Minor brokerage using his own money

[msbutterbean]

My teen son has money saved from several years' of birthdays and other cash gifts, and we are planning on moving some of it into a brokerage account. I am looking at a custodial account (vs. a guardian account), but the information I'm reading online makes me think this would have to be set us as a UTMA or a UGMA account. I'm confused because this is already his own money, not a gift or transfer from me. Does that matter? Is there another account type that I'm not seeing? Thanks.

[IsThisAGoodUsername]

If your son has a legitimate source of earned income, he can open a Roth IRA.

[msbutterbean]

We are looking to open a taxable brokerage account, not a retirement account. (As I mentioned, this is money that's been given to him; it's not earned income.) And it's already in a bank account with his name on it, so I'm confused about why I have to set it up as a UTMA or UGMA, since it's not a gift from me.

[IsThisAGoodUsername]

Age requirements differ by state: https://www.sapling.com/8288168/there-age-limit-invest-stock.

Also, see https://www.investopedia.com/ask/answers/can-someone-not-yet-legal-age-open-brokerage-account/.

Or just call Vanguard/Fidelity/Shwab/your-preferred-broker and ask them directly.

[msbutterbean]

Thanks. I've got all that other stuff nailed down. Based on his age we need to do this as a custodial account with both our names on it until he ages in to full ownership. But everything I've read online says it has to be one of those two gift/transfer designations, and I'm not seeing an option for the minor using his own, albeit unearned, money. I will certainly call Schwab on Monday, but I thought someone else here might have gone through this and have some insight.

[beltim]

I think it's because minors can't directly open their own accounts; the assets must be held in a custodial account.  The UTMA/UGMA designations allow for contributions from others without establishing trust funds, but don't exclude contributions from the minors themselves.  They are named after the laws that established them, not because the accounts are always funded by transfers or gifts from others.

[msbutterbean]

Aha! Thank you. That's what I was misunderstanding.

[EricEng]

What the others said.  They just can't legally own an account all on their own yet.  UTMA is perfect as it is 100% their money and will be there's at your state's defined age.