If you are a parent, you likely dream of giving your child a strong financial start, whether that means paying for college, helping with a first home, boosting their retirement savings, or simply providing extra funds for life’s adventures.
The good news? There are many ways to achieve that. However, as with any financial decision, it is important to thoroughly understand and evaluate the available options and choose the right strategies for your family’s circumstances and goals.
Traditional Savings Vehicles for Children
Several account types have long been available for parents looking to save on behalf of their children. Each comes with its own rules, tax treatment, and ideal use cases:
Custodial Accounts (UTMA/UGMA)
- Funds can be used for any purpose once the child reaches the age of majority.
- Earnings are taxable and may be subject to the Kiddie Tax if the child is under 18.
529 College Savings Plans
- Earnings grow tax-deferred, and withdrawals are tax-free when used for qualified educational expenses.
- In some cases, unused funds may be rolled into a Roth IRA for the beneficiary. However, they will generally be subject to annual contribution limits, a lifetime cap of $35,000 per beneficiary, and other IRS requirements.
Retirement Accounts (Traditional or Roth IRA)
- Earnings grow tax-deferred (Traditional) or tax-free (Roth).
- To contribute to an IRA, the child must have earned income.
- Withdrawals before age 59½ may be subject to taxes and/or a penalty unless certain conditions are met.
A New Way To Save Under the One Big Beautiful Bill Act (OBBBA)
The recently approved One Big Beautiful Bill Act (OBBBA) introduces two significant changes that enhance parents’ options for saving for their children.
1. Expanded Uses for 529 Plans
529 plan funds can now be used for a wider range of qualified expenses, including:
- Starting in 2026, you can use up to $20,000 per year for qualified K–12 expenses such as tuition, books, curriculum materials, testing fees, and tutoring.
(Previously limited to $10,000 per year for K–12 tuition only) - Unlimited qualified postsecondary credential costs, including tuition, materials, exam fees, and continuing education for licensing or certification programs, even professional designations.
2. Introduction of the “Trump” Account
The legislation also creates a new savings vehicle for children:
- Parents or guardians may contribute up to $5,000 annually until the year the child turns 17.
- At age 18, the account functions like a traditional IRA – withdrawals are subject to taxes and will likely incur a 10% penalty if taken before age 59½ unless certain exceptions apply.
- For U.S. citizens born between 2025 and 2028, the government will provide a $1,000 initial contribution, subject to program rules.
Coordinating a Savings Approach
With these changes, parents now have more tools than ever to structure savings for their children’s future. Families may choose one or more of these accounts based on their goals, time horizon, and tax considerations:
- UTMA/UGMA: Offers broad flexibility in how funds are used once the child reaches the age of majority
- 529 Plan: Can help save for expenses from K–12 to college and professional credential expenses; also offers additional rollover options under certain circumstances
- IRA (Traditional or Roth): Allows retirement savings to begin early for children with earned income
- Trump Account: Intended as a retirement-focused vehicle with possible government-funded seed contributions for eligible children
The Bottom Line
The right mix of accounts will vary for every family, depending on their priorities, whether it is education, general financial support, or building a long-term retirement foundation. With more choices available through the OBBBA, having a thoughtful, well-informed plan is essential.
Consulting with a qualified financial professional and reviewing each option’s rules, tax treatment, and eligibility can help you make confident decisions that align with current regulations and support your family’s overall financial strategy.
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Cory Reamer,
is an Advisor at The Welch Group, LLC, specializing in providing Fee-Only investment management and financial advice to families throughout the United States. Cory graduated as a student-athlete with a degree in Finance from The University of Alabama and is passionate about helping others on their financial journey. For more information, visit The Welch Group. Consult your financial advisor before acting on comments in this article.
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