How to Make a Big Impact on a Child’s Future

Becoming a parent or grandparent can be one of life’s most meaningful experiences. Set your child or grandchild on the road to financial success by saving for their future. Establishing an investment account today can provide a beneficial cushion for their education, a major life event and even retirement. When you invest early, you can take advantage of compounding, which allows savings to grow exponentially over time.

Raising a child can be expensive. According to a recent study, families could spend almost $300,000 over 18 years to raise a child.¹ This amount doesn’t even include the cost of a college education. Taking that into consideration, even moderate amounts saved today can grow into a significant sum over time. All it takes is saving at regular intervals such as monthly or quarterly contributions or on special occasions including birthdays or holidays.

Depending on your goals, here are three types of investment accounts parents and grandparents can open and save on behalf of their child or grandchild:

529 Plan

This is a tax-advantaged account designed to help families save for future educational expenses. Typically, these accounts are sponsored by state governments and many states will allow you to deduct your contributions on your state income tax return. The money can be withdrawn for qualified educational expenses without paying tax on any investment gains.

Important Note: 529 plan owners can roll over up to an aggregate lifetime limit of $35,000 into a Roth IRA for the benefit of the 529 plan beneficiary. There are a few limitations:

• The rollover is subject to the $7,000 rollover limit for 2025 and must be in the same name as the 529 plan beneficiary.
• The account must be open for at least 15 years prior to the rollover.
• Any 529 contributions made within the last 5 years are ineligible.

Custodial Uniform Transfers to Minors Act (UTMA) Account

This is an easy-to-open account whereby the custodian manages the account on behalf of the child until they reach the age of majority, which can be between 18 and 25, depending on the state of residence. Assets in an UTMA account can include cash, securities, real estate, and other types of property. The funds in the account can be used for any purpose, not just educational expenses. Anyone can contribute to the account and there are no contribution limits. (Individuals can contribute up to $19,000 free of gift tax in 2025.)

Traditional Brokerage Account

For parents and grandparents who want more control over what custodial accounts allow, opening a traditional brokerage account in your own name and reserving the money for the child could be a solution. The adult will have to pay taxes at their tax rate, but this type of account comes with fewer restrictions and it can be retitled in the child’s name once you feel they are ready to take it over.

1 LendingTree, 3/31/25.