As a single person, your money was just about you. Yeah, it was smart to have a retirement account, but no one was counting on you for it. Except, of course, your future self. But we don’t like to talk about that person.

Now you’re a parent. And at some point, your kids will need money. I mean, technically they need money now. But that’s more of them costing you money. Once they’re out from under your roof, they’ll need money of their own. And you can give them a head start later by investing for them now (if you so choose).

There are several ways you can do this. But before we get into it, I think it needs to be said that you shouldn’t feel pressure to save for your children, especially if you’re trying to get your day-to-day finances in order. Airplane emergency rules apply – put your own mask on before helping others. Make sure your “today” finances are where you want them before worrying about your kid’s “future” finances.

Now, for your options.

Trusts

You can open a trust for your kid. This requires a lawyer, and I truly don’t know much about the process. So, let’s move on.

529 Plans

These are education accounts that can be opened for your kid. You can contribute up to $19,000 per year and the money grows tax-deferred in an investment account (though the investment options are limited). Withdrawals from the account that are used for qualified expenses like tuition, fees, books, and room and board are tax-free.

Non-qualified expenses, like transportation, will be taxed as ordinary income and subject to a 10% penalty fee.

There are two main types of 529 Plans: College Savings Plans (the most common) can be used to pay for qualified expenses at most accredited colleges and universities, and in some cases K-12 schools. Prepaid Tuition Plans allow you to lock in today’s public-school rates for when your kid is ready to go to school. The withdrawals are only tax-free up to $10,000.

What if your kid doesn’t go to college?

There’s no time limit on when the money needs to be withdrawn from a 529 Plan. You can leave it for if/when your child decides to pursue higher education, you can transfer it to another kid, you can roll it over into a Roth IRA, or you can withdraw it for non-qualified expenses (with taxes and fees).

Coverdell ESAs

These are also education accounts that you open for your kid. (ESA stands for Educational Savings Account. Just by the way). You can contribute up to $2,000 a year with a broad selection of investment options. The contributions aren’t tax deductible, but you aren’t taxed on investment income or capital gains. Withdrawals for qualified expenses – tuition, books, room and board, computer equipment – are federal-tax free.

CESAs can be used for qualified expenses for college and K-12, whether it’s public, private, secular, or religious. And if one kid doesn’t use it, or doesn’t use all of it, the funds can be transferred to another kid. If there’s still money left in the account post-college years, it has to be withdrawn within 30 days of the beneficiary’s 30^th birthday. If the funds are used for non-qualified expenses, they are subject to a 10% federal penalty, and the beneficiary will be taxed on any as-yet untaxed earnings.

Your kid can be the beneficiary of both a 529 Plan and a Coverdell ESA. If choosing one over the other, talk to an investment advisor to find out which one makes the most sense for you.

Custodial Accounts

Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) accounts are an easy way to save for your children and manage their money until they become an adult. These are brokerage accounts that are taxable but have no contribution limit and anyone can contribute to it. The money put into UTMAs/UGMAs is an irrevocable gift to the child and now belongs to them.

The money in the account has to be used for your kid’s benefit, but there are no restrictions on what that means. It can be for education, medical expenses, saved for a down payment on a house, buying their first horse… whatever you think is in their best interest. You as the custodian manage the account until your kid turns 18, 21, or 25 (depending on the state), at which point the account gets turned over to them. Once your adult child has control of the account, you no longer have a say in what happens with the money.

What’s the difference between UTMA and UGMA?

UGMAs can only have liquid assets (cash, securities, etc.) while UTMAs can also include non-liquid assets (real estate, collectibles, etc.). The age of majority (age that your kid gets control of the account) is 18 or 21 for UGMAs and 21 or 25 for UTMAs depending on the state. All 50 states have adopted UGMAs, and UTMAs are available in every state except Vermont and South Carolina. Don’t ask me why.

Trump Accounts

These are new. They were created in July 2025 and will be available in July 2026. You can create an account for your child and contribute up to $5,000 annually. If your kid is born between 2025 – 2028, then they qualify for a $1,000 federal contribution. (Let’s not get into how the federal government is affording this, my brain will explode.) Your employer can also contribute if they so choose – up to $2,500 – but so far none have chosen. The Trump Account gets converted to an IRA when you’re kid turns 18. These are not education-specific like 529s and CESAs, they’re more geared towards long-term investments.

You as the parent aren’t the only one who can open education or custodial accounts. Grandparents, aunts, uncles, and other family members are able to open and contribute to the accounts.

As usual, this has been the highlight reel. If you want to do a deeper dive into these accounts and figure out which one is right for you and your kids, contact a financial advisor.