Building Strong Foundations: A Family Guide to Saving for Minors
For many parents, helping a child build lasting financial security is among their most meaningful goals. With the recent rollout of Trump Accounts, families now have more ways than ever to save and invest on a child’s behalf. As the number of tools has increased, so too has the importance of picking the right one.
In this article, we’ll review the four most common account types for minors and discuss the circumstances in which tends to be the best fit. We’ll also see why these accounts aren’t always necessary for families to support their children’s financial future. Often, the most powerful financial foundation a child will ever have is the one their family has already built.
Foundation First: Prioritizing Family Wealth
Before opening investment accounts in a child’s name, we generally advise parents to secure their own financial future first. Children have many avenues to fund major expenses, including loans, scholarships, and decades of earning potential. However, retirees have fewer options to address potential shortfalls.
Once a family has established a solid financial footing, they can use accumulated wealth to begin supporting the next generation by funding goals and milestones. For instance, parents might help a child with a down payment on a home or see them through an expensive graduate program. Approached thoughtfully, this kind of ongoing support can be more powerful than contributing to dedicated minor accounts.
The annual gift tax exclusion is a valuable tool in this context. In 2026, individuals can gift up to $19,000 per recipient tax-free, or $38,000 for a married couple gifting jointly. These direct gifts can adapt to a child’s evolving needs in ways that fixed account structures often cannot.
The Core Account Types
While direct gifting offers flexibility, dedicated accounts can still play a role when targeting specific goals. The right balance between flexibility and structure depends on what families hope to achieve. Below, we review the four most common options and the circumstances where each tends to fit best.
529 Plans
Designed for education expenses, 529 plans allow families to save for costs ranging from K–12 tuition to graduate school. Contributions grow tax-free when used for qualified expenses, and residents of states with an income tax often receive a state-level deduction.
As of 2024, Secure 2.0 allows unused funds from 529 plans to be rolled into a Roth IRA. To be eligible, the account has to have been opened for at least 15 years, and funds are limited to a $35,000 lifetime cap. This added versatility has made 529 plans a more attractive option for families concerned about overfunding an education account.
Custodial Accounts (UGMA/UTMA)
These accounts offer the broadest range of investments, accommodating individual securities, mutual funds, and ETFs. Unlike 529s, which only accept cash contributions, custodial accounts can also receive gifts of appreciated stock—a useful feature for families looking to transfer wealth out of their estate.
The key trade-off is control. Assets legally belong to the child and transfer to them at the age of majority (18 or 21, depending on the state). As a result, parents lose the ability to direct how funds in custodial accounts are ultimately used.
Custodial Roth IRAs
For families focused on long-term retirement savings, a custodial Roth IRA offers decades of tax-free growth potential. Like a taxable custodial account, these accounts provide broad investment flexibility and transfer to the child at the age of majority. The main drawback is that custodial Roth IRAs require the child to have earned income to make contributions.
Parents looking to encourage long-term investing habits might consider matching a portion of their child’s deposits to this account (similar to an employer match in a 401(k)). Annual contributions are capped at the lesser of the child’s earned income or the federal IRA limit.
Trump Accounts
Introduced under the One Big Beautiful Bill Act, Trump Accounts are a new savings vehicle for minors. While implementation is still being finalized, these accounts are expected to offer tax-deferred growth on investments in low-cost index funds.
For children born in 2025 or 2026, the federal government will contribute a $1,000 seed deposit—an opportunity worth capturing. Given the uncertainty around future rules, eligible families may be best served by claiming the benefit now and revisiting the account’s role once the rules are clearer.
Matching the Tool to the Goal
Among the four dedicated minor accounts, no single option is better than the rest. The right choice depends on the parents’ priorities, the child’s circumstances, and how the account integrates with the family’s broader wealth strategy. Here’s how the options tend to align with different goals:
- 529 Plans. For families focused on education, a 529 plan is often the natural starting point. Tax-free growth, state-level deductions, and Roth rollover flexibility make it well-suited to its intended purpose.
- Custodial Accounts. For families with goals that reach beyond the classroom, a custodial account may be more appropriate. These accounts can help purchase a first car, make a down payment on a home, or reach other meaningful milestones along the way to independence.
- Custodial Roth IRAs. Custodial Roth IRAs occupy a narrower but powerful niche. For teenagers with earned income, contributions made early can compound tax-free for decades—a valuable head start for long-term retirement savings.
- Trump Accounts. For eligible families, Trump Accounts are worth opening for the $1,000 federal deposit. Their specific role within a family’s wealth strategy will become clearer as rules are formalized.
These accounts work best when integrated into a family’s broader wealth strategy. Gifting appreciated stock to a custodial account, for example, can defer capital gains taxes while giving a child assets that continue to grow. Similarly, grandparents looking to help fund a grandchild’s education can contribute directly to a 529 plan, covering future tuition while reducing the size of their own taxable estate.
Conclusion: Foundations That Last
Helping a child establish a financial foundation is about more than building their account balance. The accounts discussed here can each play a valuable role, but their greatest benefit often lies in what they teach along the way. From sparking early conversations about investing to reinforcing the discipline of saving, these accounts can shape financial habits that carry into adulthood.
At Badgley Phelps, we view minor accounts as one part of a family’s multigenerational strategy. Rather than being used in isolation, these accounts work best when coordinated with estate, gifting, and investment plans. Whether you’re a parent thinking about your child’s future or a grandparent exploring how to support the next generation, we invite you to start the conversation with our team.
Disclosure: This document contains forward-looking statements, predictions, and forecasts (“forward-looking statements”) concerning our beliefs and opinions in respect of the future. Forward-looking statements necessarily involve risks and uncertainties, and undue reliance should not be placed on them. There can be no assurance that forward-looking statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements. Past performance is not a guarantee of future results. All investments involve risk, including the loss of principal. All opinions expressed in this article are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable. However, Badgley Phelps cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. Badgley Phelps does not provide tax, legal, or accounting advice, and nothing contained in these materials should be taken as such.
