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Custodial Accounts

When it comes to investing online or through a stockbroker, you can't just do it on your own...you actually have to have your parents permission.When you want to start investing in stocks, you have to set up what is known as a custodial account. In this account, you are named as the owner of the stocks but a person is appointed (usually a parent or guardian) to help you control the investments.

Keep in mind that this does not mean that the stocks aren't yours. You own them and you control them, but you have someone who will help you do this, and that is your custodian.Once you reach the age of maturity for your state (usually 18 to 21) the custodian is removed from your account and you are given complete ownership of your account. But this doesn't mean that you can't take the money out at any time. You can tell your custodian that you want the money and they would have to withdraw it from your account for you. Also, the custodian can't take out any money from your account for himself.

I know it might seem like a drag to have a parent controlling your account because you want to do everything on your own but, believe me, this has some major benefits.

BenefitsIt benefits you, the young investor, by offering you the opportunity to invest at such a young age. It also helps you in case you come across a situation involving your investments that you don't know how to handle. Your custodian would then help you out.It benefits your parents or custodian because they are always aware of what you are investing in, which will help them sleep better at night knowing that little Johnny isn't risking all of his college money on a hot stock tip.

DisadvantagesFor your parents or custodian, once they put money in your custodial account, they can't take it back. So if you decide to spend the money on that brand new sports car rather than your college education, they can't control that. So a lot of trust has to be given to you before they will risk that money.Now that you know what kind of account to set up, you can talk to your parents about setting up a custodial account for you to get started in investing!

 

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