Smart Ways to Invest for Kids: A Guide to Children's Savings Accounts

When it comes to saving for your children's future, choosing the right account can make a huge difference. Each type of account has different rules about taxes, when you can use the money, and what you can spend it on. Here's how the most popular options compare.

Trump Account

What it is: A new government-sponsored savings account that gives eligible children free money to get started

Best for: Getting free government money + long-term retirement savings

The basics:

• Children born between 2025-2028 automatically get $1,000 from the government
• You can add up to $5,000 per year until your child turns 18
• Your employer might contribute up to $2,500 per year (tax-free to you)
• Money grows without being taxed each year

Important restrictions:

• No withdrawals until age 18
• After 18, withdrawals are taxed like regular income
• Can only invest in U.S. stock market funds (no bonds or international options)

Bottom line: Great for the free government money, but the tax treatment and investment restrictions make it less flexible than other options for your own contributions.

529 College Savings Plan

What it is: A tax-advantaged account specifically designed for education expenses

Best for: Paying for education + setting up future retirement savings

The basics:

• No annual contribution limits
• Money grows tax-free when used for qualified education expenses
• Can be used for K-12, college, graduate school, or trade schools
• Can transfer up to $35,000 to a Roth IRA for your child later in life

Important restrictions:

• If you use the money for non-education expenses, you'll pay taxes plus a 10% penalty on the earnings
• Counts as a parent asset for financial aid (which is good for aid eligibility)

Bottom line: The most tax-efficient way to save for education, plus it gives you a path to help your child start retirement savings.

UTMA/UGMA Custodial Account

What it is: An investment account that belongs to your child but is managed by you until they're adults

Best for: Maximum flexibility + tax-efficient long-term growth

The basics:

• No contribution limits
• Can be used for anything that benefits your child
• For tax year 2026, the first $1,350 of investment gains each year is tax-free for children
• Next $1,350 is taxed at your child's low tax rate (usually 0%)
• Total: Up to $2,700 per year in tax-free investment gains
• You can "harvest" gains each year to lock in 0% tax rates

Important considerations:

• Counts as your child's asset for financial aid (reduces aid eligibility more than parent-owned accounts)
• Your child gains full control at age 18-21 (depending on your state)
• If your child inherits the account, they get favorable "step-up" tax treatment

Bottom line: The most flexible option, especially good for families who want to transfer wealth tax-efficiently and don't need education-specific benefits.

Regular Savings Account or Investment Account (In Your Name)

What it is: A standard account that you own and control

Best for: Short-term goals + emergency funds + maximum parental control

The basics:

• No restrictions on contributions or withdrawals
• You pay taxes on any earnings each year at your tax rate
• Counts as a parent asset for financial aid (better for aid eligibility)

Bottom line: Best when you need flexibility and want to maintain complete control, but not tax-efficient for long-term growth.

Which Account Should You Choose?

Key Takeaways

Start early: The power of compound growth means that starting even small amounts early can lead to significant results over time.

Consider using multiple accounts: Most families benefit from using more than one type of account. For example, you might use a 529 for education and a UTMA/UGMA custodial account for general wealth building.

Don't forget the free money: If you have a child born 2025-2028, opening a Trump Account for the $1,000 government contribution is essentially free money, even if you don't add anything more to it.

Think about taxes: Understanding how each account is taxed—both while the money grows and when you withdraw it—can save you thousands over time.

Questions about which accounts make sense for your family? Every situation is different, and the right combination depends on your income, goals, and timeline. I'd be happy to help you create a personalized strategy that maximizes your tax benefits and gives your children the best financial foundation. Reach out on the contact page below to schedule a free initial consultation.

Disclaimer: This information is for educational purposes only and is not personalized financial advice. Tax rules and account features may change, and individual circumstances vary. Please consult with a qualified financial planner or tax professional before making investment decisions for your children.