The Best Ways to Save Money for Your Kids
The best way to save money for kids depends on the goal: a 529 for education, a custodial or savings account for flexibility, a Junior ISA in the UK.
Disclaimer: Educational content, not personalized financial advice. Consider your own circumstances or speak with a qualified professional.
Quick summary (TL;DR)
- The best way to save money for kids depends on what the money is for: a 529 plan suits education, while a savings account or custodial account keeps the money flexible.
- 529 earnings can be tax-free when used for qualified education costs, and from 2026 up to $20,000 a year can go to K-12 tuition.
- Money in a UTMA or UGMA custodial account legally belongs to the child, who takes control at an age set by state law.
- Trump Accounts are a new US account type for children; contributions can be made starting July 4, 2026, and children born from 2025 through 2028 may qualify for a $1,000 federal seed contribution.
- In the UK, a Junior ISA lets families save up to £9,000 in the 2026 to 2027 tax year, and the child can't withdraw until 18.
In this guide
- What is the best way to save for your kids?
- How does a 529 plan work?
- What is a custodial account (UTMA or UGMA)?
- What are Trump Accounts?
- Should you just use a savings account for your child?
- How does it work in the UK, Canada and Australia?
- How much should you save for your kids, and in what order?
- Next steps
The best way to save money for kids depends on what the money is for: a 529 plan is usually the strongest choice for education in the US, while a savings account or custodial account keeps money flexible for anything else. Choosing the best way to save money for kids starts with the goal, then the account, then an automatic monthly amount you can keep up.
This guide compares the main US options, including the new Trump Accounts, and notes the UK Junior ISA and other countries. It's educational, not personal tax or investment advice. Rules are current as of 2026; account types and tax treatment differ by country, so check official sources or a qualified professional before opening anything.
What is the best way to save for your kids?
Match the account to the goal. Here's how the main US and UK options compare:
| Account | Best for | Who controls the money | Tax treatment (simplified) | Main drawback |
|---|---|---|---|---|
| 529 plan | College, K-12 tuition, other qualified education | The account owner, usually a parent | Earnings tax-free for qualified education | Earnings taxed if used for other things |
| UTMA or UGMA custodial account | Flexible gifts for the child | Custodian until the child reaches the state's age, then the child | Child's investment income partly taxed at parents' rate | Gift is irrevocable; counts as the child's asset for aid |
| Kids' or joint savings account | Small amounts, teaching saving | Parent and child, depending on the bank | Interest usually taxable | Low growth over long periods |
| Trump Account | Long-term saving started in childhood | Set up by a parent or guardian | Tax-favored; rules set by the IRS | New, with rules still being rolled out |
| Junior ISA (UK) | Tax-free saving until 18 | Parent manages; child takes control at 16 | Tax-free interest or growth | Locked until 18 |
Before choosing, check your own foundations. Children benefit more from parents who aren't in debt and have an emergency fund than from a college fund paid for with a credit card. Our step-by-step guide to saving money covers that order of priorities.
How does a 529 plan work?
A 529 plan, which the IRS calls a qualified tuition program, is a state-sponsored account for education costs. Money you put in can grow, and earnings are tax-free when withdrawn for qualified education expenses.
Key rules, according to the IRS:
- Qualified expenses include college costs and, for K-12, tuition plus certain books, curriculum materials and tutoring.
- K-12 tuition limit: up to $20,000 per year per beneficiary from 2026, up from $10,000 before.
- Non-qualified withdrawals: part of the earnings becomes taxable when money is used for other things.
- Roth IRA rollover: since 2024, the beneficiary can roll some unused money into their own Roth IRA, if the account has been open at least 15 years, within the annual Roth contribution limit and a $35,000 lifetime limit.
Each state runs its own plans, and you can often use another state's plan. Some states give a tax deduction or credit only for their own plan, so compare fees, investment options and state tax benefits. 529 savings plans are usually invested, so the value can go down, especially close to when you need it; many plans offer age-based options that become more conservative over time.
What is a custodial account (UTMA or UGMA)?
A custodial account holds money or investments for a child under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA). An adult custodian manages it until the child reaches the age set by state law.
The trade-offs are important:
- It's an irrevocable gift. Fidelity notes that money put into a custodial account belongs to the child. You can't take it back, and it can only be used for the child's benefit.
- The child gets full control. At the age your state sets, generally between 18 and 25, the child can spend the money however they choose.
- It can reduce financial aid. Custodial accounts count as the child's own assets, which financial aid formulas typically weigh more heavily than parents' assets.
- The kiddie tax applies. For 2026, Fidelity explains that up to $1,350 of a child's unearned income can be 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.
Custodial accounts suit families who want flexibility beyond education and are comfortable with the child controlling the money as a young adult.
What are Trump Accounts?
Trump Accounts are a new tax-favored account type for children created by 2025 federal tax legislation. The IRS describes them as individual retirement accounts for children.
What the IRS says so far:
- Eligibility: children under 18 with a valid Social Security number.
- Pilot contribution: a $1,000 federal contribution for eligible US citizen children born between January 1, 2025, and December 31, 2028.
- Contributions from parents, relatives and others can be made starting July 4, 2026, subject to an annual limit of $5,000 for most contributions.
- Opening: a parent or guardian files Form 4547, which can be done through an IRS online account.
Because the accounts are new, check IRS.gov for current rules on investments, fees and withdrawals before deciding how much to put in, and how they fit with a 529 plan for your family.
Should you just use a savings account for your child?
For small amounts and short-term goals, yes. A savings account is simple, and at an FDIC-insured bank, deposits are insured to at least $250,000 per depositor, per bank, per ownership category.
A kids' or joint savings account works well for:
- Birthday and holiday money the child will spend within a few years
- Teaching saving: a child who sees a balance grow learns more than one who doesn't
- Short-term goals such as a bike, a school trip or a first car
For goals 10 or more years away, interest alone usually won't keep up with rising costs, which is why families often pair a savings account with a 529 or another long-term account. Our guide on where to keep the money you save compares savings accounts, CDs and other places for short-term money.
Let kids see the money
For younger children, a clear jar or a simple chart of their savings balance makes the idea concrete. Matching a small part of what they save can make it more motivating.
How does it work in the UK, Canada and Australia?
Each country has its own accounts. Check the official government pages before opening one.
- UK: a Junior ISA lets you save up to £9,000 in the 2026 to 2027 tax year, in cash, stocks and shares or both. Parents or guardians open and manage it; the child can take control at 16 but can't withdraw until 18.
- Canada: the Registered Education Savings Plan (RESP) is the main education savings account and can attract government grants. Check canada.ca for current rules.
- Australia: children's savings and investment income has its own tax rules. Check Moneysmart and the Australian Taxation Office before choosing an account.
How much should you save for your kids, and in what order?
Start with an amount you can sustain every month, even if it's small, and raise it when your income grows. Consistency matters more than the starting amount.
A sensible order for many families:
- Your emergency fund and high-interest debt first.
- Your own retirement savings, because there are loans for college but not for retirement.
- A 529 or other account for the child, set up with an automatic monthly transfer.
- Invite family to contribute. Grandparents can give directly to a 529 or savings account; the IRS annual gift tax exclusion for 2026 is $19,000 per recipient.
Example (hypothetical): saving $50 a month from birth adds up to $10,800 in contributions by age 18, before any interest or investment growth. Returns are not guaranteed and investments can lose value.
Next steps
This month, decide what the money is mainly for. If it's education, compare your state's 529 plan with one or two others for fees and tax benefits. If you want flexibility, open a savings account and decide whether a custodial account fits. Set up an automatic monthly transfer, however small.
For the household plan that makes room for these transfers, use our simple method to save money every month. And if you'd like to boost what you can put aside, explore our guide to making money online, keeping in mind that results depend on effort and time.
Frequently asked questions
What is the best account to save money for a child?
For college or other education costs, a 529 plan is usually the most tax-efficient choice in the US. For money you want to keep flexible, a parent-owned savings account or a custodial account is simpler. Many families use more than one.
What happens to a 529 plan if my child doesn't go to college?
You can change the beneficiary to another eligible family member or use it for other qualified education. Since 2024, a limited amount can be rolled into the beneficiary's Roth IRA if the account has been open at least 15 years, up to a $35,000 lifetime limit. Earnings withdrawn for other uses are taxable.
At what age does a child get control of a UTMA account?
It depends on your state's law, generally somewhere between 18 and 25. Once the child takes control, they can use the money however they choose.
Is a savings account in my child's name a good idea?
It's a simple, insured place for small amounts and a good way to teach saving. Interest is usually low, so for long-term goals such as college, families often add a 529 plan.
How much can grandparents give a child each year?
The IRS annual gift tax exclusion for 2026 is $19,000 per recipient. Gifts above that may require a gift tax return, though tax is rarely owed. Check IRS guidance or a tax professional for your situation.
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Sources
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