Why You Should Consider Opening a Brokerage Account for Your Child

July 08, 2024 by First Federal Bank

KidsTypically, when we think of investing, it is considered something you do as an adult. It is widely considered one of the best ways to save money. But have you ever considered opening a brokerage account for your child? There are many reasons you should. If you want to help them save for their own future, Time magazine outlines how to open a brokerage account for your child in five easy steps:

Decide on a brokerage firm 

Regardless of the type of brokerage account you decide to open for your child, you will want to find a broker that offers the account you want, as well as a wide range of investments to fund it. Cost is important. Carefully scrutinize what you must spend to open and maintain the account, as well as any transaction fees associated with buying and selling investments.

Different types of brokerage firms feature various accounts. For example, JP Morgan offers full service and a wide range of brokerage accounts, while TradeStation is more narrowly focused on trading stocks and other securities.

Decide on the type of account

The best type of account will depend on a number of factors. Some questions to ask include:

Does your child have taxable income or earn wages from employment? If they have earned income, a Roth individual retirement account (IRA) can make sense. If not, a custodial account might be the right answer.

Does your child have a disability? If your child has a disability, a special needs trust or an ABLE account (short for achieving a better life experience) might be good solutions.

Is saving for your child’s education the main goal? If so, then a 529 plan may be your best option.

Open the account 

Once you have decided on the type of account and where you want it to reside, the next step is to open it. In most cases you should be able to do so online with ease. Occasionally there may be additional paperwork needed. You should be sure you understand all requirements up front.

Fund the account

You might fund a brokerage account by linking to one of your bank accounts. You could also transfer funds from another account you have at the same broker. Once you fund it, you can start making investments.

Decide how to invest within the account

Your investment choices will vary depending on the type of account. In some cases, you may work with your child to choose the investments, providing them with a learning experience. In other situations, you may be choosing the investments yourself and/or working with an advisor. Certain types of accounts, such as some 529 plans, may have more limited choices available.

You can read the full article here, and learn about what types of accounts are available. As you work to teach your children about money and the importance of savings, consider adding an investment account to your tool kit.

Categories: Financial Education, Family

Leave us a comment and join the conversation.