Most parents open a savings account for their kids and call it done. However, exploring the best investment accounts for children can offer even greater financial opportunities for their future.
That account, sitting at 0.01% interest at your neighborhood bank, is losing to inflation every single year.
There are three accounts that actually build wealth for children. They work differently, they have different tax advantages. Today we’re going to walk through all three: what each does, the order to open them, and the one that most parents skip that is arguably the most powerful.
First: The 529 Education Savings Account
Most parents have heard of this one. A 529 is a state-sponsored, tax-advantaged account designed for education expenses. Contributions grow tax-free, and withdrawals are tax-free when used for qualified education expenses per the IRS — including tuition, room and board, books, and now K-12 tuition up to $10,000 per year.
Two things worth knowing that changed recently: first, unused 529 funds can now be rolled into a Roth IRA for the beneficiary, subject to limits — which eliminated the old “what if my kid doesn’t go to college” objection entirely. Second, there are no annual contribution limits, though larger contributions may have gift tax implications.
$100 a month starting at birth compounds meaningfully by the time a child turns 18. Two strong options to open one: Fidelity 529 (no account fees, strong index fund options) and Vanguard 529 (among the lowest expense ratios available).
Second: The Custodial Brokerage Account (UGMA/UTMA)
A 529 is restricted to education. A custodial brokerage account — typically set up under UGMA or UTMA rules — puts money in your child’s name with no restrictions on what it can eventually be used for. You control the account until your child reaches the age of majority.
This is also the best financial teaching tool available. The 2025 Greenlight Family Trends Report found that kids and teens invested more than $70 million in total in 2025 — up 65% year over year. Kids who learn about investing by doing it understand money differently than kids who only hear about it.
Greenlight is the most widely used app for this — it pairs a kids debit card with real investing features and lets your child buy fractional shares of actual stocks and ETFs. The Fidelity Youth Account is another strong option with no account minimums.
One important note: custodial account funds are counted as the child’s asset for financial aid purposes and can affect eligibility more than a 529. If college funding is the primary goal, fund the 529 first.
Third and Most Overlooked: The Custodial Roth IRA
Here is the account most parents don’t know exists.
If your child has earned income — babysitting, lawn care, a part-time job, acting, any legitimate paid work — they are eligible to contribute to a Roth IRA. You can make the contribution on their behalf, up to the amount they earned, with a 2026 maximum of $7,000 per IRS guidelines.
The Roth grows tax-free and withdrawals in retirement are tax-free. A $6,000 contribution at age 14, growing at an average of 7% annually, becomes approximately $205,000 by age 65. From one year’s contribution.
Both Fidelity and Vanguard allow custodial Roth IRAs. Open one the moment your child has any earned income, even a few hundred dollars.
The Order to Open Them
- Start with the 529 early. Monthly contributions compound over time.
- Add the custodial brokerage account when your child is old enough to engage with what they’re watching.
- Open the custodial Roth the moment your child has any earned income.
These three accounts address the three things children need most heading into adulthood: education funding, an investment foundation, and the start of retirement savings.
Most adults wish someone had done this for them.
Be the parent who does. Share this with any parent you know who has kids under 12 — these accounts take about 30 minutes to open.
Want to keep this conversation going?
Parents in our community are already comparing notes on which accounts they opened first, how they’re talking to their kids about money, and what’s actually working. Come learn from them — and share what you’re doing — at facebook.com/groups/parenthoodtogether.
We’re better together.
Parenthood Together — parenthoodtogether.com
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The information in this article is for educational purposes only. Parenthood Together does not provide personalized investment or financial advice. Please consult a certified financial planner (CFP) or investment professional before opening accounts or making investment decisions on behalf of your child.
