Learning how to invest as a minor can give you a tremendous head start for your financial future.
Early investing can have huge benefits, and teens who learn responsible money habits have a huge advantage over their peers.
If you are a teenager - or perhaps a parent of a teen - and want to learn more about how to invest as a teenager, you are in the right place.
Take it from one of the greatest investors of our time; Warren Buffett. He once said, “the best time to plant a tree was 20 years ago, the second-best time is now.”
As a teenager, you have decades ahead of you to allow your money to grow and compound. The earlier you start, the better off you'll be in the future.
Below is an interactive graph of how compounding over time can build serious wealth (especially if you start as a teen).
If you invest just $1,000 a year, by the time you are at the age of retirement, you'd have a lot more than you'd expect thanks to Compound Interest! (And feel free to play around with the interactive graph above!)
Here are a few ways to start investing as a minor.
Let's start by dispelling a common misunderstanding. Many people think they can't begin investing until they are an adult over age 18.
This is actually false!
While you can't open your own solo investment account as a teen, there are certain types of accounts offered to minors that can be established by a parent or guardian.
Some of these accounts can help you save for long-term goals such as education and retirement. The most common type of account is a custodial account.
Check out our video on investing as a teenager below!
In order to invest as a teen, you'll need to set up a custodial account with a parent or guardian.
Minor accounts, created in part by the Uniform Transfers To Minors Act and the Uniform Gift To Minors Act (UTMA/UGMA), are excellent options if you are investing for your teenager.
You can establish these minor accounts and begin investing within them almost immediately.
This money can be used for any purpose including education expenses as well as any other needs the child may have.
The profit from these investment accounts will be taxed according to the child's tax rate or potentially the parent's tax rates if the child makes enough money and is subject to kiddie tax limitations.
If you're ready to get started with a custodial account, one of the best options is M1 Finance.
M1 Finance offers an intuitive investment platform with the ability to invest in individual stocks or pre-built portfolios.
They also offer retirement accounts, which is something you might want to leverage too.
In addition, for custodial accounts, the minimum investment to get started is just $100.
Click Here to learn more about M1 Finance Custodial Accounts!
The parent or guardian has the final decision over the account until the child reaches 18 or 21 (depending on the State).
At the age of majority, ownership of the account will be transferred fully to the child and the parent will no longer have any control over the account.
The child (who would now be an adult) will be free to cash out the account or do whatever they please, so it's important to talk about the intended purpose of the account beforehand.
Retirement plans are a great way to save for your future.
No matter what, if you are investing for a teenager or as an adult, it's never too early to start planning for retirement.
The earlier you begin planning, the better off you will be. That's why many people gravitate towards these accounts when investing on behalf of a minor or teenager.
There are many different types of retirement accounts, but the most popular are the Traditional IRA and the Roth IRA.
The Traditional IRA is a tax-deferred retirement account. This means you contribute to the account with pre-tax dollars.
When you take distributions in retirement from a Traditional IRA, you will pay ordinary income taxes.
With a Traditional IRA, the benefit is upfront. In most cases, you are able to deduct the contributions made to your Traditional IRA.
This means your taxable income would be lower for that tax year. However, you do have to pay taxes later on when you take money out of the IRA.
Roth IRAs are slightly different, as contributions are made with your post-tax income.
This means the account grows tax-free. In addition, when you take distributions in retirement - they will be completely tax-free.
With the Roth IRA, the benefit is experienced at the end. You aren't able to deduct your contributions and lower your tax bill upfront.
Typically, younger people tend to gravitate toward Roth IRAs because they assume that they are in a lower tax bracket now than they will be in the future.
For example, if you're currently paying 12% in taxes and assume that in the future you'll be in a 25% tax bracket, you'd be better off to pay the 12% now instead of 25% later.
You can read more about the Roth IRA and the benefits here.
IRA Contribution Limits For 2025
For 2025, the contribution limits for IRAs are as follows:
For both Traditional and Roth IRAs you cannot take a qualified distribution until age 59 ½.
If you take an early distribution, you will be subject to a 10% penalty and income taxes.
However, there are certain exceptions to the early withdrawal penalty - such as using the money for medical expenses or the First Time Home Buyer exemption.
You will want to look into these exemptions individually to learn more.
With both Traditional IRAs and Roth IRAs, your child will need to have earned income.
Without earned income, you are not allowed to contribute to an IRA.
So if you're thinking of contributing to a Roth IRA for a younger child or teen, you might need to find creative ways for them to earn income.
If you own a business, for example, paying your child from your business can be a way to satisfy this earned income requirement.
You can set up Minor Roth IRAs at a variety of brokers.
There are many options available, including:
Planning for your teen's education is a proactive way to manage the rising costs of higher education.
Two primary vehicles for education savings are the 529 Education Savings Plan and the Coverdell Education Savings Account (ESA).
A 529 plan is a tax-advantaged savings plan designed to encourage saving for future education costs.
These plans are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.
Here's a few key points about these 529 Plans:
Contribution Limits
While there is no annual contribution limit for 529 plans, contributions are considered gifts for federal tax purposes.
As of 2025, individuals can contribute up to $19,000 per beneficiary annually without incurring gift tax implications. Married couples can contribute up to $38,000 per beneficiary per year without gift tax consequences.
Additionally, 529 plans offer a "superfunding" feature, allowing contributors to make a lump-sum contribution of up to five times the annual gift tax exclusion amount ($95,000 for individuals and $190,000 for married couples in 2025), treating it as if it were made over a five-year period.
New Provision: Rolling Over 529 Funds to a Roth IRA
Starting in 2024, the SECURE 2.0 Act introduced a provision that allows for the rollover of unused 529 funds into a Roth IRA under specific conditions.
This can be a great way to get a jumpstart on retirement savings. In addition, this offers flexibility for families concerned about overfunding a 529 plan. However, certain conditions must be met, which are explained below.
Key Conditions And Limits:
Education Savings Accounts are another popular avenue for saving and investing for your child or teen. An ESA is a tax-advantaged trust or custodial account designed to pay for qualified education expenses.
Here are some key points about these ESA accounts:
Currently, there are not many compelling reasons to choose an ESA over a 529 plan. In most cases, people will choose the 529 Plan over the ESA.
As a teenager, you have several investment options to build wealth and gain financial literacy. Understanding these options can help you make informed decisions about where to put your money.
Investing in individual company stocks allows you to own a small piece of a company. Stocks can have high growth potential, but can also be volatile.
It’s best to start with well-established companies or consider index funds/ETFs to minimize risk.
ETFs are collections of stocks or bonds that trade on an exchange like a stock.
They offer diversification, meaning your money is spread across multiple assets, reducing risk compared to individual stocks.
Index funds are a type of mutual fund or ETF designed to track a market index like the S&P 500.
They provide an easy, low-cost way to invest in a broad section of the stock market. Since they require little management, they are a good option for beginners.
Bonds are loans you give to companies or governments in exchange for periodic interest payments. They tend to be less risky than stocks, making them a good option for conservative investors.
As a young person, you might not need to add bonds to your portfolio yet. You'll want to consult with your Financial Advisor about this.
Mutual Funds pool money from multiple investors to buy a mix of stocks, bonds, or other assets. They are actively managed by professionals, which can be beneficial but also results in higher fees.
In the last few decades, many investors have transitioned over to low fee Index Funds or ETFs in lieu of these higher fee Mutual Funds.
If you’re interested in real estate but don’t have the money to buy property, REITs allow you to invest in real estate companies that generate income through commercial or residential properties.
REITs are essentially trusts that own actual real estate, with shares that trade on the major exchanges just like stocks.
Cryptocurrency, like Bitcoin and Ethereum, is a digital currency that operates independently of a central bank.
While it has high potential returns, it is also highly volatile and speculative, making it riskier for investors compared to time tested assets like Stocks.
With that said, as a young person, you have a long time horizon and might be able to take on more risk. If you believe in the future of Cryptocurrency, this could become a component of your investment portfolio.
Although not technically an investment, a high-yield savings account is a safe place to store cash while earning some interest.
It’s great for short-term goals or as an emergency fund.
If you can’t afford to buy full shares of expensive stocks like Amazon or Tesla, many brokerage platforms now offer fractional shares, allowing you to invest small amounts in large companies.
Robinhood, for example, allows you to purchase shares in $1 increments.
Many young investors make avoidable mistakes that can negatively impact their financial future.
Here are some common pitfalls and ways to avoid them.
Mistake: Jumping into investments without a clear strategy or goal.
Solution: Set investment goals, such as saving for college, a car, or long-term wealth.
Mistake: Investing in stocks or cryptocurrencies based on hype rather than solid research.
Solution: Stick to companies or funds with strong fundamentals and a proven track record.
Mistake: Putting all your money into one stock or asset type.
Solution: Diversify your investments by spreading money across different asset classes like stocks, bonds, and even alternative assets.
Mistake: Choosing investment platforms or mutual funds with high fees that eat into returns.
Solution: Look for low fee index funds or ETFs, as these minimal fees will help to maximize your earnings over time.
Mistake: Buying and selling based on market fluctuations, hoping to buy low and sell high.
Solution: Focus on long-term investing instead of short-term trading.
Mistake: Believing that investing can wait until later in life.
Solution: The earlier you start, the more you benefit from compound interest.
Mistake: Selling investments during market downturns out of fear.
Solution: Understand that markets go through ups and downs, and this is completely normal.
Mistake: Not understanding how investments are taxed, leading to unexpected tax bills.
Solution: Learn about capital gains taxes, dividend taxes, and the benefits of tax-advantaged accounts like Roth IRAs and 529 Plans.
By avoiding these mistakes and making informed investment choices, teenagers can build a solid financial foundation for their future.
As a teenager - or the parent or guardian of a minor - there are many options available to begin investing early on.
While you will need the help of a parent or guardian, you can begin your investing journey as early as you wish. This means you can start investing as a young person and experience many decades of compounding.
There may be a few hoops to jump through, but you will thank yourself later on.
