WEALTH PLANNING Investing in and for the next generation

When it comes to saving for kids and teens, parents and grandparents today have options. Let’s take a look at how you can have practical conversations to not only help existing clients but create opportunities to build lasting relationships with the next generation of investors.

Start small, plan early

An easy way for parents to begin teaching their children about saving is to open a simple savings account with a local bank or credit union. These types of accounts don’t have restrictions regarding what the money can be used for and are also quickly accessible. Such features make them an effective vehicle for saving up money earned by doing chores or cash received as a gift. They can also provide a savings incentive for desired purchases earlier in life, such as a first car.

Save for college with a 529 savings account

Funding a college education is no small task. For parents and extended family who want to offer help with these costs, a 529 savings plan may be ideal. Anyone can open a 529 account, anyone can contribute on behalf of the beneficiary, and no income restrictions are imposed on these accounts for the account owner or beneficiary.

Contributions to a 529 account are made on an after-tax basis at the federal level; however, some states do offer tax deductions or credits for eligible contributions, subject to applicable state requirements. Distributions, meanwhile, are not federally taxed as long as they are used for qualified education expenses. If withdrawals are used for purposes other than qualified education expenses, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax. States take different approaches to the income tax treatment of withdrawals. For example, withdrawals for K-12 expenses may not be exempt from state tax in certain states. Tax deductions may be disallowed in the event of non-qualified withdrawals.

529s now cover a broader range of education costs

One of the 529 plan’s most powerful features is its flexibility, which has expanded even more since the passage of the One Big Beautiful Bill Act (OBBBA) in 2025. In addition to college and other related qualified expenses, funds can be used to pay for recognized professional credentialing programs and certain apprenticeship programs, including tuition, fees, books, supplies and equipment, as well as required testing and continuing education expenses.

Begin saving for retirement — yes, retirement

Although starting to save for their children’s retirement may not be top of mind for many parents, there are options that can help them do just that. A retirement account opened and funded for a minor has decades to grow before the beneficiary reaches retirement age, and the longer that money stays invested, the greater the opportunity for compounding and growth.

Roth IRAs may help retirement savings last longer

The Roth IRA (individual retirement account) is not new, but there are newer rules that may make it an even better option for some younger savers. A Roth IRA can be opened for an individual of any age who has taxable income and meets the modified adjusted gross income (MAGI) limits established by the IRS. Although the account starts as a custodial account controlled by a parent or legal guardian when opened for a minor, the child can gain control of the assets at the age of majority, which varies by state.

The tax structure of these accounts enables young investors to begin contributing to a Roth IRA with after-tax dollars when they are likely to be in a low tax bracket. Contributions can also be made on the investor’s behalf, although annual contributions are capped at either the account owner’s earned income for the tax year or $7,500 for 2026, whichever is less. Those funds then grow tax-free, and qualified distributions are tax-free. Nonqualified distributions may be subject to taxes and possible federal tax penalties. A distribution is qualified if the first Roth contribution was made at least five years before and the account owner is at least 59½ years old, is disabled or is purchasing a home for the first time (up to $10,000).

A 529 and Roth IRA can make a useful combo

Under certain circumstances, 529 account owners can roll up to $35,000 into a Roth IRA for the beneficiary, tax- and penalty-free, over their lifetime. This creates an opportunity to educate clients about how two distinct accounts can be used together to help address education and retirement savings goals and potentially put unused 529 assets to use beyond education.

Penalty-free rollovers can be made if the 529 account is more than 15 years old, and the amount to be rolled over must have been in the account for a minimum of five years. Rollover contributions must be within Roth IRA annual contribution limits and are reduced by any “regular” traditional or Roth IRA contributions made by the beneficiary in that year. Although the income limitations for regular Roth IRA contributions don't apply to 529-to-Roth rollovers, the beneficiary must have earned income of at least the amount being rolled over.

Trump Accounts offer a new option for early retirement savings

Available as of July 2026, Trump Accounts are available to American children under the age of 18 and can only be opened by a parent or legal guardian through the U.S. Treasury. These accounts are a new type of IRA with special rules that apply during what’s called the account’s growth period, which runs through December 31 of the year the beneficiary turns 17. On January 1 of the calendar year the child turns 18, the account will automatically transition to a traditional IRA for the beneficiary.

Eligible children born between January 1, 2025, and December 31, 2028, will receive $1,000 deposited into their account by the U.S. Department of the Treasury, and contributions up to $5,000 per year can be made by parents, family, friends, employers and even the child themselves during the account’s growth period. (Employer contributions are limited to a maximum of $2,500 per year per employee, not beneficiary, and are counted toward the $5,000 annual limit.) Investment options are limited to qualifying U.S. equity index funds with annual fees and expenses capped at 0.10%. There are no earned income requirements for contributions to a Trump Account made on behalf of the beneficiary, which may make them a good option for young children.

Contributions are generally made using after-tax dollars, and growth in the account is tax-deferred. Once distributions are allowed beginning in the year the beneficiary turns age 18, the account will follow traditional IRA rules.

Don't overlook ABLE accounts

For parents of children with a disability, saving for the future may look different than they had imagined. The use of an ABLE account can help support financial planning by enabling individuals with a qualifying disability to save money while preserving eligibility for certain federal means-tested programs.

Only one ABLE account can be opened per beneficiary, and to qualify, an individual must have been diagnosed prior to age 46 and either:

• be entitled to receive Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI), or
• have a signed licensed physician's diagnosis that certifies a qualifying disability.

A parent or legal guardian can establish an ABLE account for an eligible minor beneficiary. If the beneficiary cannot or chooses not to manage the account once the age of majority is reached, the parent or guardian can continue to act on their behalf to manage the account.

Contributions, which are made with after-tax dollars, are capped at $20,000 for 2026. However, a working beneficiary can contribute beyond that if they or their employer do not contribute to a defined contribution plan such as a 401(k) or 403(b) plan during the calendar year. These contributions can be made up to the beneficiary’s gross income for the tax year or the federal poverty line for a one-person household for the previous calendar year, whichever is less.

Additionally, an ABLE account can be funded through tax-free rollovers from a 529 savings plan for the same beneficiary or a different beneficiary within the same family. The rollover amount, combined with any other contributions for the year, cannot exceed the $20,000 annual contribution limit.

Investments in these accounts grow on a tax-deferred basis, and withdrawals used for qualified disability expenses are not taxed. (Tax-advantaged treatment applies to savings used for qualified disability expenses. State tax treatment varies.) If withdrawals are used for purposes other than qualified disability expenses, the earnings will be subject to a 10% federal tax penalty in addition to federal and, if applicable, state income tax.

Teach the next generation about the power of time

With any savings strategy, one obstacle investors may need to overcome is how to fit saving into the budget. This is an opportune time to remind clients that slow and steady can win the race. Encourage savers both old and young to start small with purposeful contributions.

Providing information to the next generation of investors may help them better understand the mechanics of saving. Setting them up with real-world accounts, walking them through the investment process and allowing them to watch their investments change over time has the potential to give them a leg up on their future.