Whether you’re welcoming a new baby into your family, encouraging your daughter to save for retirement while working her first summer job, or planning for a grandchild’s college education, there are several account structures and planning strategies that can help you and your family reach your goals with flexibility and peace of mind.
529 Plan: Like a Roth IRA for education, 529 plans are the most tax-advantaged way to save for a child’s future education.
- Benefits: After-tax 529 plan contributions benefit from tax-free growth and distributions when used for qualified education expenses. Plan beneficiaries can be changed to another eligible family member at any time without penalty, allowing for flexibility if one sibling has lower education costs than another. SECURE 2.0 also added a provision that allows for limited rollovers from a 529 plan to a Roth IRA. You can contribute up to the annual gift tax exclusion limit ($19,000 in 2026) without filing a gift tax return, and there is an additional provision that allows for “super-funding” a 529 at 5 x the annual gift tax exclusion limit without triggering a taxable event.
- Considerations: 529 plans have limited use and can’t be used for non-education purposes like health care expenses or a home down payment. If the beneficiary receives a scholarship, it is possible to withdraw an equal amount from the 529 plan without penalty – though earnings are taxable. It is possible to “overfund” a 529 plan if savings greatly exceed a child’s true education expense. Working with your advisor to
Custodial Roth IRA: This can be a great option for older kids with some level of earned W-2 income.
- Benefits: Custodial Roth accounts allow you to jump-start a child’s retirement savings from an early age. The child is eligible to contribute up to the lesser of earned income or the annual Roth IRA contribution limit ($7,500 in 2026). Matching a child’s savings or saving on their behalf can be a great way to incentivize an early interest in work and building savings.
- Considerations: Custodial Roth accounts are retirement accounts, so contributions should be considered long-term investments. While after-tax Roth contributions are eligible for tax- and penalty-free withdrawal at any time, distribution of earnings are taxed and penalized before age 59 ½. Custodial Roth accounts are considered assets of the child for FAFSA purposes and may lead to less favorable treatment for future financial aid.
Custodial Brokerage Account (UTMA / UGMA): These accounts are opened by an adult, for the benefit of a minor. The adult manages investments on behalf of the minor until the age of majority (which varies by state).
- Benefits: Funds can be used for many purposes benefiting the minor child – not just education. Assets are removed from your taxable estate, with potential tax savings through the beneficiary’s tax bracket.
- Considerations: Once money is gifted to a custodial account, it cannot be taken back. The child gains irrevocable control at the age of majority, at which point you’ll have no further control over how funds are spent. You cannot change the beneficiary of a custodial account. Like Custodial Roth IRAs, these accounts are considered assets of the child for FAFSA purposes and may lead to less favorable financial aid treatment.
Brokerage Account: If maintaining flexibility with the funds you currently have mentally allocated for children/grandchildren is important to you, opening a brokerage account in your own name (a non-custodial) account is an option to consider.
- Benefits: You maintain control of the accounts, including complete flexibility regarding investment options and distributions. Assets can be used for any child or any purpose, and there are no restrictions on contributions.
- Considerations: There are no special tax advantages to be found here: dividends, interest, and capital gains flow through to your tax return. Assets remain part of your taxable estate if not distributed prior to your death, meaning that additional planning may be needed if your ultimate goal is wealth transfer.
Section 530A Account: A “Trump Account” (TA) can be funded on behalf of a minor child to begin accumulating tax-deferred retirement savings from a young age. TAs can be opened on behalf of a minor at any time between their birth and the beginning of the year in which they turn 18. Once the minor beneficiary turns 18, the TA essentially turns into an IRA. The maximum annual contribution to a TA is $5,000 (2026), up to $2,500 of which can come from a minor child’s (or their parent’s) employer. All contributions are after-tax (non-deductible).
- Benefits: Unlike a Custodial Roth IRA, TAs do not require the minor child to have earned income to allow for contributions, giving minors too young to earn income a head start on retirement. The federal government has also committed to making an initial $1,000 TA contribution for each child born between 2025 and 2028.
- Considerations: No withdrawals are allowed until the beneficiary turns 18. Investments within a TA are also limited to US equity index funds. The 10% early withdrawal penalty on taxable distributions prior to age 59 ½ remains, so TAs are not the best savings vehicle for nearer-term goals like college tuition or a first car. Because contributions are made to TAs on an after-tax basis, TA owners will have after-tax contributions in their IRA at age 18 – creating some additional tax filing complexity for newly minted adults.
As with all financial planning, there is no “one-size-fits-all” approach to planning for a child’s future. Many families find that contributing to a combination of these accounts – ex., a 529 plan for education and a custodial brokerage account for a first home purchase – allows them to maximize flexibility for future generations. Brainstorm with your advisor to determine the best path for your family’s unique goals.
Leah Levingston, CFP®
Financial Advisor
This material reflects the author’s opinion, is not intended to be investment, tax, or legal advice, and is provided for illustrative purposes only. Alaska Wealth Advisors is an investment adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training. More information about Alaska Wealth Advisors’ investment advisory services can be found in its Form ADV Part 2 and/or Form CRS, which is available upon request.
