Infographic: Which savings account is right for your child’s future?

Planning for your child's financial future can feel both exciting and overwhelming. Parents today have more options than ever when it comes to saving for education, building long‑term wealth, and teaching healthy money habits. Each account comes with its own rules, tax perks, and ideal use cases. We're breaking down your options, so you know exactly what each one offers and how they differ.

529 Plan

Best for: Future education costs.

A tax‑advantaged investment account designed specifically for education expenses.

• Tax benefits: Earnings grow tax‑free and withdrawals are tax‑free when used for qualified education expenses.
• High contribution limits: There is no IRS annual contribution limit for 529 plans, but contributions above $19,000 per person ($38,000 for married couples) in 2025 and 2026 require filing a gift tax return.
• Financial aid impact: Treated as a parental asset when parent‑owned — generally favorable.
• Flexibility: Beneficiary can be changed to another family member.
• Restrictions: Non‑education withdrawals incur taxes and a 10% penalty on earnings.

Custodial Brokerage Account

Best for: General investing for a child with no spending restrictions.

An investment account managed by an adult until the child reaches adulthood.

• Flexibility: Funds can be used for any expense that benefits the child.
• Investment options: Stocks, ETFs, mutual funds, and more.
• Taxes: Income generated by the account (like dividends or capital gains) is taxed in the child's name. The first $1,350 of unearned income is tax‑free, the next $1,350 is taxed at the child's rate, and amounts exceeding $2,700 are subject to the "kiddie tax" (taxed at the parents' marginal rate).
• Ownership: Fully transferred to the child at a specified age (usually 18, 21, or up to 25 depending on the governing state).
• Financial aid impact: Considered the child's asset, which can reduce aid eligibility more than parent‑owned accounts.

Section 503A Account (Trump Account)

Best for: Long‑term retirement‑style savings for a child.

A child-owned traditional IRA that an adult manages until age 18, with special rules for contributions, government seeding, and withdrawals.

• Contribution limit: $5,000 per year total, across all individual, employer, and employee payroll contributions. Exceptions that do not count toward the $5,000 limit include the one‑time $1,000 government seed for eligible newborns and qualified general contributions from states, local governments, or 501(c)(3) charities.
• Tax benefits: Trump Accounts grow tax‑deferred, with after‑tax contributions withdrawn tax‑free. All pre‑tax, government, and charitable contributions and earnings are taxed at withdrawal. Earned income is not required.
• K–12 use: Trump Accounts are not designed for K–12 expenses and do not allow early withdrawals for education before age 18.
• Income limits: Eligibility is based on age (under 18) and having a Social Security number — not on family income.
• Financial aid impact: Not counted as a reportable asset on the FAFSA, but withdrawals count as taxable income to the student and can reduce aid eligibility in future years.

Custodial Roth IRA

Best for: Teens with earned income who can benefit from decades of compounding.

A retirement account for minors who have earned income.

• Tax‑free growth: Contributions grow tax‑free and qualified withdrawals are tax‑free.
• Contribution rules: You can contribute up to the amount of the child's earned income for the year, as long as it does not exceed the annual Roth IRA limit.
• Early access: Contributions can be withdrawn at any time without taxes or penalties. Investment earnings are taxed and may face a 10% penalty if taken out before age 59½ unless an exception applies.
• Long‑term power: Starting early can create significant retirement savings.
• Restrictions: Child must have earned income — allowance doesn't count.
• Financial aid impact: Does not affect financial aid as long as the money stays in the account, but any withdrawals count as untaxed income on the FAFSA and can reduce aid the following year.

No matter which account you choose, taking action today sets your child up for a stronger financial tomorrow.