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If you want to give money to a child or grandchild, decide what it’s for before you decide where to put it. The account that works for a 7-year-old’s allowance is wrong for a retirement nest egg, and the account that is perfect for college can cost you a penalty if the money ends up buying a car.

People give money to the next generation for five common reasons, and each one has an account built for the job. The guide below lists them in order of when the money gets used, from childhood through legacy. For every account, the two things to know are who controls the money and at what age that changes, so each section calls those out.

Childhood: Money a Kid Can Learn With

This is allowance, birthday checks and the first paycheck from mowing lawns. The goal is teaching the habit of saving and spending on purpose, not growing a balance, so the account should be simple and cheap.

Best bet: a custodial checking or savings account. Most banks and credit unions offer a kids’ or teen account with no fees and no minimum. Look for one with a debit card the child can use and an app that lets you see every transaction. Some let you set spending limits or lock the card from your phone.

Who controls it: You do, as the joint owner or custodian, until the child turns 18. At that point, the bank converts it to a regular account in the child’s name, or you can close it and move the money. In practice, most parents hand over the reins gradually long before that.

There is no tax angle here. Interest on a few hundred dollars is negligible, and a child’s small amount of unearned income is not taxed. Money meant to grow for years belongs in one of the accounts below.

Education: College, Trade School and More

“Education” is broader than it used to be. Since 2025, 529 money can pay for trade and vocational programs, registered apprenticeships, professional licensing exams and continuing education, and the K-12 tuition limit doubled to $20,000 a year starting in 2026 (J.P. Morgan).

Best bet: a 529 plan. Money grows tax-free and comes out tax-free for qualified education expenses. More than 30 states give a state income tax deduction or credit for contributions, usually only in your home state’s plan. You can open one in any state regardless of where you live or where the child eventually goes to school.

Who controls it: The account owner, for as long as they own it. The child is the beneficiary, not the owner, and never gains control just by getting older. You decide when money comes out, what it pays for and who the beneficiary is. You can switch the beneficiary to another family member at any time, including a sibling, cousin, niece or nephew, or yourself, with no tax. Control only passes if you transfer ownership, name a successor owner or die. The one exception is a 529 funded with money that was already in a UTMA account, which becomes the child’s at the age of majority.

If the child skips college, the money is not stuck. You can name a new beneficiary, spend it on a trade program or certification, pay down up to $10,000 of the beneficiary’s student loans, or roll unused funds into the child’s Roth IRA (details under Retirement). The worst case is a non-qualified withdrawal, where you get your contributions back tax-free and pay income tax plus a 10% penalty only on the earnings.

Also works

Parent-owned Roth IRA. Roth contributions can be withdrawn at any time, tax- and penalty-free, and earnings can come out penalty-free for college costs. The catch is that every dollar you pull for tuition is a dollar that is no longer growing for your own retirement. You control it entirely; the child has no claim on it.

Parent-owned taxable brokerage account. No contribution limits, no rules on what the money is for, and no tax break. You pay capital gains tax when you sell. You keep full control for life.

Lifestyle: A First Car, a Wedding, a Down Payment

This is money you want to hand over for a big adult expense, probably sometime in the child’s 20s. None of the tax-advantaged accounts are built for it, so the deciding factor is control, specifically whether you want to be able to say no.

Best bet: a parent-owned taxable brokerage account. Open a regular brokerage account in your own name, earmark it mentally for the child, and invest it in a low-cost index fund. When the time comes, you sell, pay capital gains tax on the growth, and write the check. If the child turns out not to need it, or you decide a 22-year-old is not ready for $40,000, nothing forces your hand.

Who controls it: You, for life. The child has no legal interest in the account until you give the money away. Gifts above the annual exclusion ($19,000 per recipient in 2026, or $38,000 from a married couple) require a gift tax return, though almost no one owes actual tax.

Also works

UTMA or UGMA custodial account. You open a brokerage account in the child’s name with yourself as custodian. Money you put in is an irrevocable gift, and the first chunk of investment income each year is taxed at the child’s low rate. The trade-off is that the child takes full legal control at the age of majority set by your state, usually 18 or 21 and up to 25 in a few states, and can spend it on anything. Large balances can also reduce financial aid, since the money counts as the student’s asset.

Irrevocable trust. You set the terms in writing, such as money released at 25 or only for a home purchase, and a trustee enforces them. The trust controls the money, not you and not the child, for as long as the document says. Setup runs several thousand dollars in legal fees plus annual filing, so it makes sense only for larger sums.

Retirement: Money That Won’t Be Touched for 40 Years

A few thousand dollars invested for a newborn has 60-plus years to compound, which is why this is the most powerful gift on the list. Which account to use comes down to one question: Does the child have earned income?

Best bet if the child has earned income: a custodial Roth IRA. A child with a W-2 job, or documented self-employment income such as babysitting or lawn care, can have a Roth IRA. You open it as custodian and can fund it yourself; the child does not have to contribute their own money. Contributions are capped at the lesser of what the child earned that year or the annual IRA limit ($7,500 in 2026). The money grows tax-free, contributions can come out at any time without penalty, and earnings are tax-free in retirement.

Who controls it: You, as custodian, until the child reaches the age of majority in your state, usually 18 or 21. Then the account transfers to the child outright. A 21-year-old can legally drain it, so the gift comes with a conversation.

A Clark favorite: a 529 plan. Clark likes the 529 for retirement giving for one reason: control. “I love the parent having control until a kid is mature enough to handle their own money.” Fund a 529 early, use it for school if the child goes, and if money is left over, roll it into a Roth IRA in the child’s name. The rules: the 529 must be at least 15 years old, the lifetime rollover cap is $35,000 per beneficiary, each year’s rollover counts against the child’s annual IRA limit and cannot exceed their earned income that year, and contributions from the last five years can’t move. In practice that means a slow drip into the Roth over the child’s 20s, not a lump sum, and the $35,000 cap only matters for families with a lot left over.

Who controls it: You, until the moment of the rollover. The 529 stays yours indefinitely; the Roth IRA it feeds belongs to the child.

Good option if the child has no income: a Trump Account. Created by the 2025 tax law and open for contributions since July 4, 2026, these are IRA-like accounts for children under 18 with no earned-income requirement. Children who are U.S. citizens born from January 1, 2025, through December 31, 2028, get a one-time $1,000 federal seed deposit. Anyone can contribute up to a combined $5,000 a year, and an employer can put in up to $2,500 of that as a tax-free benefit. The money must be invested in low-cost funds tracking the S&P 500 or a similar U.S. stock index (IRS).

Who controls it: The parent or guardian manages the account, but withdrawals generally aren’t allowed before January 1 of the year the child turns 18. After that, the account is the child’s and follows traditional IRA rules, so most withdrawals are taxed as income and face a 10% penalty before age 59½.

Also works

UTMA or UGMA custodial account. No contribution limits and no earned-income requirement, but it is taxable and the child takes full control at 18 or 21. Nothing stops them from spending a “retirement” account on a truck.

HSA. A health savings account is one of the best retirement accounts available, with a tax break going in, tax-free growth and tax-free withdrawals for medical costs. But it only works once the child is an adult on their own high-deductible health plan. You can gift them the cash to fund it, but you can’t open one for a minor.

Legacy: Wealth Meant to Outlast You

This is money you expect to pass down rather than hand over, often skipping a generation. The goals are keeping it out of your taxable estate, keeping it out of the hands of a beneficiary’s creditors or ex-spouse, and keeping some say over how it is used after you are gone.

Best bet: an irrevocable trust. You transfer assets into a trust, name a trustee, and spell out the rules in the trust document. Once funded, it can’t be undone, which is the point: the assets are no longer yours, so they are outside your estate. A trust can hold anything from brokerage accounts to real estate to life insurance. Expect several thousand dollars in legal fees to set up and annual costs to administer, which is why this makes sense mainly for estates large enough to face estate tax or for families who want firm strings on the money.

Who controls it: The trustee, under the terms you wrote, for as long as the trust lasts. That can be a set age (money released at 30, say), a set event, or the beneficiary’s lifetime and beyond. Neither you nor the beneficiary controls it directly.

Also works

“Dynasty” 529 plan. Because a 529 owner can change the beneficiary to any family member tax-free, a well-funded 529 can pass from child to grandchild to great-grandchild indefinitely. You can also front-load five years of annual-exclusion gifts at once, so a couple can put roughly $190,000 per beneficiary into a 529 in a single year and move it out of their estate while keeping control. Watch the gift tax rules on beneficiary changes that skip a generation, and name a successor owner so the account passes cleanly.

Who controls it: The account owner, then whoever they name as successor owner. Beneficiaries never control the account.

Who Controls the Money, and Until When

AccountWho controls itUntilThen

Custodial checking/savingsParent or custodianAge 18Converts to the child’s own account

529 planAccount ownerNo age limitOnly if the owner transfers it, names a successor or dies

Parent-owned Roth IRAParentFor lifeChild has no claim

Parent-owned taxable accountParentFor lifeChild has no claim until you give the money

UTMA/UGMACustodianAge of majority, 18 or 21 by state (25 in a few)Child takes full control

Custodial Roth IRACustodianAge of majority, 18 or 21 by stateChild takes full control

Trump AccountParent or guardianJan. 1 of the year the child turns 18Child’s account under traditional IRA rules

HSAThe adult childAlways theirsYou can only gift cash toward it

Irrevocable trustTrustee, under your written termsWhatever the trust saysDistributions per the document

“Dynasty” 529Account owner, then successor ownerNo age limitBeneficiaries never control it

Final Thoughts

Match the account to the purpose, and if you are not sure of the purpose yet, favor the accounts where you keep control. A 529 and a parent-owned brokerage account cover most situations between them, and both let you change your mind. Accounts in the child’s name, such as an UTMA or a custodial Roth IRA, give the biggest tax breaks and the least say over what a 21-year-old does with the money.

For most families, the amounts involved are modest, and the choice matters less than starting early. Open the account, set up an automatic contribution, and let the years do the work.
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