How to give stock as a gift to a child or grandchild
Yes, you can give stock to a child or a grandchild. The usual routes are a custodial account an adult opens in the child's name, shares moved into a custodial account that already exists, or a 529 plan when the goal is education. Decide one thing first: who controls the shares until the child is an adult, because in a custodial account the gift belongs to the child once it is made.
This guide is educational, not tax or investment advice.
Buying the shares is the easy part. Making the gift teach something takes a plan.
Can you give stock to a child or grandchild?
Yes, but the shares go into an account an adult sets up for the child. A parent has to start and approve a teen's Youth Account at Fidelity, and for a younger child, or a family that wants an adult in charge, the usual choice is a custodial account (UTMA/UGMA).
In a custodial account, the money belongs to the child, and the adult acts as custodian until the child reaches a certain age, between 18 and 25 depending on the state. The custodian makes the investment decisions but cannot change which child the account is for. Anyone can contribute to a custodial account, grandparents included, so one workable plan is for a parent to open the account and for you to add shares or cash to it.
What are the ways to give?
There are four real-money routes and one practice route. The table compares who owns each, who controls it, and when the child takes over.
| Way to give | Who owns it | Who controls it until adulthood | When the child takes control | Worth knowing |
|---|---|---|---|---|
| Buy shares in a custodial account (UTMA/UGMA) | The child | The adult custodian, who makes the investment decisions | At an age set by the state, between 18 and 25 | Anyone can contribute, including grandparents |
| Move shares you already own into the child's custodial account | The child, once the shares are transferred | The adult custodian | At an age set by the state, between 18 and 25 | The child generally takes your cost basis in gifted shares |
| Contribute to a 529 plan instead | The person who buys the plan is the custodian; the child is the designated beneficiary | The person who bought the plan, until funds are withdrawn | The buyer controls the funds until they are withdrawn | Savings are meant for education, and earnings not used for it can be taxed and penalized |
| Help a teen's own account (Fidelity Youth, ages 13 to 17) | The teen | The teen makes the investment decisions; parents can see activity | Already the teen's | A parent must start and approve the account |
| Give the practice first (a simulator) | No one; no real money is involved | The family | Not applicable | Nothing is bought, so nothing needs transferring, reporting or taking back |
Our guide to custodial brokerage accounts for teens covers the setup in more detail.
What should a grandparent know about control and taxes?
Four points apply: a custodial gift belongs to the child, control passes on a schedule the state sets, the cost basis travels with the shares, and the tax rules attach to different people at different moments.
- The gift is the child's. In a custodial account, the custodian can withdraw money only for the benefit of the child, and the account must be handed over when the child reaches the state's age, between 18 and 25 (Fidelity).
- Gifted shares usually carry your cost basis. If the shares are worth at least what the giver paid, the child's basis is the giver's adjusted basis, so the child's taxable gain on a later sale includes growth that happened while you held the shares. A different rule applies to losses when the shares were worth less than the giver paid at the time of the gift (IRS Publication 551).
- The child's investment income can be taxed. The IRS says a child's interest, dividends and other unearned income above a set amount may be subject to a specific tax for certain children.
- Gift tax generally falls on the giver. The IRS says the donor is generally responsible for any gift tax, and that gifts not more than the annual exclusion for the calendar year are not taxable gifts. The IRS lists the exclusion by year, so read the current figure on its page rather than from memory.
A tax professional can tell you how these rules apply to your own situation before you give.
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See what Rapunzl for Parents includes and how your student can build real investing and money skills at home.
Explore Rapunzl for parentsWhich stock should a grandparent pick?
We pick none. A gift guide that names a stock is making a recommendation it cannot back, and any single company can fall.
What a family can do is choose together. Start with a company the child already knows and can explain: what it sells, who buys it, and how it makes money. If the child cannot explain it, that is a useful finding before the purchase, not after. For a gift that is meant to last, a broad index fund is a lower-risk default than one company, because diversification spreads money among different investments to reduce risk. Either way, the child sees real prices move, and real prices can move down.
Why practice before the money moves?
Practice comes first because the first lesson in owning stock is watching a price move, and that lesson costs less with simulated money. A simulator is practice, not real money, and that is the point.
Rapunzl's simulator gives a student a simulated $10,000 portfolio of stocks and crypto at live Nasdaq prices, and its curriculum runs to 48 modules across 4 courses. A simulated position that drops in a bad week is a cheaper way to meet that feeling than a real one.
A grandparent can start this conversation without opening anything. Ask the child to pick a company in a simulator, write down why, and compare notes a month later.
How can a grandparent take part?
You do not need to be the one who opens the account. You can take part in other ways:
- Practice together. Ask the child to run a simulated portfolio and trade notes once a month.
- Write the note that goes with the shares: why this company, and what you hope the child learns from watching it.
- Look at the account with the child on a regular schedule. A custodial account lets you show the child the investment mix and performance reports, which is how the shares become a lesson (Fidelity).
- Suggest the practice step to the parents before any money moves. They decide which account to open and when.
- Contribute to an account a parent opens, since anyone can add to a custodial account.
For other ideas that teach as well as give, see our list of money gifts for teens.
Frequently Asked
Questions
Yes. Fidelity says anyone can contribute to a custodial account, including parents, grandparents, friends and other family, with no contribution limits. Ask the firm whether a grandparent can serve as custodian before you open one yourself.
Gift tax is generally the donor's responsibility, and gifts up to the annual exclusion for the calendar year are not taxable gifts. The IRS posts the exclusion by year in its gift tax questions, so check the current figure there.
The child usually takes your adjusted basis, the amount you paid plus any adjustments. If the shares were worth at least what you paid when you gave them, the child's gain on a sale is measured from your basis, not from the share price on the day of the gift. If they were worth less, the IRS applies a separate rule for figuring a loss.
It depends on the goal. A 529 plan is built for education: earnings are not subject to federal tax when used for qualified education expenses, and the person who bought the plan controls the funds until they are withdrawn. Money taken out of a custodial account must be for the benefit of the child, and the child takes it over between 18 and 25. The IRS names a grandchild as an example of a designated beneficiary. Our comparison of 529 plans and custodial accounts goes deeper.
In a custodial account, the transfer happens between 18 and 25, depending on the state. A teen's own Fidelity Youth Account belongs to the teen from the start. In a 529 plan, the person who bought the plan controls the funds until they are withdrawn.
Give the practice along with the shares
If the child will receive shares this year, the family can add a month of practice first: a simulator, a simulated position and a short talk about why. Rapunzl's family plans come monthly or one-time, and either can be refunded within 30 days of purchase. 34% → 93% on Rapunzl's own pre- and post-program assessments, 26 points above the national adult average (NFEC) of 67%. See how Rapunzl works for families
By Maria Rodriguez, Curriculum Designer at Rapunzl.
Sources
- Fidelity, Custodial account (UTMA/UGMA): https://www.fidelity.com/open-account/custodial-account
- Fidelity, Youth Account for teens: https://www.fidelity.com/go/youth-account/teens
- IRS, Publication 551, Basis of Assets (Property Received as a Gift): https://www.irs.gov/publications/p551
- IRS, Topic no. 553, Tax on a child's investment and other unearned income (kiddie tax): https://www.irs.gov/taxtopics/tc553
- IRS, Frequently asked questions on gift taxes: https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes
- IRS, 529 plans: questions and answers: https://www.irs.gov/newsroom/529-plans-questions-and-answers
- Investor.gov, An Introduction to 529 Plans: https://www.investor.gov/additional-resources/general-resources/publications-research/info-sheets/introduction-529-plans
- Investor.gov, Asset allocation and diversification: https://www.investor.gov/introduction-investing/getting-started/asset-allocation
- Rapunzl, family plans: https://rapunzl.com/parents