Brokerage Accounts for Children
It's never too early to start teaching your kids about money and investing. Children can't legally have brokerage accounts of their own, but you can still get them started early. There are several types of brokerage accounts for children that you or another legal guardian controls until the children reach a certain age.
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UGMAs
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Many adults set up Uniform Gift to Minors Act accounts (UGMA) to buy stocks or mutual funds for their children. The investments belong to the children, but they can't take control of them until the are 18 or 21 --- sometimes even 25 --- depending on UGMA state law. A custodian, typically a parent, controls the account until that time. Custodians can withdraw money from the account for the youngster's benefit, such as for college tuition.
Divident Reinvestment Plans
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Dividend Reinvestment Plans (DRIPs) are a great way to get kids started investing. DRIPs allow you to periodically invest dollar amounts rather than buying a specific number of shares. You purchase as many whole and fractional shares as the amount you invest entitles you to, based on the price of the stock on the investment date. For example, a $50 investment will purchase two shares of a company whose share price is $25 or four shares of a company selling at $12.50. Some of the nation's most well-known companies, including Coca-Cola, Microsoft and Johnson & Johnson, offer these plans.
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Brokerage Accounts
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You can open a simple joint brokerage account, which you control until the child turns 18. You need to be aware, however, that the person whose name is on the account is responsible for paying taxes on any capital gains. Any financial institution can help you set up a brokerage account in your child's name.
Trust Funds
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You can set up a trust fund that you'll have to manage or pay someone to do so. The monies in the fund become the property of your child at the age specified by the trust. Some trust funds are set up to give your child a set amount of money each year, and others give them the full amount once they reach the specified age.
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