a job. Under this rule, some of a child’s investment income may be taxed at the parent’s tax rate, rather than the child’s rate. The exact rules can change, so families should check current guidance from the Internal Revenue Service, and ask a tax professional if they are unsure. This guide does not give tax advice.

How does it affect college financial aid?

A custodial account can affect college financial aid. When a student applies for aid, the family’s assets are looked at, and assets in the child’s name can count more heavily than assets in a parent’s name. That means money in a custodial account could reduce the amount of need based aid offered.

This does not mean a custodial account is a bad choice. It means families should think about the whole picture first. If the main goal is to save for college, a 529 plan may be worth comparing, as explained in the next section.

What are the main alternatives?

The main alternative is to save and invest in a parent’s own account. In that case, the parent keeps full control of the money and can decide later how to use it. The parent can give the money to the child at any age, or use it for another family need. The trade off is that the money is not legally the child’s.

Another alternative, when the goal is education, is a 529 plan. A 529 plan is a savings plan made for education costs, with its own tax rules. You can learn more in our guide to 529 plans, linked in the Related guides section below.

Worked example

Example only. This is a simple example to show how time can matter. It is not a promise of a return, and real investments can go up or down in value.

Suppose a grandparent puts an example $500 into a custodial account when a child is born, and leaves it invested. The money is the child’s money from the start. No more money is added in this example, and no money is taken out. The $500 stays invested for many years, through good years and bad years.

Over such a long time, the value may grow, because the money has many years to work. But growth is not certain. The value could also fall, and the final amount could be less than $500. The point is that a small amount, left alone for a long time, has time on its side, and the gift cannot be taken back.

Quick answers

Can an adult open a normal brokerage account in a child’s name?

No. A young child cannot open a normal brokerage account in their own name. In the United States, the usual route is a custodial account, called UGMA or UTMA depending on the state. An adult opens and manages the account, and the child takes control at the age set by state law.

Can money in a custodial account be taken back?

No. Once money is put into a custodial account, it legally belongs to the child and cannot be taken back by the adult who gave it. The custodian can manage the money and use it for the child’s benefit, but cannot use it for their own needs.

When does a child take control of a custodial account?

The child takes control at the age set by the law of the state where the account was opened, usually 18 or 21. At that point, the account becomes the young adult’s own account, and the custodian no longer manages it.

Invest Clarity Path