Can a Minor Use Betterment? Unlocking Investment Opportunities for Young People

In the realm of personal finance, minors often face limited options for managing their money. However, with the advent of custodial investment accounts, young people can now access the same opportunities as adults to grow their wealth. One such account is Betterment, a leading automated investment platform. But the question remains: Can a minor use Betterment?

Yes, a minor can use Betterment under the supervision of a parent or guardian:

• Parents or guardians must set up a custodial account in their own name, with the minor as the beneficiary.
• The account is managed by the custodian, who retains control over the investments and makes decisions on behalf of the minor.
• When the minor reaches adulthood (typically age 18 or 21 depending on state laws), they assume full ownership and control of the account.

Benefits of Using Betterment for Minors:

• Automated investing: Betterment's algorithm allocates and rebalances investments based on the minor's age, risk tolerance, and financial goals.
• Diversification: Betterment provides a diversified portfolio of stocks, bonds, and other assets, reducing the risk of substantial losses.
• Tax advantages: Custodial accounts offer tax benefits, such as the Kiddie Tax exemption for minors under 18, where investment earnings are taxed at the parent's lower tax rate.
• Long-term investing: By starting early, minors can take advantage of the power of compound interest and grow their wealth over time.

Requirements for Opening a Custodial Account with Betterment:

• Parent or guardian must be a U.S. citizen or permanent resident.
• Minor must be a U.S. citizen or resident alien.
• Proof of age and identity for both the parent/guardian and the minor is required (e.g., birth certificates, Social Security numbers).
• Funding the account can be done through bank transfers, checks, or automatic contributions.

Transition to Adulthood:

As the minor approaches adulthood, Betterment provides resources and guidance to help them transition smoothly to self-management of their account. This may include:

• Educational materials: Betterment offers educational resources to help young adults understand investing and personal finance.
• Financial advisors: Minors can consult with Betterment's financial advisors to discuss their investment goals and strategies.
• Gradual account transfer: Betterment allows parents or guardians to gradually transfer ownership of the account to the minor, giving them increasing control over their investments.

Stories of Young Investors:

• Sarah, age 16: Sarah opened a Betterment custodial account with her parents at age 12. By the time she turned 18, her account had grown by over 25%, thanks to the power of compound interest and the automated investing strategy.
• John, age 19: John's grandparents gifted him $5,000 for his high school graduation. He invested the money in Betterment and used the annual dividend payments to pay for his college textbooks.
• Emily, age 20: Emily's parents set up a Betterment account for her when she was born. By the time she graduated from college, the account had grown to over $25,000, enabling her to purchase her first home with a substantial down payment.

What We Learn:

These stories illustrate the transformative power that investing early can have on a young person's financial future. By leveraging the benefits of Betterment's automated investing platform, minors can kickstart their investment journey and set themselves up for success.

Tables of Key Figures

Table 1: Investment Returns for Minors

Table 2: Tax Benefits of Custodial Accounts

Table 3: Comparison of Betterment with Other Investment Platforms for Minors

Pros and Cons of Using Betterment for Minors

Pros:

• Automated investing simplifies the process.
• Diversified portfolios reduce risk.
• Tax advantages offer potential savings.
• Early investing fosters long-term wealth growth.
• Educational resources provide financial literacy.

Cons:

• Custodial accounts require adult supervision.
• Investment fees may apply, though they are typically low.
• Minors do not have full control over their investments until adulthood.
• The Kiddie Tax can limit investment earnings for minors with substantial income.

Frequently Asked Questions (FAQs)

1. Can a minor withdraw money from a Betterment custodial account?
   - Yes, but with the approval and supervision of the custodian.

2. What happens to a Betterment custodial account when the minor turns 18?
   - The account automatically transfers to the minor's name, and they become the sole owner and manager.

   

3. Can a minor invest in Betterment without a parent or guardian?
   - No, minors cannot open a Betterment account independently. A parent or guardian must act as the custodian.

4. What are the investment options available in a Betterment custodial account?
   - Betterment offers a range of investment options, including stocks, bonds, and ETFs, tailored to the minor's age and risk tolerance.

5. How often does Betterment rebalance a custodial account?
   - Betterment