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I am thinking of starting a Dividend Reinvestment Plan (DRIP) for my teenager with some of his money. I believe I would have to first get into the DRIP myself, then transfer to him (I doubt he can open his own).

You probably want a custodial account (or Uniform Transfers to Minors Account - UTMA for short) in his name. They're very common for minors.

When a sale occurs, how do the taxes work?

Just like always. He reports his activity on his return.

Do I account for any capital gain/loss on my taxes through the time I transferred to him, then the rest is on his tax return? (right now he doesn't have income and so does not fill out a tax return)


If you were to make a gift of shares to him rather than cash, he'd take over your cost basis (with a twist - he'd use your cost for calculating gains and the FMV on the date of transfer - if it's lower - for calculating losses).

He'd report any gain or loss along with the dividends on his own return. If there is enough income - more than about $1800 or so - he would have a special income tax calculation that uses information from your return.

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