Best Way to Gift Money to a Child: 10 Options, From 529s to Money Jars

By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.

For most high-income families, the best way to gift money to a child is a 529 plan for education money, a custodial (UTMA) account for money the child may use for anything after adulthood, and a small amount of cash the child actually handles so the gift teaches something. For 2026, each parent or grandparent can give $19,000 per child without filing a gift tax return, and a married couple can give $38,000 per child ($19,000 from each spouse). Which account the money lands in matters more than the amount, because each one has different rules on taxes, control and when the child gets it.

This guide is written for W-2 households in California and Washington earning roughly $750,000 to $3 million, with young children and often grandparents who want to give too. It covers ten ways to give money to a kid, from tax-advantaged accounts to money jars, with a worked example at your income level.

The gift tax rules that apply to every option

For 2026, the federal gift tax annual exclusion is $19,000 per donor per recipient (IRS Rev. Proc. 2025-32). Two parents together can give $38,000 to each child, $19,000 from each. Grandparents have their own $19,000 each. The exclusion is the same whether the money goes into a 529, a UTMA or a plain bank account. There is no separate “UTMA contribution limit”.

Giving more than $19,000 does not trigger tax for most families. It requires a Form 709 filing and uses part of the donor’s lifetime exclusion, which is $15,000,000 per person for 2026 (IRS). Washington residents should note that the state has its own estate tax with a far lower exclusion ($3,000,000 for deaths from July 1 to December 31, 2026, per Washington DOR), so lifetime gifting can be part of a Washington estate plan.

One more rule worth knowing: tuition paid directly to a school, and medical bills paid directly to a provider, are not treated as gifts at all (Form 709 instructions). A grandparent who pays a grandchild’s private school tuition straight to the school keeps their full $19,000 exclusion for other gifts.

Ten ways to give money to a kid, compared

1 and 2. The 529 plan, including superfunding

A 529 is usually the first place for gift money meant for school. Earnings grow tax-deferred and come out tax-free for qualified education costs. California gives no state deduction for 529 contributions (FTB; the 2025 bill that would have added one died), and Washington has no individual income tax in 2026, so there is no state deduction to claim there either (a new 9.9% Washington tax on income over $1,000,000 takes effect in 2028, per Washington DOR). For families in both states, the benefit today is the tax-free growth, not a deduction.

The five-year election lets one donor put in up to $95,000 per child in 2026 (5 x $19,000) and treat it as given over five years, or $190,000 for a couple who split gifts (Form 709 instructions). This suits grandparents who want to move a large sum early so it compounds for longer. It requires a Form 709, and further gifts from that donor to that child during the five years generally use part of the donor’s lifetime exclusion. Our comparison of superfunding versus annual contributions walks through the trade-offs.

3. UTMA and UGMA custodial accounts

A custodial account holds money that legally belongs to the child. The parent manages it until the child reaches the transfer age, then the child gets full control. In California the default age is 18, a lifetime gift can delay it to 21, and a will or trust transfer can delay it to 25 (Cal. Probate Code 3920.5). In Washington, gifts generally transfer at 21, and the person setting it up can extend to 25 when naming the custodian (RCW 11.114.200). The delay has to be written into the account setup, so ask for it at opening.

Earnings are taxed under the kiddie tax. For 2026, the first $1,350 of a child’s unearned income is tax-free, the next $1,350 is taxed at the child’s rate, and unearned income above $2,700 is taxed at the parents’ rate (Rev. Proc. 2025-32). At your income, that means much of the interest and dividends in a large UTMA can end up taxed at your rates rather than the child’s. See our guide to UTMA contribution rules for more.

4. A custodial Roth IRA, only with real earned income

A child of any age can have a Roth IRA, but contributions are limited to the lesser of $7,500 for 2026 or the child’s taxable compensation (IRS Pub 590-A; Notice 2025-67). Allowance, birthday money and investment income do not count. If your 10-year-old earns $1,200 for genuine, documented work at a market rate, you can gift $1,200 into their Roth and let them keep the paycheck. Paying a child for invented work to fund a Roth is a mistake the IRS can challenge.

5. Trump accounts, new for 2026

Trump accounts are a new type of account for children under 18. Contributions cannot start before July 4, 2026, and are capped at $5,000 per year in total, of which an employer can add up to $2,500. Children who are U.S. citizens born from January 1, 2025, through December 31, 2028, can receive a one-time $1,000 federal contribution. The money must be invested in index funds of mainly U.S. stocks, generally cannot come out before January 1 of the year the child turns 18, and after that the account is treated like a traditional IRA (IRS guidance; IRS Trump Accounts).

For a family at your income, the $1,000 for a baby born in the window and any employer contribution are worth claiming. Beyond that, compare it with a 529: 529 growth can come out tax-free for education, while traditional IRA treatment generally means taxable withdrawals of growth later.

6. Series I savings bonds

A bond is a gift a child can see and wait for. One Social Security number can buy up to $10,000 in electronic I bonds per calendar year through TreasuryDirect. A bond cannot be cashed for 12 months, and cashing before five years costs the last three months of interest. For a high-income family, bonds are small relative to other options. Their value is the lesson in patience, not the return.

7. Paying tuition directly

If a grandparent wants to help with private school, paying the school directly keeps the gift outside the $19,000 limit, as noted above. It frees the grandparent’s annual exclusion for a 529 or UTMA gift to the same child in the same year.

8, 9 and 10. Ways that teach, not just save

The accounts above build wealth. They teach a child very little, because a 6-year-old never sees a 529. Keep a small share of each gift in a form the child handles.

• Spend, save, give jars (ages 4 to 8). Split each cash gift three ways in clear jars. The child decides what the “give” jar funds, and you tell them why your family gives.
• A family bank that pays interest (ages 7 and up). You hold the child’s savings and pay, say, 5% a month on the balance while it is small, so compounding becomes visible within a season. The rate is a teaching tool, not a market rate; cap the balance so it stays small.
• One share, with a letter. For a birthday, buy one share of a company the child knows inside their custodial account, and write a short note on why you chose it and what you would want them to do with it at 18.

Our guide on building financial literacy in children goes further on age-by-age habits.

Worked example: a $1.1 million household in San Jose

Assumptions (illustrative): married parents, a biotech scientist and a software engineer, $1.1 million combined W-2 income, children aged 4 and 9. The grandparents want to give $50,000 a year in total and ask where it should go.

1. Parents, 529s. Each parent gives $19,000 to each child’s 529 in 2026, so $38,000 per child and $76,000 in total. Because each parent stays within their own $19,000 exclusion per child, no Form 709 is needed.
2. Grandparents, private school. On top of the $50,000, one grandparent pays the 9-year-old’s tuition directly to the school. It does not count toward either grandparent’s $19,000 limit.
3. Grandparents, UTMA. The $50,000 goes into a California UTMA for each child, $25,000 per child ($12,500 from each of the two grandparents), set to transfer at 21. Each grandparent stays within their own $19,000 exclusion per child, so no Form 709 is needed. (If one grandparent wrote a single $25,000 check, that would exceed their own $19,000 and require a Form 709.) The parents keep the UTMA invested mainly in low-dividend index funds so annual unearned income stays near the $2,700 kiddie tax threshold. At a 1.5% yield, that is roughly $180,000 of balance per child before the parents’ rate applies (derived: $2,700 / 1.5%).
4. Parents, cash. $20 of each birthday gift goes into the jars at home, and the 9-year-old gets the family bank.

The result: education money in the most tax-efficient place, flexible money with a delayed transfer age, a grandparent helping with school outside the gift limits, and children who handle real money every week.

Common mistakes

• Putting large sums in a UTMA without planning for the transfer age. At 18 or 21, the money is the child’s, whatever you think of their plans.
• Letting a UTMA grow so large that most of its income is taxed at the parents’ rate, which removes much of the reason to hold it in the child’s name.
• Assuming a California 529 gives a state deduction. It does not.
• Funding a child’s Roth IRA without real, documented earned income.
• Gifting only into accounts the child never sees, so the money arrives at 18 with no context.

What to write down for your children

Each account you open is a decision your child will inherit without the reasoning behind it. A one-page note per account (why you opened it, what you hoped it would pay for, what you would do in their place at 18) costs an hour and does more than the balance. As Kevin puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.” Our Age Five Wealth Education work with families starts there, and the FamilyKnowledge® Library is where those notes live.

Frequently asked questions

How much money can I give my child in 2026 without paying tax?

Each person can give $19,000 per child in 2026 without filing a gift tax return, or $38,000 for a married couple when each spouse gives $19,000. Formally splitting a gift made by one spouse requires Form 709. Larger gifts usually still owe no tax: they require Form 709 and use part of the $15,000,000 lifetime exclusion. Tuition paid directly to a school and medical bills paid directly to a provider do not count as gifts at all.

Is a 529 or a UTMA better for gifting money to a child?

For money meant for education, a 529 is usually better: growth is tax-free for qualified costs and the parent keeps control. A UTMA suits money meant for any purpose, but the child takes control at the transfer age (18 to 25 depending on state and setup) and unearned income above $2,700 in 2026 is taxed at the parents’ rate. Many families use both. Our 529 versus custodial account comparison has more detail.

Can grandparents give money to grandchildren tax-free?

Yes. Each grandparent has their own $19,000 annual exclusion per grandchild for 2026, can superfund a 529 with up to $95,000 per grandchild using the five-year election, and can pay tuition directly to a school without it counting as a gift. Washington grandparents should coordinate gifts with their estate plan because of the state estate tax.

Your next step

List every account your children have today, who owns it, and when the child gets control. If you want a second set of eyes on where gift money should go, and on the tax side of a large UTMA or grandparent gift, a Tax & Wealth Assessment is a good place to start. This is general education, and the right move depends on your family’s full picture.

Written by

Kevin Luu

Co-Founder and Chief Learning Officer, Bright Advisers

Kevin has advised high-income W-2 tech and biotech families since 2015, and leads the education-first Age Five Family Office from Brea, California.

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