Minor can invest in mutual funds?

Answer:

Not directly, no. However, a mutual Fund can be done through a Trustee account opened in the name of a minor child and under the control of a guardian. This guardian has authority to make decisions on the account until the child reaches the age of majority, typically 18 or 21.

How Custodial Accounts Work

Although the rules for Deposit accounts may differ from state to state, they generally work the same. Accounts generally are established either through the Uniform gifts to minors act (UGMA) or uniform transfer to minors act (UTMA) that define how a minor’s account is treated and controlled. Most States offer UTMA accounts, which can save on taxes. The first $950 in earnings are not taxed at the Mutual Fund UTMA accounts. The next $950 is taxed at the minors tax rate, and annual revenues in excess of $1900 are taxed at the tax rate of the parent. In addition to mutual funds, UGMA or UTMA accounts can include different investment options for portfolio diversification.

These accounts is non-refundable once they are configured. Trustees accounts can choose mutual funds and change the investment, but any money or assets contributed cannot be taken back. While custodians, usually parents, each can be assigned to investment management. Depot accounts there are no restrictions of the income, and everyone can make a contribution to the account at any time.

After reaching adulthood, the child may choose to use the account for any purposes in many families are using UGMA or UTMA accounts for College expenses, but because the assets are under the child’s name, they may affect his right to receive financial assistance or limit the amount of assistance the child receives.

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