Investing early for your child’s future can set them up for financial success. Here are the best investment accounts for kids, excluding traditional savings options like CDs or high-yield savings accounts:
Top 5 Investment Accounts for Kids in June 2024
1. Teen-Owned Brokerage Account
Who’s it for: Parents who want their teens (ages 13-17) to learn hands-on about investing.
Benefits: Teens can manage the account with parental oversight. No minimums or fees with options to invest in stocks, ETFs, and mutual funds.
Example: Fidelity Youth® Account
2. 529 College Savings Plan
Who’s it for: Parents saving for their child’s higher education.
Benefits: Contributions are after-tax, but earnings grow tax-free. Withdrawals are tax-free for qualified education expenses. Flexibility to change beneficiaries or roll over to a Roth IRA.
Note: Each state offers different plans with potential tax benefits.
Example: Various state-sponsored plans
3. Coverdell Education Savings Account (ESA)
Who’s it for: Those seeking tax-advantaged savings for K-12 and higher education.
Benefits: Contributions are not deductible, but grow tax-free. Withdrawals for education expenses are tax-free. Offers broader investment choices.
Limit: Income limits apply for contributors.
Example: Open at banks, credit unions, or brokerages
4. Custodial Roth IRA
Who’s it for: Parents wanting to kick-start retirement savings for working kids.
Benefits: Contributions are taxed, but grow tax-free. Early withdrawals for certain purposes without penalties.
Note: Beneficiary must have earned income.
Example: Managed by parents until child reaches adulthood
5. UGMA/UTMA Custodial Accounts
Who’s it for: Those wanting to gift assets with minimal restrictions.
Benefits: Funds can be used for any purpose once the child reaches adulthood. No contribution or income limits.
Consideration: Assets count as student assets for financial aid purposes.
Examples: UGMA (Uniform Gift to Minors Act) or UTMA (Uniform Transfer to Minors Act)
Choosing the right investment account depends on your goals—whether saving for education or building long-term wealth. Each option offers unique benefits tailored to different financial objectives and family circumstances. Start early to maximize the benefits of compounding and ensure a secure financial future for your child.
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