Helping a child or grandchild financially is one of those goals that sounds simple at first.
“Let’s put some money away for them.”
Great idea.
Then comes the real question: where should that money actually go?
That is where things get interesting. There are several good options, but they are not all built for the same purpose. Some are designed specifically for education. Some give the child more flexibility later. Some give the parent or grandparent more control. And some come with the not-so-small feature of, “Congratulations, your young adult now owns this money.”
Depending on the young adult, that may feel generous… or mildly terrifying.
Here are four common ways families save for children or grandchildren.
1. 529 Plan
A 529 plan is designed primarily for education savings. Its biggest advantage is tax treatment: the money can grow tax-deferred, and withdrawals can be tax-free when used for qualified education expenses.
Pros:
529s can be very powerful when the goal is college, trade school, certain apprenticeship programs, certain K–12 tuition expenses, or other qualified education costs. The account owner maintains control, which is a major benefit. A parent or grandparent can generally change the beneficiary to another qualifying family member if one child does not use all the funds.
There are also newer rules that allow certain unused 529 funds to be rolled into a Roth IRA for the beneficiary. As of 2026, that rollover is capped at $35,000 over the beneficiary’s lifetime, the 529 account has to have been open for at least 15 years, and only money that’s been sitting in the account for five-plus years qualifies. It also shares space with the beneficiary’s regular annual Roth IRA contribution limit ($7,500 for 2026), so moving the full $35,000 typically takes several years. It’s less a loophole and more a safety valve — but it has made 529s meaningfully more attractive for families worried about oversaving.
Cons:
The main tradeoff is flexibility. If the money is not used for qualified education expenses, the earnings portion of a withdrawal may be taxable and may also face an additional 10% penalty unless an exception applies. Investment options are typically limited to what the specific 529 plan offers.
In other words, a 529 can be excellent when education is the clear goal. It may be less ideal when the future use of the money is uncertain.
2. UTMA / Custodial Account
A UTMA account allows an adult to invest money for a child. The money legally belongs to the child, but an adult custodian manages it until the child reaches the age required by state law — typically 18 to 21, with a handful of states allowing it to run later.
Pros:
UTMAs are flexible. The money does not have to be used only for education. It can generally be used for the child’s benefit, including college, a first car, a business idea, or other needs.
UTMAs also typically offer broad investment choices, which gives the custodian flexibility in how the money is invested.
Cons:
The biggest drawback is control.
Once the child reaches the required age, the money becomes theirs. Not “theirs, but please run major decisions by Mom and Dad first.” Theirs.
If they want to use it for school, great. If they want to use it for spring break, a lifted truck, or a sneaker collection that looks like a small business inventory problem, that may be their call.
3. Parent- or Grandparent-Owned Investment Account
This is often the most flexible option. The account stays in the adult’s name, and the adult decides how and when to use or gift the money.
Pros:
This approach offers maximum control. The money can be used for college, a wedding, a home down payment, a business, or any other goal the parent or grandparent chooses. It can also remain with the adult if circumstances change.
There are no education-only restrictions, and investment flexibility is typically broader than what you would find inside a 529 plan.
Cons:
The account does not receive the same education-related tax benefits as a 529. Taxes on dividends, interest, and capital gains belong to the parent or grandparent.
There may also be gifting considerations later depending on how much is transferred to the child and when.
4. Trump Account
Trump Accounts are the newest option on this list — created by 2025’s One Big Beautiful Bill Act and officially opened for contributions in July 2026. They’re designed to give children an early start on long-term investing. Think of them less like a college account and more like a starter retirement account for kids: legally, a Trump Account is a new type of IRA.
Pros:
Certain children born from 2025 through 2028 who are U.S. citizens with a valid Social Security number qualify for a one-time $1,000 government contribution. That is a government-funded head start, and a head start tends to get our attention.
Even children who do not qualify for the $1,000 contribution can still have a Trump Account opened for them — any U.S. child under 18 with a Social Security number is eligible for the account itself. Parents, grandparents, relatives, friends, and employers can contribute up to $5,000 combined per child per year (a limit that adjusts for inflation starting in 2028), with up to $2,500 of that allowed to come from an employer. Unlike a Roth IRA for kids, there’s no earned-income requirement, so an account can be funded starting at birth.
The account is designed for long-term growth. Money generally cannot be withdrawn before January 1 of the year the child turns 18. After that point, the account is generally treated like a traditional IRA.
Cons:
This is not as flexible as a parent- or grandparent-owned investment account, and it is not as education-focused as a 529. Unlike the other three options, you don’t get to choose your own investments — funds are restricted to a small menu of low-cost options tracking a broad U.S. stock index. The account is tax-deferred, but withdrawals are generally taxable under IRA-style rules, and a 10% early-withdrawal penalty can also apply unless the withdrawal qualifies for a standard IRA exception.
In plain English: this may be a useful new tool, especially for children who qualify for the $1,000 government contribution, but it should not automatically replace a 529, UTMA, or parent-owned account. It is another tool in the toolbox — not the whole toolbox.
So, Which One Is Best?
There is no universal winner.
A 529 plan may be best when education is the clear priority.
A UTMA account may fit when you want the money to legally belong to the child and remain flexible.
A parent- or grandparent-owned investment account may be best when control and optionality matter most.
A Trump Account may be worth considering when the child qualifies for the $1,000 government contribution or when the goal is long-term wealth building beyond education.
The right answer depends on the goal, the child’s age, the family’s tax picture, financial aid considerations, and how much control you want to keep.
Helping the next generation is a wonderful goal. Picking the right account is how you make sure that gift stays intentional — and does not turn into an expensive game of financial Twister.
If you are thinking about saving for a child or grandchild and want help comparing the best option, we would be happy to walk through the pros and cons with you.