To let your young kids invest, a parent opens and manages an account on the child's behalf. The two common paths are a custodial brokerage account, which has no income rule, and a custodial Roth IRA, which requires the child to have earned income from real work. Starting early turns time into the child's biggest advantage.
In the short above, Austin explains why handing a child a small stake in their own future teaches lessons no allowance ever will. This article expands on how those accounts work, what counts as earned income, and how to make the experience stick.
Why should kids start investing young?
The case for starting young comes down to one idea: time. Invested money has the chance to grow, and that growth compounds on itself year after year. A child who begins at age ten has decades more runway than an adult who starts at forty, so even small amounts can grow into meaningful sums.
The exact figures depend on returns no one can predict, so the point is not a promised number. It is the head start. A modest contribution made in childhood has more time to work than a much larger one made in middle age, and that extra time is something you can never buy back later.
There is a second benefit that has nothing to do with math. A child who watches their own account rise and fall learns, in a low-stakes way, how investing actually feels. They see that markets move and that patience matters, and those lessons stick better than a lecture.
How can a young child invest?
A young child cannot open a brokerage account alone, so a parent opens a custodial account and manages it for them. The money legally belongs to the child, and control transfers to them at adulthood under your state's rules. Two account types come up most often.
- Custodial brokerage account. This is a flexible, taxable account with no earned-income requirement. You can invest gift money, and there are no limits on what the funds can be used for later. Investment income above a certain threshold may be taxed, so it pays to understand the rules before contributing large amounts.
- Custodial Roth IRA. This is a retirement account funded with money the child actually earned. Contributions go in after tax and can grow tax-free for decades, which makes the long runway especially powerful. The child must have earned income, and contributions cannot exceed what they earned for the year.
Here is a simple comparison of the two options:
| Feature | Custodial brokerage | Custodial Roth IRA |
|---|---|---|
| Earned income required | No | Yes |
| Tax treatment | Taxable account | Tax-free growth |
| Common use | General investing, gifts | Long-term retirement |
| Who controls it | Parent until adulthood | Parent until adulthood |
For many families, the choice is not either-or. A brokerage account can hold gift money and serve as a teaching tool, while a Roth IRA rewards a child who has started real work.
What counts as earned income for a child's Roth IRA?
A custodial Roth IRA hinges on one requirement: the child must have earned income. Earned income means pay for genuine work, not gifts or allowance. Common examples include babysitting, mowing lawns, tutoring, or legitimate tasks in a family business.
The amount a child can contribute is capped at what they actually earned for the year, up to the annual limit that the IRS sets and adjusts over time. A child who earned a few hundred dollars can contribute up to that amount, not more. Allowance, birthday money, and investment gains do not count.
Keep records. Note the work performed, the dates, and the pay. If your child works in your own business, the work should be real and the pay reasonable for the task. Because the tax side and the investment side connect here, it helps to coordinate the two. Our firm is a fiduciary with a CPA on staff, so we look at tax and investment decisions together rather than in separate silos.
How do you make the lesson stick?
The account is only half the value. The other half is what your child learns by being part of it. A few simple habits turn an account into a lasting education.
- Let them choose something familiar. Investing a small slice in a company whose products they use makes the idea concrete and keeps them interested.
- Check in, but not too often. Reviewing the account a few times a year teaches patience. Watching it daily teaches anxiety.
- Talk through the dips. When the value falls, treat it as a lesson rather than a problem. Staying invested through downturns is a habit worth building early.
- Connect contributions to their work. Matching what they earn, or adding to it, links effort to growth in a way they can feel.
The goal is not to turn a ten-year-old into a stock picker. It is to build comfort and good instincts that carry into adulthood.
How does this fit your family's bigger picture?
Helping a child invest is one piece of a household's broader plan. Many parents find that opening an account for a child raises questions about their own situation, from how to invest for the long term to how to pass on assets thoughtfully.
Those questions connect naturally to the rest of a financial life. The way you think about a child's first account often mirrors how you might approach your own long-term investment strategy and how you plan to share wealth across generations through estate planning. Looking at these pieces together tends to produce better decisions for the whole household.
Starting a child young does not require a large sum or a perfect plan. It takes a small account, a little structure, and the willingness to let them learn by doing.
Want to set up an account for your child or build a plan for your whole family? Start a conversation with our team and we will help you think it through.
This article is educational and is not personalized investment, tax, or legal advice. Wealth Ease Wealth Management is a registered investment adviser; consult a qualified professional about your specific situation.
Frequently asked questions
How can my young child start investing?
A child can invest through an account a parent opens and controls on their behalf, such as a custodial brokerage account or a custodial Roth IRA. The Roth option requires the child to have earned income from real work, while a custodial brokerage account has no income requirement.
Can a child have a Roth IRA?
Yes, a child of any age can have a custodial Roth IRA as long as they have earned income from a job, such as babysitting, mowing lawns, or work in a family business. The contribution cannot exceed what they actually earned for the year, and a parent manages the account until adulthood.
Why should kids start investing young?
Starting young gives money decades of extra time to compound, which matters far more than the amount invested. A child who invests modest sums early can end up with more than someone who invests larger amounts later, simply because their money grew for longer.
What counts as earned income for a child's Roth IRA?
Earned income means pay for actual work, such as babysitting, yard work, tutoring, or legitimate tasks in a family business. Allowance, birthday gifts, and investment gains do not count. Keep simple records of the work and the pay in case you ever need to show it.