College Savings Trump Accounts, 529s and other ways to save for kids

For decades, parents and grandparents saving for their children have relied on a familiar set of tools: 529 plans as an education-focused solution, Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) accounts for broad-use savings and custodial IRAs for retirement savings when a child has earned income. The introduction of Trump Accounts in July 2026 as a retirement vehicle for minors adds another dimension to that landscape.

With a new option available, it’s a good time to get in front of clients to discuss the best ways for them to save for their children and grandchildren. These custodial accounts may be small in relation to a client’s total portfolio, but they are often a first step in generational wealth transfer — one of the most crucial aspects of wealth planning. 

Financial advisors can add meaningful value by discussing savings options for minors. These options may differ in purpose, contribution limits, earned income requirements, tax treatment of growth and distributions, and control of assets. Understanding these distinctions is essential to helping clients choose confidently.

Trump Accounts: A new retirement vehicle for children

Trump Accounts, available as of July 4, 2026, can be best described as a retirement-focused savings vehicle designed to jump-start long-term accumulation early in life. Accounts must be created through the U.S. Treasury Department and cannot be opened directly at a financial institution. Parents can elect to establish the account through TrumpAccounts.gov or the applicable IRS form.

Contributions made by individuals are generally made using after-tax dollars; growth is tax-deferred, and distributions will ultimately follow traditional IRA rules beginning at age 18. Employers may allow employees to make pre-tax contributions through a Section 125 cafeteria plan. Notably, these accounts do not require earned income, which distinguishes them from custodial IRAs and broadens their availability.

Trump Accounts are required to invest in low-cost U.S. equity index funds, with expense ratios capped at 0.10%. While this helps keep costs low, it also constrains the advisor’s role, leaving little need for ongoing management of the account itself.

Additional features create unique planning opportunities:

• A $1,000 federal seed contribution for eligible children born between Jan. 1, 2025 and Dec. 31, 2028.
• The ability to receive employer contributions (up to $2,500 per employee per year)
• The ability to receive contributions from charitable organizations (subject to certain restrictions)
• A per-child annual contribution limit of $5,000 ($1,000 government and charitable contributions do not count toward the limit)

Employer contributions are per employee, not per child, allowing a Trump Account to receive funding from multiple employers (e.g., a child’s and a parent’s). However, each employee’s $2,500 limit must be shared across all of their dependents, and all employer contributions count toward the $5,000 annual cap.

It’s important to note that Trump Accounts are newly established under the 2025 One Big Beautiful Bill Act, and while the IRS has issued initial guidance on the accounts, it has also stated additional regulations are coming.

From a planning perspective, one of the more advanced considerations is the potential for tax-efficient Roth conversion strategies in early adulthood, when income — and tax rates — may be low.

However, these benefits come with trade-offs:

• Contributions from individuals do not currently qualify for the annual gift tax exclusion; this treatment may change in the months ahead.
• Assets are owned by the child, with control transferring at age 18.
• Distributions are generally prohibited during the “growth period” (until December 31 of the year the beneficiary turns age 17).
• Basis tracking can be complex, given multiple contribution types with differing tax treatments.
• The only way to establish a Trump Account is through the U.S. Treasury.

For families prioritizing long-term, retirement-oriented outcomes — and willing to manage added administrative complexity — Trump Accounts can be a compelling option. For advisors, the launch of Trump Accounts presents an opportunity for client conversations. Clients may be curious or even confused about how Trump Accounts work, and advisors can offer clarity. As well, advisors can turn interest in Trump Accounts into a larger conversation about savings and wealth transfer.

UTMA and UGMA accounts: Broad-use savings with flexibility

UTMA and UGMA accounts are best defined as custodial investment accounts for broad-use savings.

Their primary advantage is flexibility:

• Funds may be used for the minor’s benefit while custodial.
• Once control transfers from the custodian, the beneficiary may use assets for any purpose without restriction.

These accounts also have no contribution limits at the federal level, and contributions generally qualify for the annual gift tax exclusion. However, this flexibility comes at the cost of tax efficiency:

• Earnings are fully taxable annually.
• Kiddie tax rules apply, meaning unearned income may be taxed at the parent’s rate.

From a planning perspective, advisors may use these accounts to help clients:

• Manage taxable income through strategic gain harvesting within kiddie tax thresholds.
• Introduce children to investing, given their broad investment flexibility.

Still, there are certain limitations to consider, including: no tax-advantaged growth and loss of parental control at the age of majority. For families comfortable prioritizing flexibility over tax advantages, UTMA and UGMA accounts can serve a defined role, but they are rarely the most tax-efficient option

Custodial IRAs: Tax-advantaged retirement savings for kids who work

Custodial IRAs remain one of the most tax-efficient ways to save for a child, but they are only available when the child has earned income.

Like Trump Accounts, they are designed as retirement-focused savings vehicles, though they generally offer more flexibility in how and when funds may be used as well as a broad range of investment options. Traditional IRAs may offer deductible contributions and tax-deferred growth, while Roth IRAs are funded with after-tax contributions but allow for tax-free earnings when taken as part of a qualified withdrawal. Contributions are limited to the lesser of the annual IRS limit ($7,500 for 2026) or 100% of the child’s earned income, which often constrains how much can be contributed in a given year.

A custodial Roth IRA, in particular, can be powerful:

• Contributions are made at typically low child tax rates
• Earnings can grow tax-free if qualified withdrawal rules are met
• Unlike UTMA/UGMA accounts, custodial IRAs do not create kiddie tax exposure, reinforcing their tax efficiency.

That said, there are important limitations:

• Earned income is required, limiting access and contribution levels
• Assets are owned by the child, with control transferring at the age of majority
• Withdrawals before age 59½ may be subject to a 10% federal penalty tax

In practice, custodial IRAs are often best viewed as opportunistic retirement savings vehicles, used when earned income is available rather than as a primary, universal solution.

529 plans: The cornerstone of education-focused savings

529 plans remain the leading solution for education-focused savings, offering a combination of:

• Tax-deferred growth
• Tax-free distributions for qualified education expenses
• Qualified expenses range beyond traditional college costs to include other educational expenses
• The ability to accumulate meaningful assets over time creates planning opportunities, including gifting/estate planning strategies
• Continued account owner control, including the ability to change beneficiaries

Contributions are made on an after-tax basis. The earnings grow tax-deferred, and withdrawals are free of federal income tax and generally not subject to state tax when used for qualified education expenses. Many states also offer tax deductions or credits for 529 contributions. 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.

Unlike custodial accounts, assets remain under the control of the account owner and the beneficiary does not automatically gain control at a specific age.

For families concerned that a child may not attend college or may not use the entire account balance, 529s offer two ways to use excess savings: They can be converted into a Roth IRA or they can be transferred to another child.

While unused funds in a 529 plan can be rolled over directly into a Roth IRA for the beneficiary without taxes or penalties, there are certain limitations: The 529 account must be at least 15 years old; the amounts rolled over must have been in the account for at least 5 years; the Roth IRA must be in the name of the 529 plan beneficiary; rollover contributions must fall within annual Roth IRA contribution limits and are reduced by any “regular” traditional or Roth IRA contributions made by the beneficiary in that year; and total rollovers are limited to a lifetime maximum of $35,000 per beneficiary.

Additionally, 529 plans come with defined limitations:

• Use is restricted to a wide range of qualified education expenses
• Nonqualified withdrawals trigger taxes and penalties
• K–12 withdrawals are capped annually (currently at $20,000) and state treatment varies
• Overfunding risk may arise if education plans change

Despite these considerations, 529 accounts’ combination of tax advantages and retained control continues to make them the cornerstone for education-specific goals.

Additional considerations: ABLE and Coverdell accounts

ABLE accounts provide tax-deferred growth and tax-free withdrawals for qualified disability expenses, while preserving eligibility for means-tested benefits like SSI and Medicaid, making them a useful planning tool for families prioritizing long-term financial security for a child with special needs. From an advisor perspective, ABLE accounts often complement, rather than replace, other vehicles. Tax-advantaged treatment applies to savings used for qualified disability expenses. If withdrawal 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.

Another possible complementary strategy is Coverdell education savings accounts, which offer tax-free growth and distributions for qualified education expenses. However, relatively low contribution limits and income eligibility restrictions typically position Coverdells as a supplemental strategy to be used alongside 529 plans when families want more flexibility in how and when education dollars are spent.

The advisor’s role: Matching account type to objective

The addition of Trump Accounts doesn’t replace existing strategies — it expands the decision set. Each account can be mapped to a distinct planning objective:

• Education-focused goals → 529 plans
• Retirement-focused goals → Trump Accounts or custodial IRAs
• Flexibility and broad-use savings → UTMA/UGMA accounts

In many cases, a combination of accounts may be appropriate, with each serving a different purpose.

Ultimately, saving for younger family members is not just about contribution limits or tax treatment. It’s about aligning account type, control, timing and intended use with a family’s broader financial goals.