Best Investing Accounts for Kids (New Trump Accounts?)

What It Covers

Bo Hanson breaks down five investment accounts for children — Trump accounts, 529s, UGMAs/UTMAs, and custodial Roth IRAs — comparing contribution limits, ownership rules, tax treatment, and ideal use cases, while demonstrating how compound growth multiplies a single dollar invested at birth into $647 by retirement age.

Key Questions Answered

• •Trump Accounts — Free Money First: Children born in 2025 or 2026 qualify for a government-funded $1,000 seed deposit into a new Trump account, with an additional $5,000 annual contribution limit from family members. A separate $250 grant from Michael Dell is available for the first 25 million applicants. Because this money costs nothing out of pocket, opening one should be treated as a Step 2 financial priority — capturing free money before evaluating other account types.
• •529 Plans — Education-Specific with a Relief Valve: Contributions to 529s are capped at the annual gift tax exclusion ($15,000) unless superfunded in five-year bunches. Funds are restricted to education expenses, including K–12 private school tuition. Up to $35,000 in unused 529 funds can roll into a Roth IRA for the beneficiary, but only at the annual Roth contribution limit per year — making this a contingency option, not a deliberate planning strategy to exploit.
• •UGMA/UTMA Accounts — Flexible but Tax-Layered: These custodial accounts carry no contribution limits and allow funds to be used for any purpose — weddings, cars, home purchases, or education. However, once investment income crosses certain thresholds, earnings shift from tax-free to the child's rate, then to the parent's rate. The account irrevocably transfers to the child at the state's age of majority, typically 18, so brokerage firms will force the transfer even without parental action.
• •Custodial Roth IRAs — Maximum Long-Term Power: A dollar invested at age 10 carries a 239x wealth multiplier by retirement; at birth, that multiplier reaches 647x. Custodial Roth IRAs capture this compounding tax-free, but require the child to have documented earned income. Contributions are capped at the lesser of the child's earned income or the annual Roth limit ($7,500 in 2026). Income must appear on a tax return, making this account most practical for teenagers with verifiable wages.
• •Wealth Multipliers by Age — The Core Math: Every dollar invested at age 15 becomes $145 at retirement; at age 5, it becomes $394. Saving just $13 per month from birth at a 10% annualized return produces a millionaire. Alternatively, a one-time $1,544 lump sum invested at birth reaches $1,000,000 by retirement. These figures make the case for prioritizing early contributions over waiting for larger amounts, since time is the variable with the highest leverage in the compounding equation.
• •Sequence Matters — Step 8 Before Kids' Accounts: Funding children's investment accounts is a Step 8 action in the Financial Order of Operations, meaning it should only begin after establishing an emergency fund, eliminating high-interest debt, and saving 25% of gross income for retirement. Parents who fund 529s or UTMAs before completing earlier steps sacrifice their own compounding runway. When income increases, a 60/40 split — 60% toward savings goals, 40% toward lifestyle — prevents raises from being fully absorbed by spending.