The Best Investment Account for Your Child: A Guide for High-Income Parents

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

For most W-2 families in California or Washington earning $750,000 or more, the best child investment account is a 529 plan for anything that will be spent on education, plus a parent-owned brokerage account set aside for the child for everything else. A custodial Roth IRA is excellent but only works once the child has real earned income, and a UTMA account makes sense only if you are comfortable with the child taking legal control at 18 to 25. The new Trump account is worth opening for a child born from 2025 to 2028 to collect the $1,000 federal deposit, but it rarely beats a 529 for college money at this income.

Why the usual advice does not fit a $1M household

Most guides to kids’ accounts are written for families who might qualify for financial aid or who pay little tax on investment income. Neither is true for a household with two physician or tech incomes and RSUs. Three facts change the answer:

• Your investment income is taxed at the top rates. For 2026, long-term gains above $613,700 of taxable income (married filing jointly) face the 20% federal rate, plus the 3.8% Net Investment Income Tax once modified AGI passes $250,000. California has no lower rate for capital gains, so gains are taxed as ordinary income at up to 13.3% (2025 rates). Washington has no wage income tax in 2026, but it does tax long-term capital gains at 7% above an annual standard deduction ($278,000 for 2025), and a new 9.9% income tax on income over $1,000,000 takes effect in 2028.
• Shifting income to the child mostly does not work. Under the kiddie tax, a child’s unearned income over $2,700 is taxed at the parents’ rate for 2026. Only the first $1,350 is tax-free and the next $1,350 is taxed at the child’s rate (Form 8615 instructions).
• Financial aid is usually off the table. At this income, need-based aid is unlikely, so the classic worry about how a UTMA hurts aid matters less than control and tax.

The five accounts compared for a high-income family

How each account works in California and Washington

529 plans

You own the account, you pick the beneficiary and you can change it to a sibling. California gives no state deduction for 529 contributions for 2026; a 2025 bill to create one (SB 529) died. Washington has no income tax to deduct against. So the value is the tax-free growth, not a deduction, and you can use any state’s plan. Grandparents and parents can front-load: the five-year election lets each donor put up to $95,000 per beneficiary into a 529 in 2026 and treat it as spread over five years, or $190,000 for a married couple, reported on Form 709 (Form 709 instructions). One caution for California: the state does not conform to the federal rules that let 529 money pay for K-12 (elementary and secondary school) costs or postsecondary credentialing expenses, so those withdrawals are taxable for California even when they are tax-free federally (FTB Schedule CA (540) instructions, 2025). For a California family, the 529 is a college account.

UTMA and UGMA accounts

A gift to a custodial account belongs to the child the day it is made. In California the child takes control at 18 by default; a lifetime gift can delay that to no later than 21, and a transfer by will or trust to no later than 25, if the delay is written into the transfer (Cal. Probate Code §3920.5). In Washington, gifts end at 21, and the person making the gift can extend to 25 when naming the custodian (RCW 11.114.200). There is no UTMA contribution limit. The $19,000 figure you see quoted is the 2026 federal gift tax annual exclusion per donor, per child ($38,000 for a couple who elect gift splitting on Form 709); gifts above it use part of each parent’s $15,000,000 lifetime exclusion and require Form 709.

Custodial Roth IRA

There is no minimum age, but the contribution cannot exceed the child’s taxable compensation for the year (IRS Publication 590-A). Allowance, gifts and investment income do not count. For most children under 12 this account waits until the first real paycheck, such as a summer job. When it applies, it is one of the best accounts a child can have.

Trump accounts

Created by the 2025 federal tax law, these accounts accept contributions from July 4, 2026. A child who is a U.S. citizen with a Social Security number and was born after December 31, 2024 and before January 1, 2029 can receive a one-time $1,000 deposit from the Treasury if the parent elects it. Family and employer contributions are capped at $5,000 a year in total for 2026, and an employer can contribute up to $2,500 of that tax-free to the employee. Money must sit in low-cost funds tracking a U.S. stock index, and nothing can come out before the year the child turns 18, after which traditional IRA rules generally apply (IRS Notice 2025-68). Your own contributions are not deductible, and the growth is later taxed as ordinary income, which is why a 529 usually wins for education money in a high bracket.

Savings bonds

Series EE and I bonds are safe, but the education interest exclusion on Form 8815 phases out at incomes far below this range (About Form 8815). For these families they are a low-return holding, not a college plan.

Worked example: a San Jose family earning $1.2M

Assumptions (illustrative, not a forecast): married filing jointly, $1,200,000 of W-2 income including RSUs, California residents, children aged 1 (born in 2025) and 5. They set aside $100,000 for one child’s education and want to compare a 529 against investing the same money in their own brokerage account for 15 years at an assumed 6% a year.

1. Growth. $100,000 at 6% for 15 years grows to about $239,656, a gain of about $139,656.
2. Taxable account, California. If the full gain is taxed at sale at 20% federal plus 3.8% NIIT plus 12.3% California (the 11.3% bracket plus the 1% Behavioral Health Services Tax on taxable income over $1,000,000, 2025 rates), the combined rate is 36.1%. Tax: about $50,416. This ignores yearly dividend tax, so the real drag is higher.
3. Same family in Washington. Federal tax alone at 23.8% is about $33,238. Washington’s 7% capital gains tax applies only if their total gains that year exceed the standard deduction. This uses today’s rules: Washington’s new 9.9% income tax on AGI over $1,000,000 starts in 2028, before this sale, and how it will treat capital gains is still pending state guidance.
4. 529 used for qualified college costs. Federal and California tax on the gain: $0.

Their plan: fund a 529 for each child, elect the $1,000 Trump account deposit for the one-year-old and ask HR whether the employer contributes, and keep a separate brokerage account in the parents’ names labeled for the kids’ non-education goals. They skip a UTMA because they do not want either child controlling a large balance at 18. A custodial Roth IRA waits until the older child has a real job.

The decision you actually need to make

The account choice follows two questions. First, how much of the money is likely to go to education? That share belongs in a 529. Second, for the rest, do you want the child to own it outright, or do you want to keep control until you judge them ready? Most parents in this income range choose control, which points to a parent-owned account rather than a UTMA. Washington families also face a state estate tax exclusion of $3,000,000 for deaths from July 1 through December 31, 2026, so an estate attorney may suggest moving money out of the parents’ estate sooner, through 529s or a trust rather than a UTMA.

Common mistakes

• Opening a UTMA for convenience, then realizing the child controls it at 18 in California.
• Funding a custodial Roth IRA with no earned income, which creates an excess contribution.
• Assuming a 529 gives a California deduction. It does not for 2026.
• Putting large gifts into the child’s name expecting a lower tax rate. The kiddie tax usually taxes that income at your rate.
• Holding the kids’ money in a savings account for a decade. Cash that will not be spent for 10+ years usually belongs in a diversified portfolio.

What to write down for your children

The account matters less than what the child understands about it. Write a one-page note for each account: why you opened it, what it is for, who decides how it is spent, and what you hope the child learns from it. As Kevin Luu, Co-Founder of Bright Advisers, puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.” A FamilyKnowledge® Library is where Age Five Family Office™ families keep these notes so they are still there when the child turns 18.

Frequently asked questions

Is a 529 or a custodial account better?

For education costs, a 529 is usually better for a high-income family: the parent keeps control, withdrawals for qualified college costs are free of federal and California tax, and you can change the beneficiary to a sibling. A custodial account is better only for money you truly want to belong to the child, knowing they control it at 18 to 25 and its income is mostly taxed at your rate under the kiddie tax.

Can we open a Roth IRA for our baby?

Only if the baby has earned income. The 2026 contribution limit is the lesser of $7,500 or the child’s taxable compensation, and gifts or allowance do not count. Income must be for real work at a reasonable rate. For most children under 12, the custodial Roth IRA starts with a first job.

Should we open a Trump account?

If your child is a U.S. citizen with a Social Security number and was born from 2025 through 2028, electing the account to receive the $1,000 federal deposit costs little. Beyond that, compare it with a 529: the Trump account locks money until 18, limits investments to U.S. index funds and taxes growth as ordinary income later. If your employer contributes, take that money.

Next step

List each child’s expected education costs and the flexible money you want to set aside, then match each amount to an account. For how 529s and custodial accounts compare in more depth, see 529 plans vs. custodial accounts, our guide to 529 superfunding, what the gift exclusion means for UTMA contributions, and how to open a brokerage account for your child. If you want the tax side modeled on your own numbers, our tax management work starts with a Tax & Wealth Assessment, and Age Five Wealth Education covers how to teach the children about the accounts you open.

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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