By Kevin Luu, Co-Founder and Chief Learning Officer. Reviewed on 2026-09-30.
For most high-income families, a 529 plan is usually the best fit for money you expect to spend on your child’s education, a brokerage account in your own name usually fits money you want to keep flexible, and a UTMA makes sense only if you are comfortable with your child legally owning the money at 18 or 21. A custodial Roth IRA works only once your child has earned income. A Trump account is a new, small add-on for children with a Social Security number, not a replacement for any of the others.
The real difference is not the investment inside. It is who controls the money, how growth is taxed, and what your child may do with it. Below, each one for a W-2 household in California or Washington, with 2026 figures.
Side-by-side: 529 vs UTMA vs custodial Roth vs Trump account vs your own brokerage account
| 529 plan | UTMA/UGMA | Custodial Roth IRA | Trump account | Parent-owned brokerage | |
|---|---|---|---|---|---|
| Legal owner | You (the account owner); child is the beneficiary | The child, from day one | The child | The child | You |
| Who controls it at majority | You, for as long as the account exists | The child at the state age (CA 18, or up to 21 for a lifetime gift and 25 for a will or trust transfer if written in; WA 21, extendable to 25) | The child at the state age | Treated like a traditional IRA from January 1 of the year the child turns 18 | You |
| Contribution limit (2026) | No annual cap; gifts above $19,000 per donor use lifetime exclusion or the 5-year election | No contribution limit; gift tax rules apply | Lesser of $7,500 or the child’s earned income | $5,000 a year from parents, relatives, the child and employers combined (employer share up to $2,500) | None |
| Tax on growth (federal) | None if spent on qualified education | Kiddie tax: child’s unearned income over $2,700 taxed at your rate | None on qualified withdrawals | Deferred; traditional IRA rules on withdrawal | Dividends and realized gains taxed at your rate each year |
| Allowed uses | Qualified education expenses | Anything for the child’s benefit; anything the child wants once it transfers | Retirement; contributions can come out any time | No withdrawals during the growth period | Anything |
| Penalty for other uses | Earnings taxed plus 10% federal additional tax; CA adds 2.5% | None | Earnings may be taxed plus 10% before 59½ (Pub 590-B) | 10% early-distribution tax may apply after 18, as with an IRA | None |
| Gift tax treatment | Completed gift; 5-year election up to $95,000 per donor | Completed, irrevocable gift | Completed gift | Not addressed in IRS Notice 2025-68; confirm with your tax preparer | Not a gift; you keep it |
| FAFSA treatment | Parent asset if you own it | Student asset | Retirement account, not reported as an asset | Check current aid guidance | Parent asset |
| California notes | No state deduction; the K-12 and credentialing uses added by the 2025 federal law, and 529-to-Roth rollovers, are not qualified for CA | CA taxes unearned income over $2,700 at your rate too (2025 FTB 3800) | No CA-specific issue | CA generally does not follow the 2025 federal tax law; confirm state treatment | All gains taxed as ordinary income, up to 13.3% (2025 rates) |
Sources for the table: IRS Publication 970 (529 plans), Rev. Proc. 2025-32 (2026 gift exclusion and kiddie tax), IRS Notice 2025-68 (Trump accounts), Publication 590-A (Roth IRAs), FTB 3805P instructions (California 529 rules) and the 2026-2027 Federal Student Aid Handbook.
Who owns the money at 18, 21 or 25
A 529 stays yours. You are the owner. Your child is only the beneficiary. You decide when money comes out, and you can change the beneficiary to another family member, such as a younger sibling, without tax (Pub 970). Your child never gets a login and a balance at 18.
A UTMA belongs to your child the moment you fund it. The gift is irrevocable. You act as custodian and can spend the money for your child’s benefit, but you cannot take it back, and control passes to your child at the age set by state law:
- California: 18 by default. A lifetime gift can delay transfer to no later than 21, and a transfer made by will or trust can delay it to no later than 25, but the later age has to be written into the transfer (Cal. Probate Code §3920.5).
- Washington: 21 for gifts and for transfers made by will or trust. The person making the transfer can extend it to 25 when first naming the custodian (RCW 11.114.200).
If you fund a UTMA with $19,000 a year from birth, your child could control several hundred thousand dollars at 18 in California. Many families are not comfortable with that once they see the number. For what that handover looks like in practice, see what happens to a UTMA when your child turns 21.
A custodial Roth IRA and a Trump account are also your child’s property. The Trump account’s special rules end on January 1 of the year your child turns 18, and it then works like a traditional IRA in your child’s name (Notice 2025-68).
A brokerage account in your name is the only option where nothing changes hands until you decide it should. That is its main advantage, and it is why we treat it as the honest alternative to a UTMA.
How each account is taxed, and where California differs
529 plans
Growth is tax-free at the federal level when the money goes to qualified education expenses. If you take money out for anything else, the earnings are taxed as ordinary income and a 10% federal additional tax usually applies, with exceptions such as scholarships (Pub 970).
California gives no deduction for 529 contributions, a bill to add one died in 2025 (SB 529 status). Qualified withdrawals are still tax-free in California. But California does not follow several federal expansions. The 2025 federal law added more K-12 school expenses and postsecondary credentialing costs, and federal law since 2024 allows rollovers from a 529 open more than 15 years to the beneficiary’s Roth IRA. For California, those withdrawals count as non-qualified: the earnings are taxable and carry an extra 2.5% state tax (FTB 3805P instructions).
Washington has no income tax in 2026, so the state question does not come up for a 529 (WA DOR).
UTMA accounts and the kiddie tax
UTMA income is your child’s income, but the kiddie tax limits the benefit. For 2026, the first $1,350 of your child’s unearned income is tax-free, the next $1,350 is taxed at your child’s rate, and anything over $2,700 is taxed at your rate (Rev. Proc. 2025-32; Form 8615 instructions). The rule applies to children under 18 and, in some cases, to 18-year-olds and full-time students under 24. California has the same structure: for 2025, unearned income over $2,700 is taxed at the parent’s rate if that is higher (FTB 3800 instructions).
At your income, the parents’ rate is usually the top rate or close to it. So after the first few years, when the balance is small, a UTMA is taxed almost like your own account. More on the rules for taking money out in UTMA withdrawal tax rules.
Custodial Roth IRA
Your child can contribute the lesser of $7,500 for 2026 or their taxable compensation. There is no minimum age, but allowance, gifts and investment income do not count as compensation (Pub 590-A; Notice 2025-67). For a five-year-old, that usually means no Roth yet. It becomes relevant with a first real job. Our custodial Roth IRA guide covers the paperwork.
Trump accounts
The 2025 federal law created a new account for children under 18 with a Social Security number (Notice 2025-68; IRS Trump Accounts page):
- A one-time $1,000 federal deposit for eligible U.S.-citizen children born in 2025 through 2028, if a parent makes the election on Form 4547.
- Contributions from parents, relatives and employers are capped at $5,000 a year combined for 2026 and 2027. An employer can put in up to $2,500 a year, which is not taxable to the employee and counts toward the $5,000.
- No contributions before July 4, 2026. Parent contributions are not deductible.
- Money must sit in low-cost index funds of mostly U.S. stocks. No withdrawals until January 1 of the year your child turns 18. After that, traditional IRA rules apply, including a possible 10% early-distribution tax.
For a family already funding a 529, the $1,000 seed is worth claiming, and an employer contribution is worth taking. Beyond that, the account is small and locked until adulthood. California generally does not follow the 2025 federal tax law (FTB 540 booklet), so confirm the state treatment before putting in more than the seed.
Your own brokerage account
Dividends and realized gains are taxed to you every year. For a household in the top federal brackets, that is 20% on qualified dividends and long-term gains plus the 3.8% Net Investment Income Tax for 2026 (Rev. Proc. 2025-32; IRS NIIT). California has no lower rate for capital gains, so gains are taxed as ordinary income (FTB). Washington has no wage income tax in 2026 and a 7% capital gains tax only on gains above an annual standard deduction ($278,000 for 2025), so a college fund is rarely affected (WA DOR). Note that Washington has enacted a 9.9% tax on AGI over $1,000,000 starting in 2028, with details still pending (WA DOR).
Financial aid: how each account counts, and why it barely matters at your income
On the FAFSA, a 529 you own counts among the parents’ assets. A UTMA is your child’s asset, because your child owns it (2026-2027 FSA Handbook). Student assets reduce aid more than parent assets do.
For a household earning $750,000 or more, need-based federal aid is unlikely either way, so this is rarely the deciding factor. It matters more if your income may drop sharply before college.
Worked example: $19,000 a year per child, three ways
A married couple with a $900,000 W-2 household income saves $19,000 a year for their daughter from birth, for 15 years. That matches the 2026 gift tax annual exclusion from one parent (Rev. Proc. 2025-32). We compare what is left for college in year 15, after tax, in California and in Washington.
Assumptions (illustrative, not a forecast): 6% total return a year (2% qualified dividends plus 4% price growth), contributions at the start of each year, taxes paid from the account, the account sold evenly over four college years. Tax rates held at 2026 federal levels (20% plus 3.8% NIIT for the parents; 20% under the kiddie tax for the child, whose own income stays below the NIIT threshold) and California’s 2025 10.3% bracket for this income. Total contributed: $285,000.
| Account | California family: after-tax value | Washington family: after-tax value |
|---|---|---|
| 529, spent on qualified college costs | $468,800 | $468,800 |
| UTMA in the child’s name | $425,400 | $440,100 |
| Brokerage account in the parents’ names | $401,900 | $421,600 |
| 529, withdrawn by the parents for non-education use | $358,900 | $382,400 |
How the last row is figured: the 529’s $183,800 of growth is taxed at the parents’ 37% federal ordinary rate plus the 10% additional tax, and in California also 10.3% plus the 2.5% state additional tax. Contributions come back tax-free.
What the numbers say:
- If the money goes to college, the 529 leaves about $67,000 more than the parents’ own account in California, and about $47,000 more in Washington. The gap is wider in California because of state tax on dividends and gains.
- The UTMA beats the parents’ account by about $23,500 in California and $18,500 in Washington, but only because the child keeps the money. That is the price of the small tax saving.
- A 529 that ends up not being used for education is the worst outcome in this table. That risk is why most families do not put every education dollar into a 529.
The order a $750k to $3M family usually funds them
- Claim the free money. For a child born 2025 through 2028, elect the $1,000 Trump account deposit. Take any employer Trump account contribution your benefits offer.
- Fund a 529 up to your realistic education estimate. Grandparents who want to help can give to the same 529. A large one-time gift can use the 5-year election: up to $95,000 per donor per child for 2026, or $190,000 for a couple, reported on Form 709 (Form 709 instructions).
- Put the flexible money in your own brokerage account. Label it for your child in your own records if that helps, but keep it in your name. You keep control, and you can still give it later.
- Open a custodial Roth IRA once your child has earned income. A summer job at 15 is the usual start.
- Use a UTMA only on purpose. It fits when a relative wants to give money that belongs to your child, or when you have decided you want your child to own assets at 18 or 21. If you already have one, the contributions are not limited, but gifts above $19,000 per donor for 2026 use lifetime exclusion; see UTMA contribution limits.
Common mistakes we see
- Treating $19,000 as a UTMA or 529 limit. It is the 2026 federal gift tax annual exclusion per donor per recipient. Gifts above it just use part of the donor’s $15,000,000 lifetime exclusion and need a Form 709 (IRS).
- Opening a UTMA to save tax. At your income, the kiddie tax removes most of the benefit after the first $2,700 of income a year, and you give up control.
- Counting on the 529-to-Roth rollover in California. It is allowed federally, but California taxes the rollover’s earnings and adds 2.5%.
- Trying to take UTMA money back. You cannot move it into your own account. Under both states’ UTMA laws, spending from the account is in addition to, not a substitute for, a parent’s duty to support the child (Cal. Probate Code §3914; RCW 11.114.140), so it is not a way to pay for basics you would provide anyway. See how custodial withdrawals work.
- Not naming a successor. If the 529 owner or UTMA custodian dies, someone has to take over. Name a successor owner on the 529 and a successor custodian in your estate documents.
What to write down for your child about each account
Your child will eventually see these balances. What they will not see, unless you record it, is why you chose each account and what you hoped the money would do. As Kevin Luu puts it: “Your kids don’t need to inherit your portfolio. They need to inherit your decision-making process.”
A one-page note for each account is enough:
- What the account is for, and what it is not for.
- Why you chose this account over the others, including the tax tradeoff you accepted.
- Who contributes (you, grandparents, an employer) and why.
- What happens if the money is not needed for its first purpose.
- For a UTMA, what you hope your child does with the money at 18 or 21, written before they get there.
This is the practice at the center of Age Five Wealth Education at the Age Five Family Office™: the reasoning goes into your FamilyKnowledge® Library alongside the account statements.
Frequently asked questions
Can I have both a 529 and a UTMA for the same child?
Yes. Many families hold a 529 for education and a small UTMA that grandparents fund. Gifts to both count toward the same $19,000 per donor annual exclusion for 2026. UTMA money can also be moved into a 529, but it still belongs to your child, so your child still controls it at the state age.
What if my child does not go to college?
You can change the 529 beneficiary to another family member, keep the account for graduate school, or take the money out. Non-qualified withdrawals are taxed on the earnings, with a 10% federal additional tax and, in California, a 2.5% state additional tax. Scholarships, disability and death are among the exceptions to the 10% (Pub 970).
Is a Trump account better than a 529?
No, they do different jobs. A Trump account holds at most $5,000 a year from families and employers for 2026, must be in U.S. stock index funds, and becomes an IRA-style account at 18. A 529 has no annual cap and is tax-free for education. Claim the $1,000 seed if eligible, then decide on the rest.
Your next step
Write down three numbers: what you expect to pay for education per child, what you already hold in each account type, and who else plans to give. That alone shows whether you are over-funding the 529 or putting too much in your child’s name. If you would like us to check the numbers and the ownership setup with you, the Tax & Wealth Assessment covers it.
This is general education, and the right move depends on your family’s full picture.