Set Them Up for Success: 7 Investment Accounts You Can Open for Your Teen Right Now
Written by
Dawn Allcot
Edited by
Travis Woods
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It’s never too early to begin teaching your children about money. Further, once they become teenagers, they have expanded options for money management, such as student checking accounts to apps like Cash App for spending, saving and even investing.
Which investment and money management accounts are best for teens? Let’s explore some of the top options today.
1. Checking Account
Whether your teen has started their first job or is learning how to manage money they earn from their allowance or babysitting gigs, you can set them up with a free student checking account through a traditional bank like Chase, an online bank like SoFi, or a credit union.
Most checking accounts include a debit card and give parents the ability to transfer funds from their own account.
2. Savings Account
If you open a bank account for your teen, it likely comes with a savings account, too. Yet you may want to shop around for a high-yield savings to begin teaching your teen the power of compound interest.
Suffolk Credit Union offers a high-yield Youth Savings Account with an APY as high as 6%.
3. Custodial Account
It’s a good idea to let your teen maintain control of their high-yield savings account so they can learn how to make budgeting decisions. Though if you want to set aside larger amounts of money for your teen and see it earn money through investments, you might consider a custodial account, often called a UGMA/UTMA, which stands for Uniform Gifts to Minors Act or Uniform Transfers to Minors Act.
These accounts have no income or contribution limits, although your teen will have to pay a gift tax for annual contributions that exceed $18,000 ($36,000 for married couples), according to Fidelity.com. Â
Anyone can contribute to the account, including friends or grandparents. The money grows through investments until your child gets control of the account when they turn 18 or 25, depending on the terms.
4. Trust Fund
Similar to a UGMA/UTMA, a trust fund holds money for a child. However, a trust fund gives the parent greater control over the money, since it stays in the account and doesn’t automatically transfer to the child when they reach the legal age of 18 or 21, depending on the laws for your state. Trust funds, though, are controlled by a trustee, who has a duty to manage the funds in a way that will benefit the child. If you want to maintain control over the money and how it can be spent, even when your child becomes an adult, you might set up a trust fund with specific restrictions.
5. 529 College Savings Plan
A 529 plan is similar to a custodial account, except the parent owns the account and must transfer it to the child, whereas a custodial account belongs to the child from day one. You fund a 529 college savings plan with after-tax dollars, and money grows tax-free. Distributions are tax-free as long as they are used to fund college expenses or student loans.
If your child doesn’t go to college, you can transfer the plan to another child or, as of this year, you can transfer the money into a Roth IRA for the original beneficiary, GOBankingRates previously reported.
6. Cash App for Investing
Did you know that kids as young as age 13 can open a sponsored Cash App account and use it to invest in stocks or Bitcoin? Cash App makes investing simple and fun. Teens can start investing in fractional shares with as little as $1.
7. Brokerage Account
If you’d like to give your child more options for investing in stocks, ETFs, and mutual funds, consider a custodial account through the brokerage that you currently use for investing. For instance, Charles Schwab offers the Schwab One Custodial Account with no contribution limits. Up to $2,600 in unearned income is tax-free, while dividends that exceed that limit will be taxed at the parent’s tax rate.
A Schwab One Custodial Account requires no minimum opening deposit, no maintenance fees, and commission-free stock and ETF trades.
Final Note
Just as adults have multiple money management accounts for different purposes, you might want to set your teen up with several investment accounts, as well as a checking or cash management account for everyday spending.
Let your teen take part in the decision, sharing several options and allowing them to choose the apps or accounts that work best for them.
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