Investment Accounts for the Next Generation: Key Takeaways

Investment Accounts for the Next Generation

Preparing financially for a child’s future now involves more choice than ever, with a new account type called a “Trump Account” joining long-established options. Whether the goal is to save for education, home purchases, or retirement, today’s families must balance tax treatment, control, investment flexibility, and financial-aid implications. This overview highlights the key features of 529 plans, UTMA (Uniform Transfers to Minors Act) accounts, custodial Roth IRAs, and the newly introduced “Trump Accounts” to help determine which vehicle best aligns with your planning priorities.

529 Plans: The Core Education Savings Vehicle

529 plans remain the core education-funding vehicle of choice because they provide tax-free withdrawals for a range of education-related expenses, including college costs, K–12 tuition, apprenticeships, and certain student-loan repayments. The account owner retains full control and can change beneficiaries as needed. Qualified withdrawals are tax-free, and many states offer additional tax benefits for contributions. Unused funds may be rolled over to the beneficiary’s Roth IRA—up to the $35,000 lifetime limit and subject to annual Roth contribution limits—helping reduce overfunding risk. For financial-aid purposes, 529s are favorable because they are treated as parent assets, and distributions from grandparent-owned accounts no longer count as student income. There is no annual contribution cap for 529 plans, allowing families to contribute up to the annual gift-tax exclusion amount ($19,000 per donor or $38,000 per married couple in 2026) or “superfund” up to five years’ worth at once ($95,000 per donor or $190,000 for a married couple).

UTMA Accounts: Flexibility With Trade-Offs

Alternatively, UTMA accounts allow donors to make irrevocable gifts to a child, and the funds can be used for a broad range of purposes that benefit the minor. A custodian manages the account until the child reaches the state’s age of majority (typically age 18 or 21 but can be as late as 25). Compared to 529 accounts, which have pre-selected investment funds available for investment, UTMA accounts offer a wider range of investment options. However, income generated by the portfolio is taxed to the child and subject to kiddie tax once income exceeds the annual threshold. Because UTMAs are considered the student’s asset, they carry a higher impact on financial-aid calculations.

Like 529 plans, there is no annual contribution cap on money placed into a UTMA, however, parents should be aware of gift-tax exclusion amounts as mentioned above. Donors should also be aware that control transfers fully to the child at majority, making them responsible for any taxes, investment decisions, and distribution selections on the account at that point.

Roth IRAs: Early Retirement Savings

Parents can open custodial Roth IRAs to contribute on behalf of a child who has earned income, making them a powerful tool for long-term wealth building. Contributions are made with after-tax dollars, so that investment growth and qualified withdrawals are tax-free. A custodian manages the account until the child reaches the age of majority, at which point control transfers fully to the child. While contributions are limited to the child’s earned income (up to annual IRS limits which is $7,500 for 2026), a long-time horizon can significantly amplify compounding benefits even on modest contributions. Funds are intended for retirement, though contributions (not earnings) can be withdrawn tax- and penalty-free if needed.

“Trump Accounts” (One Big Beautiful Bill Act initiative): New and Still Developing

What we know so far:

Unlike custodial Roth IRAs, which have an earned income requirement to contribute, the newly introduced “Trump Accounts” allow anyone to contribute $5,000 per year to what functions very much like a custodial Traditional IRA. A custodian manages the account for the minor until the child reaches the age of majority. The U.S. government is offering a one-time seed contribution of $1,000 for any child born between 2025 and 2028.

As part of the $5,000 annual contribution, an employer may contribute up to $2,500 to an employee’s “Trump Account” and exclude that from their wages. Funds cannot be withdrawn before age 18 and only partial access is granted between ages 18 and 24 for specific purposes, such as buying a first home or the birth of a child. The account follows an equity-only, low-fee mutual fund or ETF investment mandate. Investment earnings grow tax-deferred until withdrawals are made and taxed as ordinary income.

Several issues remain unresolved, including financial-aid treatment, employer-contribution reporting, state-level treatment, and creditor protections. For now, these accounts should be viewed as a future complement to, rather than a replacement for, 529 plans or UTMA accounts.

For those interested in opening an account, the accounts will become available on July 5^th, 2026, and can be opened via a Form 4547 submitted with your 2025 tax filing or there will be an online portal launching next year for online submissions as well.

Choosing the Right Account

Use a 529 when:

• Education funding is the priority
• You want tax-free growth and withdrawals, and strong estate-planning benefits
• You value some flexibility (beneficiary changes, Roth IRA rollover option)

Use a UTMA when:

• You want spending flexibility beyond education
• You are comfortable with irrevocable gifts and transfer of control at majority age
• Tax efficiency is less important than broad use cases

Use a Roth IRA when:

• Your child has earned income making them eligible to contribute
• You want long term compounding for retirement
• You are comfortable with transfer of control at majority age

Use Trump Accounts when:

• You want to capture federal seed or employer contributions
• You are comfortable with long-term equity exposure and funds locked until age 18
• You want to jump start a potential retirement savings vehicle

As always, with new rules and accounts come new considerations. At Hollow Brook, we are here to help you navigate these changes and maximize the advantages of 529 plans, UTMA accounts, and Trump Accounts to help you achieve goals for your family. The landscape of saving and investing is evolving, but one goal remains the same: to empower the next generation with early access to investing and compounding assets for long term financial stability. With a well-funded plan and the expanded flexibility on the horizon, you will be well-positioned to support your loved ones on their financial journey, wherever it may lead. We invite you to connect with us to explore your options and determine how best to navigate these evolving possibilities.