The popular commission-free investment platform Robinhood has its ups and downs. And while it is a very simple-to-use platform, it is not easily accessible to everyone. So before deciding on Robinhood as your broker of choice, it is important to know if you are old enough to use their platform. Which leads to the question “Do you have to be 18 to use Robinhood?”
Yes, Robinhood is only accessible for persons aged 18 and above. And unlike some other brokers like TD Ameritrade that offer the option to run a custodial account, Robinhood, unfortunately, does not offer that to its users.
In this article, we will talk about who can use Robinhood and why minors generally cannot. We would also get to know what custodial accounts are, how they can be used, its advantages and disadvantages.
Who Can Use Robinhood?
Robinhood is a financial platform that provides commission-free trading on stock, options, ETF, and cryptocurrencies, with no minimum requirement in asset value. The App-based broker is open only to investors aged 18 and above. The services rendered are not necessarily tax-free but there are no added commissions.
On top of that, to use or qualify to use a Robinhood account, you must also be a U.S. citizen, a permanent resident, or have a U.S. visa. You must also have a residential address in one of the 50 states of the U.S. or Puerto Rico, and have a valid Social Security number.
Why Do You Have To Be 18 To Use Robinhood?
The most sensible reason, for now, is that custodian accounts require a lot to run and Robinhood is simply not looking to offer the service at this point in time. Secondly, the paperwork involved with custodial accounts will definitely prove to be quite a task for an app-based platform like Robinhood.
Some users have been referred to other platforms like Charles Schwab for provisions like custodial accounts. Custodial accounts have wonderful future benefits but they’re expensive for platforms like Robinhood to run.
What Does A Custodial Account Mean?
Custodial accounts are savings or investment accounts set up by an adult for a minor, below age 18, to be surrendered to the successor upon becoming a major, usually as stipulated by state authorities. Depending on the state, the age of becoming a major might be 18 or 21.
Typically, it is set up by parents and grandparents who wish to start saving up for their kids at an early age. The twist here is that regardless of who sets up the account, the minor is the real owner, and money or gifts placed in the account generally cannot be withdrawn.
What Types Of Custodial Accounts Are there?
There are two types of custodial accounts. There are the Uniform Gifts to Minors Act (UGMA), and the Uniform Transfers to Minors Act (UTMA) account. They’re different in some ways and similar in some ways too. Both plans attract high taxes in estate and income which is one of the drawbacks for custodial accounts.
The Uniform Gift to Minors Act (UGMA) Account allows the custodian to send cash, stocks, bonds, and insurance policies to the minor in whose name the account was opened. This account allows you to change into a 529 plan which is more restricted. It allows for the assets of the minor to be transferred, probably to a sibling, if the minor should die.
The Uniform Transfer to Minors Act (UTMA) account allows the custodian to contribute any type of investment such as stocks, bonds, real estate, art, patents, etc. Like the UGMA, it can be changed into a 529 plan.
A 529 plan, like custodial accounts, allows parents to save for their child’s future and is tax-advantaged. Its horizons are restricted to the future educational purposes of the child. Unlike custodial accounts, the 529 can be funded by several adults. The plan covers all expenses related to the child’s education; tuition, accommodation, college expenses.
Funds sent to a 529 can be withdrawn by the adult in charge but must be for educational purposes only. Should the funds be used for prior expenses, they’d have to be replaced with added fees.
With custodial accounts, as earlier stated, monies or gifts put into the account cannot be withdrawn, even with the approval of the minor. When the minor attains the transferrable age, assets cannot be withdrawn without tangible reasons even when the major affirms it. This problem affects high-income earners who wish to transfer a large amount of savings into a custodial account. It is advisable to stick to small amounts when investing with custodial accounts.
Custodial accounts attract high taxes in estate and income. Custodians, in this case, parents, could consider using the income from the custodial accounts to satisfy that obligation. However, it does not work that way. The IRS still taxes the parent in this case and not the child.
Custodial accounts are very advisable given their numerous benefits. Beneficiaries of custodial accounts have most of their future expenses covered, especially tuition. Keeping in mind the fact that they may not be qualified for financial aid, they could graduate college debt-free. However, this depends on the decisions of the account owner too.
So, do you have to be 18 to have an account on Robinhood? Yes, you do. However, this is not the end of the world. Even though Robinhood does not offer the option to open custodial accounts, other brokers like TD Ameritrade do provide this service.
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‘Till next time…
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