6 Ways To Help Fund a Child’s Financial Foundation

Saving for School

1. 529 College Savings Plans

It’s no surprise that 529 plans have become a go-to tool for education savings – especially as college costs continue to rise. Since the turn of the century, the cost of attending a four-year institution has increased more than 40% faster than inflation.¹ By contributing to a 529 account for a loved one, you’re not just setting money aside – you’re giving those savings time to grow and helping them keep pace with rising education costs over the years.

529 accounts also come with tax advantages: Contributions grow federal income tax-free and can be withdrawn tax-free when used on qualified expenses, which can range from things like room and board to computer software needed for a class. Because the IRS treats contributions as gifts, 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 no limit on the number of people who can contribute. That means parents, grandparents and others can all add to the same account. You can also choose to frontload up to five years’ worth of contributions at once – giving the savings more time to compound while helping reduce your own taxable estate.

One of the biggest advantages of a 529 plan is flexibility. If your loved one chooses not to use the funds on their higher education, there are other options – like reallocating the funds to a family member or even rolling them into a Roth IRA – so the account can be used to meet a need now or grow into something lasting over time.

2. Coverdell Education Savings Accounts (ESAs)

Often used best as a complement to 529 accounts, ESAs are another way to help save for a loved one’s education. They function similarly to 529s in that they provide tax-free growth and withdrawals for qualified expenses. However, you can only contribute up to $2,000 per beneficiary annually – so your family may need to coordinate gifts to stay within the limit. And if your modified adjusted gross income (MAGI) is above $110,000 for individuals or $220,000 for married couples, you’re not eligible to contribute at all.

ESAs are also uniquely subject to an age limit: if funds aren’t used by the time the beneficiary turns 30, they must be distributed, transferred to a qualifying family member under 30 or rolled into a 529 plan. While narrower in scope, ESAs can be valuable when paired with other savings vehicles.

Flexible Support for Life Milestones

3. Uniform Transfers to Minors Act (UTMAs)

Functioning similarly to a trust, UTMAs are custodial investment accounts that an adult oversees until the child reaches the age of termination in their state. These provide a more flexible way to invest assets for your loved one without limiting the funds to education expenses – and can hold financial assets and property, like tangible goods and real estate.

Any assets contributed to an UTMA immediately become the property of the child, and the adult custodian is only permitted to disburse funds if it’s for the child’s benefit. This, however, could include everything from paying a tuition bill to buying a new car. Once the age of termination is reached, the child gets full control of the funds.

Like 529s, you can contribute up to the annual gift tax exclusion each year to UTMAs without needing to file a gift tax return. And while the child doesn’t pay tax on the money you contribute, the income the account generates is typically taxable as it comes in – and investment gains are taxed when they’re realized. UTMA income is also subject to the Kiddie Tax rules, meaning amounts above a certain threshold may be taxed at the parents’ marginal tax rate. When used thoughtfully, UTMAs can help fund key life moments while helping prepare your loved one to manage their own wealth responsibly.

4. Cash-Value Life Insurance

Beyond providing a death benefit, a cash-value life insurance policy – such as whole life and universal life insurance – can also grow into a flexible, reliable asset. Over time, the policy’s cash value builds and can be used through income tax-free withdrawals or loans, giving your loved one the ability to use the funds for a range of needs. This flexibility can be especially useful as they reach major milestones, like paying for a wedding or making a down payment on a home. If the loan isn’t paid back, the death benefit is simply reduced. And because you own the policy, you stay in control – deciding when it makes sense to transfer ownership to the child.

A Head Start on Retirement

5. Custodial Roth IRAs

Another useful type of custodial investment account is a custodial Roth IRA – owned by the child but controlled by a parent until they reach adulthood. As with any Roth IRA, a child does not become eligible to open the account until they start earning their own income.

Once the account is opened, parents and grandparents have the opportunity to contribute up to the amount the child earns each year (capped at $7,500 in 2026). Because contributions are made with after-tax dollars, they can be withdrawn at any time without tax or penalty – an added layer of flexibility if the funds are ever needed. Any investment earnings, however, are generally taxable if withdrawn before age 59 ½. For many, the real power with custodial Roth IRAs lies in starting early: Contributions grow tax-free and can compound for decades, giving your child or grandchild a meaningful head start on retirement.

6. NEW: Trump Accounts

A new type of saving and investment tool for minors, Trump Accounts, was introduced under the 2025 budget reconciliation bill. Functioning similarly to a traditional IRA, they aim to give children an early start on long-term savings goals – particularly for retirement. While the account is owned by the child, it must be opened and managed by an adult.

Total annual contributions to a Trump Account are capped at $5,000 per child in 2026. These contributions are made using after-tax dollars, and once funded, the money is invested into low-cost mutual funds or ETFs that use a U.S. stock index.

When the child turns 18, the account begins to operate like a traditional IRA for tax purposes. Withdrawals before age 59 ½ may be subject to income tax and a 10% early withdrawal penalty, though there are a few key exceptions. For example, up to $10,000 can be used toward a first-time home purchase without penalty, and funds may also be applied to qualified education or medical expenses (though income tax still applies). After age 59 ½, funds can be withdrawn for any purpose without penalty, though income tax applies there as well. While these accounts provide some flexibility for fund usage across the child’s lifetime, they are primarily designed as a tool to strengthen long-term retirement savings.