How to Invest for Your Kids: 4 Account Types

1. How to invest for kids, in one page

Quick Answer: Open the account that matches the goal. A 529 for school, a custodial brokerage for anything else, a custodial Roth IRA if your child has earned income, and a Trump Account if the child was born in 2025 or later. Most families use two of the four. More on each in our investing guides.

Most guides on how to invest for kids start with returns. Wrong question: all four accounts can hold the same index fund. Three things separate them, and you can answer all three in a minute.

• What is the money for? If the honest answer is school, only a 529 gives you tax-free growth.
• Who gets control, and when? A custodial account hands over everything on a birthday your state picks. A 529 never does.
• Who pays the tax on the growth? A 529 and a Roth mostly avoid it. A custodial brokerage does not.

Answer those and the account picks itself. Get them backwards and you can spend eighteen years funding an account that costs your family aid, or hands an 18-year-old a five-figure balance with no strings. DollarVisor ranks nothing by commission.

A quick walkthrough before the costs.

2. The four account types, side by side

Quick Answer: The 529 is for school and stays in your name. The custodial brokerage covers anything but stops being yours on a set birthday. The custodial Roth needs earned income. The Trump Account is a traditional IRA for minors that opened this summer. Start with our 529 plan guide if school is the goal.

Notice what the table does not say: none of the four is universally better, because the columns pull against each other.

3. The school account: a 529 plan

Quick Answer: A 529 grows tax-free and comes out tax-free for tuition, fees, books, room and board. Two 2026 changes widened it: K–12 spending doubled to $20,000 a year, and leftover money can roll into the child’s Roth IRA. Full mechanics sit in our breakdown of 529 rules and limits.

The old objection was the trap door: money never spent on school came out with income tax plus a 10% penalty on the earnings.

Not now. Under 26 U.S. Code § 529, leftover money can move into a Roth IRA in the child’s name, capped at $35,000 for life. The account must be 15 years old, and anything paid in during the last five years cannot move. The same section allows $10,000 toward student loans.

The K–12 change matters too. Congress struck “$10,000” and inserted “$20,000” for school expenses, effective for tax years starting after December 31, 2025. If you pay private school tuition, a 529 now covers that bill.

Inside the account, keep it simple. Most plans offer an age-based portfolio that de-risks on a schedule, like target-date funds in a 401(k).

4. The no-strings account: a custodial brokerage

Quick Answer: A UTMA custodial account can hold anything and be spent on anything that benefits the child, with no contribution limit and no education requirement. The price is that it is legally the child’s money from day one, and it hands over completely on a birthday your state sets. Our custodial account guide covers the handover ages.

This is the account most families default to, because it is the easiest to open. It is also the one they understand least. Four rules govern it.

• The gift is irreversible. No clawback, no moving it to a sibling, no conditions.
• The handover is absolute. On the date your state names, most often 21 for a gift, the balance is theirs.
• The tax bill arrives yearly. In 2026 the first $1,350 of unearned income is untaxed, the next $1,350 is taxed at the child’s rate, and anything above $2,700 at your rate, per IRS Revenue Procedure 2025-32.
• Gift tax rules still apply to you. The same procedure keeps the 2026 annual exclusion at $19,000 per recipient, so a couple can give $38,000 without filing.

Keep turnover low and that tax bill stays small. Your child also inherits your purchase price rather than a stepped-up one, so tracking cost basis matters more here than anywhere else.

5. The head-start account: a custodial Roth IRA

Quick Answer: A custodial Roth IRA is the best deal of the four and the hardest to qualify for. The child must have earned income, and you can contribute only up to what they earned, capped at $7,500 in 2026. See the paperwork in our Roth IRA for kids guide.

The 2026 IRA limit rose to $7,500 from $7,000, per the IRS announcement in November 2025. For a child, that number is almost never the binding limit. Earned income is. A 12-year-old with $900 of babysitting income can put in $900, not $7,500, and allowance or gift money does not count.

What this account really sells is time. Money contributed at 15 has roughly fifty years to compound, and none of that growth is taxed if it comes out after 59½. Contributions, unlike earnings, come out any time without tax or penalty.

6. The new one: a Trump Account

Quick Answer: A Trump Account is a traditional IRA for a minor, opened July 4, 2026. Anyone can put in up to $5,000 a year with no earned income required, and children born from 2025 through 2028 can claim a one-time $1,000 Treasury deposit. The newest option in our investing coverage.

Most advice on how to invest for kids still lists three accounts. That is out of date, and the gap matters most for families with a baby born in the last eighteen months.

The Treasury and IRS proposed regulations issued in March 2026 set the pilot rules. To claim the $1,000 the child must be born in 2025 through 2028, be a US citizen, have a Social Security number, and have no prior election filed. A parent or guardian files Form 4547, and the deposit does not count against the $5,000 annual limit. Applications sit at trumpaccounts.gov.

Two cautions before treating this as free money. It is a traditional IRA, so retirement withdrawals are taxed as ordinary income. And the money is locked away, doing nothing for college or a first car.

7. What each account costs you in financial aid

Quick Answer: The same $10,000 hurts your aid differently depending on where it sits. Money the student owns is assessed at 20%. Money a parent owns, including a 529, is assessed far more gently. Retirement accounts are not reported as assets at all.

This is the most expensive detail in the decision, and families usually find it too late.

The rule sits in the 2026–2027 Federal Student Aid Handbook chapter on the Student Aid Index. A dependent student’s assets convert at 20%, parent assets convert far lower, and retirement accounts are left out entirely. So $10,000 in a custodial account can cost roughly three and a half times more aid than the same $10,000 in a 529.

8. The 529 state tax break, state by state

Quick Answer: The federal 529 benefit is identical everywhere. The state benefit is not. A joint filer contributing $10,000 saves nothing in California, Texas, Florida or North Carolina, but hundreds a year in Illinois, Michigan or Georgia.

Two rules fall out of this. In a tax parity state such as Ohio or Pennsylvania, you can shop any state’s 529 and still claim the deduction, so pick on fees. In New York the deduction applies only to the in-state plan. In California, Texas, Florida and North Carolina the state break is not part of the decision at all.

9. What $250 a month becomes by age 18

Quick Answer: At $250 a month and a 7% average annual return, a child’s account models to roughly $107,700 by age 18 if you start at birth, and about $37,500 if you start at nine. Nearly half the final balance traces back to the first six years of deposits, which is why the start date beats the account choice.

Read the growth column, not the balance. It barely moves for six years, then adds more in the last six years than in the first nine combined.

That is why timing beats the tax code. Starting at birth instead of at nine doubles what you pay in but nearly triples what you end up with, and steady monthly buying is just dollar-cost averaging over 18 years.

10. How to pick, in order

Quick Answer: Five steps, in this order: claim any free money, match earned income into a Roth, fund school money in a 529, put everything else in a custodial brokerage, then buy one broad index fund. Most families stop after step three.

1. Claim the $1,000 if your child qualifies. A child born in 2025 through 2028 can get a one-time Treasury deposit in a Trump Account. It costs nothing but the form.
2. Match real earned income into a custodial Roth IRA. Up to what they earned, capped at $7,500 in 2026. Keep a record of the work and the pay.
3. Fund school money in a 529. Use your home state’s plan if it offers a deduction only for in-state contributions. Otherwise shop on fees.
4. Put non-school money in a custodial brokerage. Only once you accept that your child takes full control at the state handover age.
5. Buy one broad, low-cost fund and leave it alone. A total market or S&P 500 index fund covers an 18-year horizon, and low turnover keeps the tax bill small.

One warning. Do not skip step two to fund step four. The Roth is the only account where the child’s money grows and comes out tax-free, and the earned-income window closes when they stop working summers.

11. The verdict

Quick Answer: Our pick for most families is a 529 plan as the main account, plus a custodial Roth IRA the year the child starts working. Add a Trump Account only to claim the $1,000, and a custodial brokerage only for money unrelated to school. See how they fit in our investing section.

The 529 wins the main slot on arithmetic. It is the only account with tax-free growth, gentle aid treatment, a possible state deduction and, since the rules changed, an exit into a Roth IRA if the child skips college.

The custodial Roth takes the second slot on a technicality worth a lot: it starts the clock decades early on money that is never taxed again.

The custodial brokerage is the one we would use least. It is taxed yearly, counts heaviest against aid, and stops being your decision on a birthday you did not choose. It is still right when the money genuinely is not for school.

12. Frequently Asked Questions

1. What is the best investment account for a child?

For most families it is a 529 plan, the only one of the four with tax-free growth, a light financial aid hit and a possible state tax deduction. If your child has earned income, a custodial Roth IRA is better still, but capped at what they earned.

2. Can I open an investment account for my child without their income?

Yes. A 529 plan, a custodial UTMA account and a Trump Account all accept money whether or not the child earns anything. Only the custodial Roth IRA requires earned income, capped at what the child was paid that year.

3. How much should I invest for my kids each month?

Whatever is sustainable, because consistency matters more than the amount. At a 7% average return, $250 a month from birth models to roughly $107,700 by age 18, and $50 a month to about $21,500. Starting early beats starting big.

4. What is a Trump Account and should I open one?

It is a traditional IRA for minors, available since July 4, 2026, taking up to $5,000 a year with no earned income required. Open one if your child was born between 2025 and 2028 to claim the $1,000 Treasury deposit. Beyond that, a Roth offers better tax treatment.

This article is information, not financial, tax or legal advice. Rules change and your situation is your own. See our disclaimer.