An investment account for kids is a savings or brokerage account a parent or guardian opens on a child’s behalf, with the money invested rather than left as cash. Options range from custodial brokerage accounts and 529 plans to newer teen-owned brokerage accounts and government savings bonds, depending on what the money is for.
Why Open an Investment Account For a Child
Money left in a regular savings account loses value to inflation over time, while an amount invested consistently for 15 or 18 years has room to compound. A parent who sets aside a modest sum every month from a child’s birth gives that money more than a decade to grow before it’s needed for school fees, a wedding, or a first home
The right account depends on what the money is for. An account meant strictly for tuition works differently from one meant to give a child a head start on general savings they can use for anything.
Types of Investment Accounts For Kids
1. Custodial Accounts (UGMA and UTMA)
A custodial account, opened under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA), lets a parent invest on a child’s behalf in stocks, bonds, mutual funds, and other assets. The child legally owns the money, but the named custodian controls it until the child reaches the age of majority, generally 18 or 21 depending on the state. Contributions are irrevocable gifts once made, and individuals can contribute up to $19,000 a year ($38,000 for a married couple) without triggering federal gift tax paperwork.
Because the account is titled in the child’s name, it counts more heavily against financial aid than a parent-owned account, worth weighing if college funding is the main goal.
2. 529 Education Savings Plans
A 529 plan is a state-sponsored account built specifically for education costs. Contributions grow tax-free, and withdrawals used for qualified expenses, tuition, books, and even up to $20,000 for K-12 costs, aren’t taxed either. If a child doesn’t use all the funds, up to $35,000 in leftover 529 money can be rolled into a Roth IRA for that same beneficiary, penalty-free, once the account has been open at least 15 years.
3. Custodial Roth IRA
A custodial Roth IRA works only if the child has earned income, from a part-time job, babysitting, or mowing lawns. A parent opens and manages the account until the child takes it over as an adult, and the money grows tax-free for retirement. Because it’s a retirement account, it isn’t reported as an asset on financial aid applications, an advantage over 529 or custodial brokerage accounts.
4. Coverdell Education Savings Account
A Coverdell ESA works similarly to a 529 but with a hard contribution cap and income limits: individual filers with a modified adjusted gross income above $110,000 (or $220,000 joint) can’t contribute directly. Funds must be used by the time the beneficiary turns 30, and like a 529, growth and qualified withdrawals are tax-free.
5. Teen-Owned Brokerage Accounts
For teens specifically, Fidelity offers a Youth Account that works differently from a custodial account: the teen, not the parent, owns and controls it starting at age 13, placing their own trades and optionally using a debit card, while a parent keeps full visibility through the Fidelity app. There’s no minimum balance to open, and fractional shares let a teen start investing with as little as $1. Similar teen-owned brokerage accounts are also available from other major firms, including Schwab.
6. Series I savings bonds
Series I savings bonds, bought directly through TreasuryDirect.gov, are a low-risk way to set money aside for a child. The minimum purchase is just $25, with a $10,000 per person annual cap, and the interest is backed by the federal government, adjusts twice a year with inflation, and is exempt from state and local tax. If the goal is tax-free money for future tuition, the bond needs to be issued in the parent’s name rather than the child’s, since only an owner who was at least 24 at the time of purchase qualifies for the education tax exclusion, and that exclusion phases out above certain income levels that adjust each year.
How To Choose The Right Account For Your Child
Start with the goal. A 529 plan makes the most sense for money that’s strictly for education. A custodial account is the more open-ended choice if you want flexibility to use the funds for anything, even though it counts more heavily against financial aid.
Consider who controls the money and when, too. Custodial accounts hand full control to the child at 18 or 21 with no restrictions on how it’s spent, which isn’t always what a parent wants for a large balance. Retirement-focused accounts keep the money locked up far longer, suiting long-term goals but doing nothing for near-term needs like school fees.
How much should you invest for a child
There’s no single right number. Custodial accounts and 529 plans generally have no required minimum contribution, though some underlying funds set their own thresholds. A Series I savings bond, by contrast, can be started with as little as $25, and a Fidelity Youth Account has no minimum balance at all, so even a small, consistent monthly amount is enough to start building the habit.
Tax and financial aid considerations
In the US, a portion of a custodial account’s earnings, up to $1,350 in 2026, may be exempt from federal tax, with income above that taxed at the child’s rate up to a further threshold before reverting to the parent’s rate. This is often called the kiddie tax, worth reviewing with a tax professional before assuming a custodial account is automatically tax-efficient.
Financial aid treatment differs by account type. A custodial account, since it’s owned by the child, is assessed more heavily on the FAFSA than a parent-owned 529 plan, while retirement accounts like a custodial Roth IRA aren’t reported at all.
Common Mistakes Parents Make
Choosing an account type before deciding what the money is for is a common misstep; a parent locks funds into a 529 plan, then finds the child heads toward an apprenticeship instead of college. Stopping contributions after the first year is another, since the compounding advantage comes from staying consistent over a decade or more, not from a single large deposit early on.
Ignoring the fine print on custodial accounts also catches people off guard. Once money goes into a UGMA or UTMA account, it belongs to the child, and a parent cannot simply withdraw it back for unrelated expenses.
Final thoughts
There’s no universal best account for a child. A 529 education plan fits a family focused on school costs, a custodial account suits a parent who wants flexibility, and a custodial Roth IRA works once a child has earned income. Match the account to the goal, start with whatever fits your budget, and keep contributing on a schedule you can sustain.
