Giving Your Kids a Strong Financial Foundation

As parents and grandparents, we want to give the children in our lives every possible opportunity to succeed and thrive. And while love, encouragement, and life lessons matter most, money can play a big role too. Whether it’s funding college, helping with a first home down payment, or just giving them options later in life, saving for your child’s future is one of the best gifts you can give.

But where do you start? There are countless ways to save, and each comes with its own rules, tax benefits, and long term impact. Below, I’ll walk you through the top 3 most common and effective ways to save for your child’s future and the ones I’ve seen work again and again for families I advise and have advised in the past. 

IRS Gifting Limits (What You Need to Know First)

Before we dive into accounts, let’s clear up a big misconception: you can’t just pass unlimited money to someone else without the IRS noticing. That’s where gift tax rules come in.

Here’s the quick breakdown:

• Annual Exclusion Limit – Each year, you can give up to a set dollar amount per person without filing a gift tax return. (This number adjusts every year or so with inflation, so check the IRS website for current limits.)

• Lifetime Gift Exemption – Over your lifetime, you can give millions tax-free (again, the number changes over time). Anything above that is taxed between up to 40%, and the donor (the person giving the gift — not the recipient — pays the tax.)
  

Most families won’t bump into the lifetime gift limits, but it’s good to know the rules if you’re putting significant money aside.

1. 529 College Savings Plans

A 529 College Savings Plan is a tax advantaged investment account that’s sole purpose is to pay qualified education costs. Almost every state in the country offers their own 529 College Savings Plan for their residents, and your home state may offer extra tax benefits. Find out more about your resident states 529 Plan at SavingforCollege.com

Why parents like it:

• Tax free growth & withdrawals (if used for qualified education expenses like tuition, housing, books, etc.).

• Control stays with you — your child doesn’t automatically get access and cannot make changes to the account on their own. You are the owner, not the beneficiary. 

• Potential state tax deductions or credits if you use your home state’s plan, you may be able to get some state tax benefits. 

• Transfer up to a lifetime amount of $35,000 to a Roth IRA in the beneficiaries name if for whatever reason the funds will no longer be needed or used for education

Things to keep in mind:

• If money isn’t used for education, earnings are taxed + a 10% penalty (unless it’s a qualified distribution for scholarships, incapacity, etc.)

• Investment options can be limited and fees range typically from 0.25%–1.5%

• You can change beneficiaries (say, from one child to another or to another family member) if plans shift

These accounts are best for families who know they want to prioritize funding education and want the tax benefits that come with it.If you aren’t sure how to start or have more questions on this, then tune in to my blog post all about 529 College Savings Plans.

2. Custodial Investment Accounts – UTMA

A UTMA account is a custodial account that is opened typically (but not limited to) by a parent or guardian. The parent or guardian is named the custodian on the account and is responsible for managing the assets in the account for the minor child until the child reaches age of majority – typically 18 or 21, depending on the state. At that point, the account legally becomes theirs.

Why parents like it:

• Super flexible: funds can be used for anything that benefits the child (education, extracurriculars, travel, etc.).

• Great tool for teaching kids about saving and investing.

• Wide investment options if opened through a brokerage firm.

• There are no limits on contributions (aside from taking into consideration the annual gift tax limits)

Things to keep in mind:

• Contributions are irrevocable, meaning that once you give it, it’s theirs and cannot be reversed. 

• Once they reach majority age, they have full control (and yes, that means they could blow it on a sports car).

• Investment income may trigger taxes (known as the “kiddie tax”)

• This account does have a more significant negative impact on future FAFSA needs as this account is considered an asset of the child. Keep that in mind for future planning. 

This account is best for families who want flexibility beyond just education savings and who value teaching their kids how to manage real money early.

One of the biggest concerns for guardians is the idea that there may be “too much” in the account for the child once they reach age of majority. 

“Do I really want my 18 year old or 21 year old to have $10,000 or $100,000 or $1,000,000 to their name?”

I personally, have never seen any of my young adult clients abuse or disrespect the accounts of which their parents had saved for them. Oftentimes the account was invested and it then became a platform for educating them on investing – what to invest in and why – and motivated them to continue investing at a young age.

But as a parent, I can understand the concern as UTMA’s cannot be “undone” and perhaps there are other personal issues that would impact the child’s ability to appropriately manage the funds.

Depending on your relationship with your child when they reach age of majority and when the ownership of the account switches over to your child, you do have some options available to you to remain abreast of the account and the activity within it, so long as your child approves it.

3. Custodial Roth IRA

Yes, your child can have a Roth IRA! A custodial Roth IRA lets parents or guardians open and manage a retirement account for a minor who has earned income (think babysitting, lawn mowing, or part-time jobs).

Why parents like it:

• Tax free growth and tax free withdrawals in retirement.

• The power of compounding over decades is incredible, starting early gives kids a huge head start.

• Can double as a lesson in both saving and investing.

Things to keep in mind:

• Your child must have earned income to contribute.

• Annual IRA contribution limits apply each year

• Contributions can be withdrawn at any time, but earnings come with restrictions

• If Mom or Dad is a business owner, this could be a great way to get a business deduction AND provide for your child’s future retirement

This account is best for parents who want to set their child up with a massive head start for long term wealth building, especially if their child is earning money as a youngster. 

So Which One Should You Choose?

The truth is that you don’t have to pick just one. It’s likely that all three of these may make sense for your child at some point throughout their childhood. Many families layer these accounts over time because each serves a different purpose. 

• 529 Plan → Earmarked for education, with tax benefits.

• UTMA → Flexible savings and investing that can fund any need or want in the future 

• Custodial Roth IRA → Long-term wealth building and a huge compounding advantage for future retirement

The right mix depends on your goals, your child’s needs, and your comfort with how much control they’ll eventually have.

Final Thoughts to Consider

Saving for your child’s future doesn’t have to feel overwhelming. With the right account (or combination of accounts), you can:

• Give them opportunities you never had.

• Teach them real world money skills.

• Create financial security that grows with them over time. 

The key is starting, even small amounts make a difference over time. 

If you found this helpful, share it with a fellow parent or grandparent who’s thinking about saving for their child’s future.

Resources & Next Steps:

• Follow me on Instagram for daily money, investing, and tax tips.
  
• Learn how to work with me for personalized financial planning.
  
• Download my Free Guide: Top 20 Fun Reads to Raise Financially Confident Kids