Ways to Save for Your Kids
There are now more ways than ever to set money aside for a child, and a new one just arrived. The federal government's 530A accounts (AKA Trump accounts) open for contributions on July 4, 2026, joining the 529 plan and the custodial UGMA account as the main options families reach for. A Roth IRA is also worth knowing about for a child with employment income. Each does something different, and the right choice depends on what you are trying to accomplish.
530A Accounts
These are a new type of retirement account created for children under the One Big Beautiful Bill Act of 2025. The headline feature is the pilot program: children born between January 1, 2025, and December 31, 2028, are eligible for a one-time $1,000 government contribution. To claim it, a parent or guardian generally needs to opt in, currently through IRS Form 4547, with an online process at trumpaccounts.gov expected later in 2026.
Beyond that seed money, anyone can contribute, up to an annual limit of $5,000 per child, indexed for inflation after 2027. Employers can contribute as well. One open detail worth noting: there is still some ambiguity in the guidance about exactly how employer contributions interact with the $5,000 cap, so that is a point to confirm before relying on it.
The investment rules are narrow by design. During the years before the child turns 18, the money has to sit in a low-cost fund tracking a broad U.S. equity index. No bond funds, no sector funds, no individual stocks. This restriction fits a long-horizon, low-cost approach reasonably well, but it removes any ability to diversify internationally or hold fixed income during the growth years.
The biggest constraint is access. No withdrawals are permitted until January 1 of the year the child turns 18. At that point the account converts to a traditional IRA and follows traditional IRA rules, including the 10% early withdrawal penalty before age 59½, with the usual exceptions for things like qualified higher education expenses and a first-time home purchase. Contributions come out tax-free since they were made with after-tax dollars, but the growth is taxed as ordinary income on withdrawal.
So Trump Account is structured more like traditional, pre-tax IRA, than a Roth. The gains are taxed at ordinary rates when the money comes out, which is a meaningful difference from how a Roth would treat decades of growth. It also invites an uncomfortable comparison: a plain taxable brokerage account holding the same broad index fund would have its long-term growth taxed at capital gains rates, which are lower than ordinary rates, and would have no withdrawal restrictions along the way. So for contributions beyond the free $1,000 seed, the account's tax treatment is not clearly an advantage, and in some cases a regular brokerage account could leave the child better off after tax despite the lack of deferral. The deferral has value, but it is not a foregone conclusion that it outweighs the ordinary-income treatment at the end.
The practical takeaway: if your child is eligible for the $1,000 seed, claiming it is close to free money and worth the paperwork. Beyond that, the account is a locked-up, traditional-IRA-style retirement vehicle for the child. It is not a college fund and not a flexible savings account, and it is worth running the numbers before favoring it over simpler alternatives.
529 Plans: still the strongest tool for education
For education funding, the 529 plan remains hard to beat, and recent changes made it more useful.
Contributions are made with after-tax dollars, grow tax-deferred, and come out completely federal-income-tax-free when used for qualified education expenses. Many states, though not all, offer a state tax deduction or credit for contributions. The account owner keeps control, can change the beneficiary to another qualifying family member, and can direct the investments.
The OBBBA expanded what 529s can do. Starting in tax year 2026, the annual limit for K-12 withdrawals doubled from $10,000 to $20,000 per beneficiary. The definition of qualified K-12 expenses also broadened beyond tuition to include curriculum materials, tutoring that meets certain criteria, standardized test fees, dual-enrollment fees, and educational therapies for students with disabilities.
A few other features worth knowing. Up to $35,000 can be rolled from a 529 into the beneficiary's Roth IRA over their lifetime, subject to annual contribution limits, earned income requirements, and a 15-year account seasoning rule. And for gifting, the five-year election lets a contributor front-load up to five years of annual exclusion gifts at once. Non-qualified withdrawals are the cost of the flexibility: the earnings portion gets taxed as ordinary income plus a 10% penalty.
The decision rule here is simple. If the goal is education, the 529 is generally the most tax-efficient way to do it. The tax-free growth on qualified expenses is difficult for any other account to match.
You may also come across the Coverdell Education Savings Account, an older education-focused vehicle. It works similarly to a 529 on the tax side but caps contributions at $2,000 per year and phases out for higher-income contributors. After the OBBBA expanded what 529s can cover, the Coverdell has largely been overtaken, and for most families the 529 does the same job with fewer limits.
UGMA Accounts: flexible money, and a planning opportunity
A UGMA is a custodial account. You contribute, you manage it while the child is a minor, and the assets become the child's outright when they reach the age of majority. There are no restrictions on what the money can eventually be used for, which is both the appeal and the catch. The funds are an irrevocable gift to the child, and once they come of age, the child controls them.
What the UGMA gives up in tax shelter, it can partly make up through planning, and this is where the account gets interesting.
A UGMA holds taxable investments, so it is subject to the "kiddie tax." The structure works in tiers. A child's unearned income is generally tax-free up to a threshold, then taxed at the child's own rate for the next band, and above that, taxed at the parents' marginal rate. The exact thresholds index annually, so the current figures should be confirmed each year before acting on them.
That tiered structure creates an opening: tax-gain harvesting. In a year where a child has little or no other unearned income, you can intentionally sell appreciated positions to realize long-term gains that fall within the lowest tier, where the applicable rate can be 0%, then immediately repurchase the same holding. There is no special "child's capital gains rate" at work here. The child is simply treated as a single filer, and at low taxable income levels, the rate on long-term gains in that range happens to be 0%. The result is a reset cost basis with no tax due, which reduces the gain that would otherwise be owed down the road.
A few mechanics make this work cleanly:
Wash sale rules apply to losses, not gains. You can sell an appreciated position and rebuy it the same day without issue, because you are harvesting a gain, not a loss.
The harvest should be sized to the available room. Estimate the child's other unearned income for the year, calculate how much gain fits inside the lowest tier, and sell only enough to fill it. Overshooting pushes gains into a taxed band.
This is a separate, deliberate year-end exercise, not something to delegate to an automatic rebalancer. Rebalancing triggers on how far a holding has drifted from its target weight, which has nothing to do with which lots carry the largest embedded gains or how much tax-free room is left. Conflating the two leads to selling the wrong amount at the wrong time.
Lot selection matters. With ongoing contributions creating many lots at different cost bases, the ability to identify specific lots (or use highest-in-first-out) lets you target the lots with the most embedded gain.
The 0% rate applies at the federal level. State tax treatment of realized gains varies, so a harvest that is tax-free federally may still carry a state tax cost.
Done consistently over the years a child holds the account, this can meaningfully reduce the embedded gain that would otherwise be realized later. It is one of the few ways a fully taxable custodial account can compete on after-tax terms.
Other thing to know upfront: a UGMA contribution is an irrevocable gift. Once the money goes in, it belongs to the child. You cannot take it back, you cannot redirect it to a sibling, and you cannot tap it for your own needs if your circumstances change. When the child reaches the age of majority, they gain full control and can use the money however they wish, regardless of what you intended it for. On top of that, UGMA assets count more heavily than parent-owned 529 assets in financial aid formulas. For families who want to preserve flexibility or control, that combination is often the dealbreaker.
A Roth IRA for a child who works
This one has a gate in front of it, but for the right child it may be the most powerful option of all. If a child has earned income, from a real job or legitimate work, they can fund a Roth IRA up to the lesser of their earned income or the annual limit, which is $7,500 for 2026. The money can be contributed by anyone, so a parent can effectively match what the child earns, as long as the total does not exceed the child's actual earnings for the year.
The appeal is the time horizon. Money in a Roth grows tax-free, and a contribution made at age 15 has roughly fifty years to compound before traditional retirement age. Contributions (though not earnings) can be withdrawn at any time without tax or penalty, which gives the account some flexibility if the money is genuinely needed earlier.
The constraint is the earned income requirement. The child has to actually earn the money, and you need to be able to document it. Paying a child for legitimate work is fine; manufacturing income to fund the account is not, and the IRS draws that line carefully. For a teenager with a summer job or real responsibilities in a family business, though, a Roth can be an excellent way to turn early earnings into a long-term, tax-free asset, while teaching the connection between working and saving.
These accounts are not really competitors. They solve different problems.
If your child qualifies for the $1,000 Trump Account seed, claim it. Beyond the seed, treat the account for what it is: a locked-up retirement vehicle for the child, not a near-term savings tool.
If the goal is education, the 529 is the most tax-efficient route, and the expanded K-12 rules make it more flexible than it used to be.
If you want flexibility in how the money can eventually be used, and you are willing to manage the tax exposure actively, a UGMA offers freedom that the other two do not, with gain harvesting as a way to keep the tax cost down.
And if the child has earned income, a Roth IRA turns that work into a long-horizon, tax-free asset, with the earned income requirement as the one gate to clear.
For many families, the answer is some combination rather than a single account. The right mix depends on the goal, the time horizon, the child's age, and your own tax situation.
One caveat applies across all of these accounts: each can interact differently with need-based financial aid, and the FAFSA rules governing how assets and income are counted change over time. Who owns the account, how distributions are treated, and how each asset is weighted have all shifted in past years and may shift again. That makes it hard to predict with any confidence how a given account will affect aid eligibility or scholarships years down the road. It is worth keeping in mind, but not worth over-optimizing around a formula that may look different by the time your child applies.
If you would like to think through which structure, or which combination, fits your family, that is a conversation worth having.
This material is for informational purposes only and does not constitute investment, tax, or legal advice. Tax thresholds and account rules referenced here are current as of mid-2026 and are subject to change; several provisions are new and still receiving regulatory guidance. Discuss your specific circumstances with a qualified tax or financial professional before taking action.