A Parent’s Guide to Investing for Minor Children

As financial advisors, we get asked questions from parents about how to best save and invest for their young children’s futures. The answer has become complicated, because not all parents have the same objectives or desires for their kids’ future. Commonly, the goal is funding future education, but other times it’s building generational wealth, or providing a financial head start. Knowing the options makes choosing a starting point much easier.

The days of buying government savings bonds are all but gone. The two best known options nowadays are 529 Plans and UTMA (Uniform Transfers to Minors Act) accounts, but other popular alternatives exist, and should be considered as well. This article will outline a range of useful account types, each with unique characteristics such as account ownership, tax benefits, contribution limits, investment choices, and costs.

For many years, HighPoint Advisors, LLC has been helping parents and guardians make decisions about investing for the benefit of younger children. Serving clients in Syracuse, NY as well as cities and states across the country, we provide guidance on wealth management, special needs planning, insurance planning, as well as many other areas of financial planning for individuals and families.

529 Plans

These tax-advantaged accounts are designed specifically to save for education expenses, and offer a range of worthwhile benefits.

Account Ownership: Owned by a parent, grandparent, or Guardian. The child is the beneficiary and does not own the account.
Tax Benefits: 529 Plans offer a wealth of financial benefits. Although contributions are made with after-tax dollars, the growth in the account is tax-deferred. Withdrawals are tax-free, as long as used for qualified education expenses (tuition, room & board, equipment, books, etc.). A state tax deduction for contributions exists in many states as well.
Contribution Limits: Federally, there are no contribution limits, but contributions are considered gifts for tax purposes and are subject to the annual gift tax exclusion ($19,000 per individual for 2025, or $38,000 for married couples). Individual states may set overall contribution limits, but those limits are quite high.
Investment Options: Typically, options include simplified choices such as pre-selected mutual funds or age-based portfolios.
Costs & Fees: Usually low administrative costs, but may have other maintenance fees or sales charges. Investment fund expenses will vary from fund to fund.
Bonus Benefit: For financial aid purposes, 529 Plans are considered a parental asset (not an asset of the child), and that can limit the negative impact on aid eligibility.

UTMA (Uniform Transfers to Minors Act) Accounts

UTMA accounts allow for the transfer of assets from a parent or Guardian to a minor child, while keeping control of the assets until the child reaches the age of adulthood.

Account Ownership: Legally, the transferred assets belong to the minor. The grantor custodian manages the account until the legal age of majority (age 18-21 for most states).
Tax Benefits: Mixed, or partial benefits. Investment income after a threshold ($2,700 for 2025) is taxed at the parents’ rate, which is called the “kiddie tax.” UTMA accounts do qualify for capital gains treatment though.
Contribution Limits: None, but gift tax may apply to contributions above the annual gifting limit. Contributions are made with after-tax dollars.
Investment Options: No specific limitations. Stocks, bonds, mutual funds, ETFs, and others are common.
Costs & Fees: May have an annual fee or maintenance cost, and transactions costs are unlikely. Costs are generally low unless complicated investments are used.

(Taxable) Brokerage Accounts

If parents want full flexibility with no restrictions on account usage, then a standard brokerage account is a great option. The account could either be owned by the parent, or in the name of the minor child with the parent serving as Guardian until adulthood.

Account Ownership: A parent could own it outright, or a parent could serve as Guardian for the minor until the age of adulthood.
Tax Benefits: No distinct tax benefits, but long-term capital gains are taxed at favorable rates.
Contribution Limits: Contributions made with after-tax dollars.
Investment Options:
Costs & Fees: Brokerage platforms usually have transaction charges or other trading fees, as well as an annual maintenance fee.

Custodial Roth IRA

If the goal is to teach young children about long-term investing or retirement planning, then a Custodial Roth IRA can be the way to go. The one catch is that the minor child must have earned income to qualify.

Account Ownership: The minor child technically owns the account, but a parent of Guardian manages it until the age of majority.
Tax Benefits: Contributions are made with after-tax dollars, and growth in the account is tax-deferred. Withdrawals are fully tax-free after the age of 59.5, but contributions can be taken out at any time.
Contribution Limits: Limited to the minor’s earned income or the annual IRA contribution limit ($7,000 for 2025), whichever is less.
Investment Options: Similar to adult IRAs, which are essentially unlimited.
Costs & Fees: Depends on the chosen investment platform, but are generally low for IRAs.

Choosing the Right Account

As you’ve now learned, there are a number of different options to save for a minor child’s future. The right choice depends on the family’s financial goals. Parents focused on future education savings may prefer a 529 Plan, while those that want broader investment flexibility may choose a UTMA account or a brokerage account, for example. To determine which option is best, a family must consider such things as time horizon, tax implications, desired amount of flexibility, and costs.

Our advisors at HighPoint Advisors, LLC understand these options, and can help parents make informed decisions to secure their children’s financial futures. We’re here to help parents evaluate these factors and tailor a strategy that aligns with specific family needs and goals. Keep in mind that sometimes a combination of account types may provide the best balance of benefits and flexibility to meet a family’s unique financial goals.

Don’t hesitate to Contact Us today to learn the best options to save for your children’s financial future!

Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.