Another account that teenagers can use to invest is a UTMA or UGMA account. The Uniform Transfer to Minors Act (UTMA) and Uniform Gift to Minors Act (UGMA) allows parents to open brokerage accounts as a custodian in their child’s name and gift them money to invest. Gifts are subject to gift tax limits, currently $15,000 per year per person (so a married couple could gift $30,000). Additionally, the custodian must authorize all transactions.
Dividend and capital gains in a UTMA/UGMA account are taxed at the child’s tax rate, but could be bumped up to the parent’s tax rate if their income exceeds the Kiddie Tax limits.
A new option on the market is the Fidelity Youth Account, designed for teenagers between 13 and 17 years old. Unlike a UTMA or UGMA account, the Youth Account isn’t a custodial account; the teen has independent control over every transaction. A parent is still required to help open the account, and can be notified of all transactions.
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