If you’re looking for an easy way to invest in the stock market through fractional shares, then Stash is perfect! It automatically rounds your purchases up to the nearest dollar and invests your spare change into a diversified portfolio that you help to build. As its popularity has increased, many teens (and even their parents) have been wondering:
How old do you have to be to invest in Stash? Legally, a minor (under the age of 18) is not allowed to invest in Stash. Since they are not of legal age, they cannot officially sign the legal agreements necessary to invest in the stock market or work with a brokerage firm. In this case, the brokerage firm is Stash. However, there is another way for minors to invest by using custodial accounts.
Today, I’m going to explain how parents and their kids can start investing in the stock market by using Stash’s custodial accounts. I’ll outline some of the benefits and drawbacks of these custodial accounts. I’ll also address how much control your child will have over the account and how to transfer it to them once they come of age.
How Old Do You Have To Be To Invest In Stash: Explained
If you’re a teenager reading this right now, then I genuinely feel for you. When I was a teen, there was no way that I could invest in the market. Apps like Stash, Webull, and Robinhood simply didn’t exist. The only investing that I could do was buying a pack of sodas and selling them to my friends for $1/each.
Today, it’s different, though. Most teenagers have a smartphone and can download and use just about any application they want, including these new investment apps. I can only imagine the frustration of having these apps at your fingertips and not even being able to invest your own hard-earned money as you watch adults rake in the profits.
So, unlike most adults who are just going to tell you, “that’s just the way things are,” I’m going to actually explain to you why minors aren’t allowed to invest in the stock market or open their own personal accounts on apps like Stash.
According to the law in the United States, a minor under the age of 18 cannot sign a legally binding contract. To be fair, most teenagers simply don’t have the knowledge to read through a complex series of agreements that often have serious legal implications.
However, I admit that, for the intelligent teen, these laws can seem a bit unfair. After all, if you can work a job and drive a car, why can’t you make a smart financial choice and invest your money?
When you buy a stock, there’s a lot more that goes on behind the scenes. It’s not like buying a soda at the gas station. Even if you’re just investing $5, you’re buying a percentage of a company. Even if it’s an incredibly small percentage, there is still a complex legal agreement and a host of SEC regulations that you (as the investor) must legally agree to when purchasing a security.
However, there is one “loophole” that allows minors to invest using Stash- custodial accounts.
Custodial Accounts: The Loophole For Minors To Invest
One of the great things about Stash is that they’ve made it incredibly easy for adult users to open up custodial accountsfor minors. Essentially, an adult takes responsibility for the main account. The adult user can then open up sub-accounts and list a minor as a beneficiary. This is how many trust funds work- parents spend 18 years investing into their children’s portfolios so that one day they can have a large chunk of money saved up.
How Stash Custodial Accounts Work
To open a custodial account for a minor, you first have to sign up for Stash + – The highest tier of membership on the platform. It costs $9 a month, but you can’t put a price tag on your children’s future, can you?
Once you open a custodial account for a minor, you can select how much money you want to put into your account on a daily basis. Stash works by rounding up your debit card purchases and setting the extra money aside in your account balance. You can either direct the funds to your personal Stash portfolio or send it straight to your child’s custodial account from your account balance.
While the adult is always responsible for the investments, it’s a great opportunity to teach your kids about investing in the stock market. You can encourage them to do research on their own stocks, and you can even invest money that they give you for them. In a way, it gives your child a way to “invest” without the legal responsibility that you (the adult) has to agree to.
Can You Cash Out Custodial Accounts?
It’s important to understand that you cannot withdraw it or transfer it to another child once you invest the money into your child’s custodial account. This is due to the UTMA act, which was made to protect gifts and money set aside for children until they come of age. Just because an adult has a change of heart or falls into poor finances, they can’t take away their kids’ money.
You are able to trade the money in the account and invest the money into different stocks, but you can’t cash it out and put it into your own bank account.
What Happens When The Minor Comes Of Age?
Once your child turns 18, then the custodial Stash account will be officially transferred over to them. They will have to create their own Stash account, and the fund will be legally transferred into their personal portfolio.
From there, they can go multiple different routes. The easiest option is to just keep investing with Stash. However, they can also withdraw the money from the account and put it into their own bank. They could choose to take the Stash money and re-invest it into the stock market using another trading platform.