Whether it’s covering tuition, buying their first car, or supporting them through challenges, most of us want to help the kids we love enjoy success and minimize stress. The tricky part is knowing how to save for that support. The good news: you have more options than you might think. With knowledge, boundaries, and the guidance of an expert, you can help your loved ones achieve their goals alongside you.
Three Main Savings Paths
1. Custodial brokerage accounts (UTMA/UGMA)
The Path: A flexible savings and investment account opened in the child’s name. What is a UGMA account (Uniform Gifts to Minors Act) versus a UTMA account (Uniform Transfer to Minors Act)? One source describes the difference: “Both types are taxable brokerage accounts — the main difference is that UGMA accounts allow adults to give minors cash or securities, while UTMA accounts are broader, also allowing for transfers of real estate, art and other assets not permitted in a UGMA account.”1
Because a UTMA account can accept anything while a UGMA account only allows stocks, bonds, and cash, there usually isn’t a viable reason (other than state-level limitations) to choose a UGMA account over a UTMA account.2
The Particulars: Funds can be used for anything that benefits them (not just school), but the child (and only that child; beneficiary updates are not allowed) gets full, unrestricted control of the money at 18 or 21, depending on your state’s age of majority.2
The reasons to Pause: You cannot take assets back once given, so it’s important to consult with your advisor to ensure a gift aligns within your financial plan.2
2. Custodial retirement accounts (Roth or traditional IRA)
The Path: A retirement investment account opened in the child’s name. You can expect a similar setup to any Roth or traditional IRA you own.3, 4
The Particulars: Assets are not limited to educational expenses and can more broadly support the child’s most important financial events (including entering the housing market and starting a family).3, 4
The reasons to Pause: Contribution caps, delays to unrestricted fund access until age 59½, and the need for the child to make their own money are important considerations.3, 4
3. 529 plans
The Path: Built specifically for education, with tax-free growth and tax-free withdrawals for qualified expenses. You stay in control of the account, not the child, and many states offer a tax deduction for contributing.
The Particulars: Read our article on 529 accounts to understand how, when, and why to use a 529 plan for your loved one.
The reasons to Pause: The biggest hesitation around 529 plans used to be: “What if my kid gets a scholarship, or doesn’t need it all?” As of 2024, there’s a real answer. Under certain conditions (i.e., the account must be at least 15 years old, and the max rollover amount is $35,000, among other rules5), leftover 529 funds can now roll into a Roth IRA for the child instead of sitting unused or facing a tax penalty. It’s an intriguing change for anyone who’s been hesitant to start saving early and generously. Alternatively, K-12 education expenses qualify when using a 529 plan, and you can change the beneficiary of a 529 to divert the funds to someone else.
A New Path
A new type of custodial account (namely, a traditional IRA) that may be relevant for you and your child is a Trump Account. Unique characteristics include a $1000 government kickstart (for babies born from 2025-2028), specific domestic-focused investment options until ownership transfers at adulthood, and a $5000 annual contribution max (as of 2026) regardless of whether the child makes their own money.4,6,7,8
What About Savings Accounts?
What happened to just opening a simple savings account for your child? If that’s what you have now, that’s a good starting point, but there is a next step to consider.
As we would tell an adult client about their own assets, savings accounts have their place in a broader financial plan, but they are typically designed for liquidity and stability rather than maximizing long-term growth. The same thought process applies when supporting a child or grandchild.
One source frames it in this way: “There’s a fun phenomenon called compound interest that works like this: Given time, invested money earns more money…That type of growth may not happen in a plain savings account, which is the more traditional choice for kids because it’s flexible and doesn’t require earned income.”3
An advisor can help you determine when to use a savings account versus an investment account for your child or grandchild.
Need a second opinion deciding how to help your loved ones?
Reach out to a member of our team to see how saving for your kids and grandkids fits into your overall financial plan and portfolio.
How to Set Boundaries When Saving for Kids & Grandkids
All savings and support decisions should filter through two core questions (as outlined in our article “Supporting Adult Children Financially Without Jeopardizing Your Retirement”):
- Will this action truly support my children?
- What is the long-term impact? (i.e. “At what amount does support impact the success of my long-term plan?)
An advisor can help you integrate your savings goals for your kids and grandkids into your overall financial plan and portfolio, demonstrating the answers to these foundational questions.
Saving for Kids & Grandkids – What’s Right for You?
How you choose to save for your kids or grandkids depends on your goals, your timeline, and how much control you want to keep along the way. There’s rarely a single “right” answer. Instead, many families end up using more than one account for different purposes or shifting their strategy as their kids or grandkids get older.
Regardless, it is important to be strategic, set boundaries, and understand how saving for your kids and grandkids fits into your overall financial plan.
Not sure where to start? Every family’s situation is a little different, and the best mix of accounts often depends on details you won’t find in a blog post.
Let’s talk through your goals and figure out which option, or combination, makes the most sense for your family. Schedule a conversation with our team using the form below.
