Which Savings Account Is Right for Your Child or Grandchild?

Families thinking about a child or grandchild's future have more options today than they did even a year ago. Three accounts come up most often in those conversations (529 plans, UGMA/UTMA custodial accounts, and the newly launched Trump Account), and none of them is automatically the right choice. The decision depends on what you want the money to accomplish.

Here is how each account works, what it may be best suited for, and how to think through which combination makes sense for your family.

529 Plans: Built for Education

A 529 plan is designed for one purpose: funding education. Contributions grow tax-free, and withdrawals for qualified expenses (including tuition, room and board, books, and certain K-12 costs) come out tax-free as well.

There is no annual contribution limit, but staying at or under the 2026 annual gift tax exclusion of $19,000 per recipient keeps contributions out of gift tax reporting territory. A family member wanting to make a larger contribution upfront can use the super-funding election, which allows up to $95,000 per beneficiary in a single year by front-loading five years of exclusions. Married couples can contribute up to $190,000 per beneficiary this way.

The strength of a 529 is the tax-free compounding on money you are confident will go toward education. The limitation is what happens if education is not the destination. Withdrawals of earnings for non-qualifying purposes are subject to income tax and a 10% penalty. A newer provision does allow up to $35,000 to roll into a Roth IRA after the account has been open for at least 15 years, but it comes with conditions and is not a full substitute for flexibility.

529 plans make the most sense when education is the clear intent and the family does not anticipate needing to redirect those funds. However, it is worth knowing that qualified expenses include trade and vocational programs, not just four-year colleges, and that the beneficiary can be changed to another family member without triggering taxes or penalties. Those two provisions give 529s more flexibility than they sometimes get credit for.

UGMA/UTMA Custodial Accounts: Maximum Flexibility

A Uniform Gift to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) account is a custodial account opened and managed by a parent or grandparent, held in the child's name. There are no contribution limits and no restrictions on how the funds can eventually be used. The child can spend the money on college, a car, a down payment on a home, or anything else entirely. (For more information on how UTMA/UGMA accounts can be used in education planning, see our blog “Smart Education Planning, Part 2: What Accounts to Use & How to Use Them.”)

The trade-off is taxes and timing. Investment earnings inside these accounts are taxed annually. Once the child reaches the age of majority (typically 18 in Louisiana and up to 21 in some states), the assets transfer to them outright. There are no conditions and no way to change course at that point.

That flexibility is genuinely valuable. But it also means a child who turns 18 with a sizable custodial account has full legal control over those assets. Whether that feels reassuring or concerning depends on the family.

It is also worth noting that UGMA/UTMA accounts have no Roth conversion pathway, which can matter if long-term retirement wealth is part of the goal.

Trump Accounts: A New Wealth-Building Tool

Trump Accounts became available for contributions on July 4, 2026, as part of the One Big Beautiful Bill Act. They are structured as custodial traditional IRAs for children under 18. Any child with a Social Security number is eligible, and family members can contribute up to $5,000 per year with no earned-income requirement.

During the growth period, funds are restricted to low-cost U.S. equity index funds and cannot be withdrawn before the child turns 18, at which point the account converts to a standard traditional IRA.

The reason Trump Accounts belong in this conversation is what that conversion makes possible. Contributions are made with after-tax dollars, so when the account converts at 18, a young adult with modest income can convert some or all of those assets to a Roth IRA at a very low tax rate. No other savings vehicle offers a comparable path to Roth conversion at that scale.

We covered the full mechanics and planning opportunity in a recent post: “Trump Accounts: A New Way to Build Long-Term Wealth for Your Children.”

How to Think About Using These Accounts Together

These accounts are not mutually exclusive, and in many cases, the right approach is a combination rather than a single choice.

If education funding is the primary goal, a 529 plan is purpose-built for it. If flexibility is what matters most, a UGMA or UTMA account gives the broadest range of options. If you want to give a child a meaningful foundation for long-term financial security, a Trump Account offers a Roth conversion opportunity that nothing else can replicate at the same scale.

A family might hold a 529 for education, a Trump Account for retirement wealth building, and a UTMA for funds they want to keep flexible. Each account serves a different function, and together they can cover a lot of ground.

The right combination depends on your family's goals, tax situation, and time horizon.

How We Can Help

Helping clients think through education funding and long-term planning for their families is part of the financial planning work we do. If you have questions about which accounts make sense for your situation or how to coordinate them as part of a broader plan, we would be glad to talk it through. Schedule a complimentary call with a fiduciary, fee-only financial advisor.