Fidelity has started offering a “youth account,” and some WCIers are wondering if it’s a good idea for their teens. The TL/DR answer is “probably not,” but it’s fine to throw a little money into it.
Anyway, let’s talk a little more about a Fidelity Youth Account and what you should consider if you’re thinking about opening one.
What is the Fidelity Youth Account?
The Fidelity Youth Account is a fully taxable brokerage account owned by a 13 to 17 year old. The account can be opened with as little as $1, and there are no fees to open it. Parents must open the account, be able to add (but not withdraw) money to the account, and must have an existing account with Fidelity. The teen then manages the account, but parents (well, one parent) get insight into what they’re doing.
The teen can essentially invest in most of what an investment account would normally invest in, including the government money market fund (which yielded 3.78% on the day this was published). A debit card may be linked to the account. It is then converted to a regular investment account at the age of 18. There is a $30,000 annual contribution limit. It appears that most contributions are transfers from the parents’ Fidelity account, but checks can be deposited into the account by the teen and direct deposits from their work can go there as well. The teen cannot donate money from the account and daily amounts for debit card transactions are limited.
What are the investment restrictions?
Per Fidelity, the account can be invested in the following:
- Fidelity mutual funds
- Most US stocks
- Some Exchange Traded Funds (ETFs)
- REITs
- Some international stocks
However, teenagers cannot invest in the following:
- Third party investment funds
- Corporate bonds
- Municipal fixed income securities
- Certificates of Deposit (CDs)
- Treasure chests
- Convertibles
- Leveraged and inverse ETFs
- Cryptocurrencies
- FILI insurance products
- Penny stocks (stocks valued at $5 per share or less)
- Foreign currency
Furthermore, teenagers cannot engage in options, margin trading or short selling, and cannot participate in a company’s initial public offering. Please note that most ETFs are allowed, but leveraged and inverse ETFs and Bitcoin ETFs are specifically excluded. These can be purchased in an UTMA.
More information here:
Why a 13-year-old has more investment accounts than you
What we learned financially from our parents and how we pass this on to the next generation
How is this different from a UTMA?
The first question most knowledgeable investors ask when they hear about this account is, “How is this different from a Uniform Gift to Minors (UGMA) or Uniform Transfer to Minors (UTMA) account?” The main difference between the teen account and a UTMA account is ownership and control. A UTMA is a custodial account. The money inside is the property of the minor and can only be spent in a way that benefits the minor. But the minor has no control over it until he reaches a certain age (21 in most states). With the Fidelity account, the parent has limited control over it, and they essentially CANNOT transact or withdraw money from the account. It’s the teen’s account now instead of later. The parent CAN close the account completely and cancel the debit card. Furthermore, as noted above, the investment options in the Youth Account are more limited.
How are these accounts taxed?
These accounts are taxed exactly like a UTMA. This means that the child tax and gift tax limits still apply. When it comes to unearned income, a minor pays no tax at all on the first $1,350 [2025 — visit our annual numbers page to get the most up-to-date figures.] of income and then pays taxes at their own tax rate (probably 0% on qualified dividends, but typically no more than 10% on ordinary income) on the next $1,350. After $2,700 [2025] in the case of income, additional income is taxed at the adult tax rate. So if this account is large enough or the young person has other unearned income, their transactions could theoretically increase your tax bill.
What’s the deal with the app?
The account comes with the Fidelity Youth app, which the teen can put on their phone. They use the app to conduct all their transactions. Teens can also use the app to request money from their parents (which must be transferred from the parents’ Fidelity account). The parent can also use the app to regularly transfer ‘allowance’ to the teenager.
More information here:
Is Greenlight the Best Debit Card to Help Your Kids Learn Finances?
Venmo Teen Account and How to Use It
What are the benefits of using a Fidelity Youth account?
There are some benefits to using a Fidelity Youth Account. The first is that it is likely a more effective educational tool than a UTMA. The child will learn to invest better if he can and has to do everything himself. They will feel more confident and in control of their own money. It will also likely allow them to earn more on their savings than at a local bank or credit union.
What are the disadvantages of using a Fidelity Youth account?
The biggest disadvantage is that the frontal cortex is not fully developed until the age of 25. Young people do stupid things, especially teenagers. How much money do you really want a 14-year-old to control, especially when their actions could affect not only their tax bill, but yours as well? Plus, it’s just one financial account to manage. Teenagers tend to ignore things that are not important to them, and many of them can learn very painful lessons at a young age that will affect future financial and investing behavior. The last thing you want to do is create the fear of investing in your teen that will last their entire life. Who needs more pressure as a teenager?
Why does Fidelity offer this?
Well, Fidelity wants to help your teen get smart about investing. And of course it wants to manage more money and generate fees from it, and above all it knows that inertia is real and that someone who starts investing with Fidelity is likely to stay there for life.
Will you be using a Fidelity Teen account?
No, we do not plan to open Fidelity Teen Accounts for our children. They already have enough accounts. Their “20s fund” consists of the following:
We think that’s enough to teach them about money.
More information here:
How to Open a Roth IRA for Your Kids (and Should You)?
Teach your children about investing with the stock game
Is it crazy to use a Fidelity Youth account?
No. If this sounds like a great way to teach your child about money, feel free to open an account. You can put some money into it yourself and let them put their own gift and earned money into it. The reimbursement feature can be particularly useful. The account can be particularly good if they are already interested in money and investing.
What I would NOT do, however, is put $50,000 or $100,000 into it like I would with an UTMA. If you want to put a few thousand dollars into that and grow it into a four-figure sum or even a low five-figure sum, that’s fine. But for larger sums of money that you want them to have access to in your twenties, I would still use a UTMA. A Roth IRA is still a much better long-term account for saving their earned money for retirement. And a 529 is much better for college savings (and you can continue to own that account even after age 21). For money that will be used by them and that you want to control in the long term, you still want some kind of trust.
What do you think? Does your teen have a Fidelity Youth Account? What do you like/dislike about it? Would you consider opening one of these instead of or in addition to a UTMA account? Why or why not?
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