The Best Accounts to Open for Kids: A Guide for High-Income Families

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

For most high-income families, the best accounts to open for kids are, in order: a 529 plan for education, a brokerage account in the parents’ own names earmarked for the child, and a custodial Roth IRA once the child has real earned income. A custodial UTMA account and a Trump account (which comes with a $1,000 federal deposit for eligible children born 2025 through 2028) can play a role, but both come with trade-offs that matter more at a $750,000 to $3 million household income than at an average one.

The right mix depends on three questions: what the money is for, who should control it at 18 or 21, and how much tax the account adds to a household already in the top brackets. This guide walks through each account, a worked example for a two-child household in California, and the decision you actually have to make.

The five accounts, compared for a top-bracket family

Why a 529 plan usually comes first

A 529 plan is the account on this list built for education: both the growth and the withdrawal can be tax-free at the federal and state level, as long as the money pays for qualified education, and the parent keeps control. For a California household paying federal tax at 35% or 37% plus a state rate of 9.3% or more (2025 California brackets), that shelter is worth far more than it is to an average family.

Two points specific to our reader:

• California gives no state deduction for 529 contributions. A 2025 bill that would have created one died in the Legislature (SB 529 status). The benefit is the tax-free growth, not the contribution.
• You can front-load five years of gifts. For 2026, the federal gift tax annual exclusion is $19,000 per giver per recipient. The five-year election lets one parent put in $95,000 per child at once, or $190,000 per child for a married couple splitting gifts, reported on Form 709 (Form 709 instructions). Earlier money gets more years to compound.

Because the parent owns the account, you keep control, can change the beneficiary to a sibling, and decide when money comes out. More on this in superfunding a 529 versus annual contributions.

Is there a 401(k) for kids? The custodial Roth IRA

There is no 401(k) designed for children. The closest thing is a custodial Roth IRA. For 2026 a child can contribute the lesser of $7,500 or their taxable compensation, with no minimum age (IRS Pub 590-A). Allowance, gifts and investment income do not count. The child needs real pay for real work, such as a W-2 job or documented self-employment income.

For a W-2 family without a family business, this usually becomes useful in the teen years, not at age 4. Put it on the list for later, and do not invent wages to qualify.

UTMA accounts: a gift you cannot take back

A UTMA (Uniform Transfers to Minors Act) account holds assets that legally belong to the child. The parent or another adult manages it as custodian until the transfer age. There is no UTMA contribution limit; the $19,000 figure people quote is the federal gift tax annual exclusion, which applies to any gift (see UTMA contribution limits explained).

Two features make UTMAs a weaker fit for high earners than they first appear:

• 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 anything over $2,700 is taxed at the parents’ rate (Rev. Proc. 2025-32, Form 8615 instructions). Beyond a modest balance, the tax saving disappears.
• Control ends by law. In California, the child takes over at 18 by default; a lifetime gift can delay that to no later than 21, and a transfer from a will or trust to no later than 25 (Cal. Probate Code §3920.5). In Washington, gifts end at 21, and the transferor may extend to 25 when naming the custodian (RCW 11.114.200). The delay must be written into the account setup.

Trump accounts: what they are and when they fit

Trump accounts are a new account type under the 2025 tax law for children under 18 with a Social Security number. Children born January 1, 2025 through December 31, 2028 who are U.S. citizens with a valid Social Security number can receive a one-time $1,000 federal pilot contribution; parents elect it on IRS Form 4547 (IRS Trump accounts page). According to IRS Notice 2025-68, contributions cannot start before July 4, 2026; contributions from parents and most other sources are capped at $5,000 a year; employers can add up to $2,500 per employee tax-free within that cap; funds must sit in low-cost U.S. stock index funds; and no withdrawals are allowed before the year the child turns 18, after which traditional IRA rules generally apply (Notice 2025-68).

For a newborn, claiming the $1,000 costs nothing. Whether to add your own money is a closer call: the account defers tax, but the earnings are taxed as ordinary income when withdrawn, withdrawals before age 59½ may face a 10% additional tax unless an exception applies (such as qualified higher education or a first home), and California generally does not follow the 2025 federal law, so the state treatment should be confirmed before you rely on it.

A brokerage account in your own name

Many families at this income level get the most flexibility from an ordinary taxable account in the parents’ names, labeled for a child. You keep full control, can redirect the money if plans change, and can give it later, as a gift, to fund a trust, or for a first home, on your timeline. The trade-off is that dividends and gains are taxed to you each year. In California that means ordinary-income rates on gains, since the state has no lower capital gains rate (FTB). In Washington there is no wage income tax in 2026, but the state’s capital gains tax on long-term gains applies above an annual deduction ($278,000 for 2025), at 7% and 9.9% on taxable gains over $1 million (WA DOR capital gains tax), and a new 9.9% income tax on AGI over $1 million starts in 2028 (WA DOR).

Worked example: a $900,000 California household with two children

Assumptions (hypothetical): married couple in San Mateo County, $900,000 of W-2 and RSU income, children ages 2 and 6, $400,000 set aside for the children. Illustrative only.

1. 529 plans: $190,000 per child ($380,000 total). Each parent makes the five-year election for each child ($95,000 x 2 parents x 2 children). No 2026 California deduction, but growth and qualified withdrawals avoid a combined rate of roughly 34% to 35% on investment gains at this income (20% federal long-term gains rate for 2026 plus 3.8% NIIT plus California’s 10.3% or 11.3% bracket, using 2025 California schedules). Each parent files a Form 709 for 2026, and any further gifts from them to those children during the five years generally use part of their lifetime exclusion.
2. Trump account for the 2-year-old? No pilot deposit. A child born before 2025 does not qualify for the $1,000 pilot, so the family skips it for now.
3. UTMA: kept small. A grandparent wants to give $19,000 a year directly. If a UTMA grows to $150,000 and pays 2% in dividends ($3,000 a year), the first $1,350 is tax-free, the next $1,350 is taxed at the child’s rate, and the remaining $300 is taxed at the parents’ rate for 2026. Past roughly $135,000 at that yield, every extra dollar of income is taxed like the parents’ own. The grandparent, as the person making the gift, names age 21 as the transfer age when setting up the account.
4. The remaining $20,000 stays in the parents’ brokerage account, earmarked in writing for the children, with no legal hand-over date.

The result: the largest pool gets the best tax treatment, the parents keep control of everything except the small UTMA, and nothing goes to an 18-year-old automatically.

The decision you actually have to make

• Is the money for education? A 529 usually comes first, up to what you expect education to cost.
• Do you want the child to own it outright at 18 or 21? If not, avoid a large UTMA and use your own account or a trust set up through your estate plan.
• Does the child have genuine earned income? If yes, a custodial Roth IRA can take the lesser of that income or $7,500 for 2026.
• Was the child born in 2025 through 2028? If the child is a U.S. citizen with a Social Security number, the $1,000 Trump account pilot can be elected on Form 4547.

Common mistakes

• Putting large sums in a UTMA for the tax break, then paying the parents’ rate through the kiddie tax and handing control to a 21-year-old.
• Assuming a California 529 comes with a state deduction. It does not.
• Opening a custodial Roth IRA with allowance or gift money. Only earned income counts.
• Choosing accounts without writing down why. When the child is 20, they will see the balance, not the reasoning.

What to document for your kids

For each account, write one paragraph: what it is for, why you chose it over the alternatives, and what you hope the child will learn from it. Revisit it every year or two. That record is the start of a FamilyKnowledge® Library, and it is what turns an account into an education. As Kevin Luu 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 is built around that habit.

Frequently asked questions

What is the best account to open for a baby?

For most high-income families, a parent-owned 529 plan is the strongest first account, because growth and qualified education withdrawals are free of federal and California income tax. If your baby was born in 2025 through 2028 and is a U.S. citizen with a Social Security number, you can also elect the $1,000 Trump account pilot contribution on IRS Form 4547. A UTMA or custodial Roth IRA can wait until there is a clear reason for one.

Can I open an investment account for my child without giving them the money at 18?

Yes. A 529 plan stays owned by the parent, and a brokerage account in your own name stays yours. UTMA assets belong to the child and transfer at 18 or 21 (up to 25 in limited cases in California and Washington). If you want to control timing for larger amounts, a trust drafted as part of your estate plan is the usual tool.

How much can I put in a child’s account each year?

There is no limit on UTMA or brokerage contributions. For 2026, gifts up to $19,000 per giver per child avoid using any lifetime exclusion; larger gifts simply require Form 709. A custodial Roth IRA is capped at the lesser of $7,500 or the child’s earned income for 2026. Trump accounts cap most contributions at $5,000 a year.

Next step

List the accounts you already hold for each child, next to the reason you opened each one. If the reasons are missing or the balances no longer match the plan, our Tax & Wealth Assessment can review it with you. This article is general education; the right mix 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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