How to Open a Custodial Account for Your Child (And Start Investing Together)

If you’ve ever thought, “I wish I started investing earlier,” this guide is for you—and for your kids.

A custodial account lets you invest on behalf of a minor, helping them build wealth, learn about money, and start their financial journey years before adulthood.

It’s not just about giving money—it’s about giving knowledge, confidence, and time for growth.

What Is a Custodial Account?

A custodial account is a financial account that an adult opens for a minor under either the UGMA (Uniform Gifts to Minors Act) or UTMA (Uniform Transfers to Minors Act).

You control the account until the child reaches the age of majority (usually 18 or 21, depending on your state). After that, the account legally belongs to them.

How a Custodial Account Works

Here’s how it typically works:

1. You (the custodian) open the account through a brokerage or financial institution.
2. You fund it with cash, stocks, ETFs, or other investments.
3. The child (the beneficiary) legally owns the assets—but you manage them until they reach adulthood.

Funds can be used for any purpose that benefits the child—like education, extracurricular activities, or even helping them start their first business.

Smile Money Tip: Unlike a 529 plan, custodial accounts offer flexibility—you’re not limited to education expenses.

Types of Custodial Accounts

Think of UGMA as simple and flexible, and UTMA as broader—with more asset options and longer control potential.

How to Open a Custodial Account (Step-by-Step)

Step 1: Choose a Brokerage Platform

You can open a custodial account online in minutes with platforms like:

• Fidelity Youth Account – No minimums, fractional shares, and financial education tools
• Charles Schwab Custodial Account – Low-cost investing and parental control features
• M1 Finance – Automated investing in diversified portfolios
• Stockpile – Great for gifting fractional shares to kids

👉 Explore: Best Brokerage Accounts for Families and Teens →

Smile Money Tip: Choose a platform that offers education, automation, and easy access—so your child can learn by doing.

Step 2: Gather Information

You’ll need:

• Your Social Security number (and the child’s)
• Date of birth for both
• Basic contact information
• A linked bank account for funding

Most brokerages handle the legal setup automatically under UGMA or UTMA rules.

Step 3: Fund the Account

You can start with as little as $25 or $50. Contributions are considered irrevocable gifts, meaning once the money is added, it belongs to the child.

Smile Money Tip: Invite grandparents, relatives, or family friends to contribute instead of gifting toys or cash—it all adds up over time.

Step 4: Choose Investments

Custodial accounts let you invest in:

• Stocks
• ETFs
• Index funds
• Mutual funds

You can manage the investments manually or use a robo-advisor for automatic diversification.

Smile Money Tip: Focus on simplicity—low-cost, broad-based index funds often outperform complex strategies over time.

👉 Related: How to Build a Diversified Portfolio →

Step 5: Teach Along the Way

Money lessons stick when they’re experienced—not lectured.

Show your child what’s happening behind the scenes:

• Review account performance together
• Talk about why you invest
• Explain compound growth and long-term goals

How Custodial Accounts Grow Over Time

Even small, consistent contributions can grow significantly.

Smile Money Tip: Time is the greatest gift you can give your child—the earlier they start, the more powerful compounding becomes.

Custodial Account vs. 529 Plan

👉 Learn: How to Invest in a 529 Plan →

Things to Keep in Mind

• Once money is contributed, it belongs to the child—it can’t be taken back.
• The account transfers automatically at legal age.
• Investment income may be subject to the “kiddie tax.”
• Assets may impact future financial aid eligibility.

Smile Money Tip: Custodial accounts work best when you combine investing with financial conversations—turning money into a tool for growth, not control.

Final Thoughts

A custodial account is more than a financial gift—it’s a foundation for lifelong financial wellness.

It teaches ownership, patience, and the power of starting early.

Next Steps:

• 👉 Learn: How to Invest as a Teenager →
• 👉 Explore: How to Invest for Kids →
• 👉 Read: How to Build Generational Wealth That Lasts →
• 👉 Compare: Best investment platforms for families in the marketplace →