How To Help Your Kids and Grandkids Build Lasting Wealth

Compounding has always favored those who begin saving and investing early. But today, the financial hurdles facing younger generations – from education costs to home prices – make getting an early start even more vital. That reality has made one question top of mind for many families: How can I help build a financial foundation for my loved one that will compound for decades?

Below are five ways you can help your child or grandchild get a head start on their financial future:

1. 529 College Savings Plans

For many, one of the first steps in planning for a child’s financial future is setting aside funds for education. A 529 account offers a tax-advantaged way to do this: Contributions grow free of federal income tax and can be withdrawn tax-free when used on qualified education expenses like tuition, room and board and books. This structure can help stretch every dollar further when education bills come due – likely at the moment the student needs support most.

Because the IRS treats contributions as gifts to the beneficiary, you can contribute up to the annual gift tax exclusion every year – $19,000 for individual filers or $38,000 for joint filers in 2026 – with the option to front-load up to five years’ worth, or as much as $95,000 or $190,000, at once. If plans change and the child doesn’t go to college, the money doesn’t have to go to waste. There are other options for what to do with the account – from transferring it to a family member to rolling the funds into the beneficiary’s Roth IRA.

2. Coverdell Education Savings Accounts (ESAs)

ESAs are another education savings vehicle that provide tax-free growth and withdrawals for qualified expenses. Annual contributions are limited to $2,000 per beneficiary and subject to income limits ($110,000 for individuals and $220,000 for married couples). Because of these limits, ESAs are often best used as a complement to 529s.

3. Uniform Transfers to Minors Act (UTMAs)

UTMAs are custodial investment accounts that provide a more flexible way to invest assets for a child, without limiting the funds to education expenses. They are managed by an adult until the child reaches the age of termination (this varies by state, but is typically between ages 18 and 25). At this age, the custodianship ends and the funds transfer to the control of the beneficiary. UTMAs are irrevocable accounts, meaning once the funds are contributed, they can’t be taken out unless being used to benefit the beneficiary.

Similarly to 529s, you can contribute up to the annual gift tax exclusion each year to UTMAs. Uniquely, though, you can give assets like tangible goods and real estate alongside cash and securities. While contributions aren’t taxable, the account’s income is generally taxable as it’s received, and gains are taxable as they’re realized. Income from a UTMA account is subject to the Kiddie Tax Rules, which means income over a threshold is taxed at the parents’ marginal tax rate.

4. Custodial Roth IRAs

A child’s first paycheck can do more than fund weekend plans – it can jump start a lifetime of saving. Because once they start earning their own income, they become eligible for a custodial Roth IRA: another form of investment account that is owned by the child but controlled by a parent until they reach adulthood. These accounts are designed primarily for long-term retirement savings.

Roth IRAs can be especially powerful for young people, as contributions are made with after-tax dollars and grow tax-free. They can also be withdrawn at any time without tax or penalty – but it’s important to note that any earnings withdrawn may be taxable if they’re taken before age 59 ½.

Family members can contribute up to the child’s annual earned income to the account, capped at $7,500 in 2026 – allowing you to “match” what a child earns and help convert their wages into long-term growth.

5. NEW: Trump Accounts

Created under last summer’s budget reconciliation bill, Trump Accounts are a new saving and investment tool for minors. They are owned by the child, but must be opened and managed by an adult.

Annual contributions to a Trump Account are capped at $5,000 per child – and can be made by nearly any adult using after-tax dollars. Employers can also contribute up to $2,500 on behalf of a minor employee or an employee’s child, although these contributions still count toward the $5,000 annual limit. In addition to private contributions, those born between 2025 and 2028 can receive a one-time $1,000 government contribution, which does not count toward the annual cap. When the child turns 18, the account acts like a traditional IRA, and withdrawals follow standard IRA tax rules.

Come this July, you can begin contributing to a Trump Account. Because this tool is so new, many details are still in development – so check in with your Baird Financial Advisor team for updates.

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There’s no one-size-fits-all approach to saving for a child’s financial future. The right strategy depends on your goals, family dynamics, flexibility and more. In some cases, that may involve coordinating multiple accounts. In others, it could be as simple as opening a high-yield savings account.

Your Baird Financial Advisor team can not only help you evaluate your options, but also provide educational resources designed to instill confidence in your child or grandchild – equipping them to make thoughtful, confident financial decisions for years to come. Reach out to your Baird Financial Advisor team for more information.

This information has been developed by a member of Baird Wealth Solutions Group, a team of wealth management specialists who provide support to Baird Financial Advisor teams. The information offered is provided to you for informational purposes only. Robert W. Baird & Co. Incorporated is not a legal or tax services provider and you are strongly encouraged to seek the advice of the appropriate professional advisors before taking any action. The information reflected on this page are Baird expert opinions today and are subject to change. The information provided here has not taken into consideration the investment goals or needs of any specific investor and investors should not make any investment decisions based solely on this information. Past performance is not a guarantee of future results. All investments have some level of risk, and investors have different time horizons, goals and risk tolerances, so speak to your Baird Financial Advisor before taking action.