How to Invest for Kids in 2025: 9 Best Investing Accounts Parents Should Know About

Think investing is just for adults with high incomes? Think again. Most parents wait too long to start building wealth for their kids—missing out on years of tax-free growth, compounding, and financial learning. At InvestoDock, we break down the smartest kids investment accounts, showing you exactly how to turn small steps today into serious financial wins tomorrow. Whether you’re saving for college, retirement, or just future freedom, the right account can change everything. Let’s get started.

Why Invest for Your Child Early?

I’ll be honest—if I could go back in time and open an investment account when I was ten, I probably wouldn’t be writing this with a cup of instant coffee right now. But that’s the thing about time: when it comes to investing for kids, it’s your biggest asset.

The Power of Compounding Over Time

I remember hearing about compounding interest in high school and thinking, “Okay, so… money makes more money?” But when you see it in action—especially over 10, 20, or even 50 years—it’s mind-blowing.

Let’s say you open a custodial brokerage account with just $1,000 when your child is born. Invest it in a fund with a 7% annual return, and by the time your kid turns 60, that little seed grows into over $30,000 without adding another cent. Now imagine contributing monthly. That’s the magic of starting early.

According to a 2023 Fidelity study, kids who begin investing or saving before age 18 are three times more likely to continue smart financial habits into adulthood. That brings us to the next point.

Financial Literacy Benefits

I’ve seen firsthand how youth trading accounts can transform a child’s view of money. When a 12-year-old knows how stocks work or what a Roth IRA for kids means, you’re not just teaching investing—you’re shaping a confident, financially savvy adult.

You’re giving them tools we were never handed.

Setting Up for Future Education, Housing, or Retirement

It’s not just about money for the sake of money. It’s about opening a 529 savings plan so college doesn’t feel like climbing Everest barefoot. Or helping them buy a first home. Or even retire early (imagine that!).

Starting early means giving your child options—and that’s one of the best gifts you can offer.

Overview of Kids’ Investment Account Options

Back when I first explored saving for my niece, I googled “best kids investment accounts” and was immediately buried in acronyms. I didn’t know the difference between a custodial brokerage account and a 529 savings plan, let alone a Roth IRA for kids. It was overwhelming.

If you’re feeling the same way, don’t worry. I’ll break down the most common options in a way that makes sense—even if you’re not a finance geek.

These accounts each serve a different purpose. Some are great for education, others for long-term wealth building. Some offer tax perks, and others give you flexibility. Here’s a quick cheat sheet based on what I’ve learned (the hard way):

Common Investment Accounts for Kids

Each of these kids investment accounts has pros and cons. What I learned is there’s no “one size fits all”—you have to match the account with your child’s needs and goals. For us, starting with a simple custodial brokerage account and adding a 529 savings plan later was the sweet spot.

Watch also: What Is a Hedge Fund? A Complete Beginner’s Guide to Strategies, Risks, and How to Invest

In-Depth Guide to Each Account Type

1. Custodial Brokerage Account (UGMA / UTMA)

I opened my first custodial brokerage account for my nephew when he turned five. At the time, I didn’t fully grasp what UGMA or UTMA meant—I just knew I wanted a place to grow money for him that wasn’t tied strictly to college like a 529 savings plan.

A custodial brokerage account is basically an investment account that an adult opens and manages for a minor. The terms UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act) refer to the state laws that determine what kind of assets you can hold in the account. UGMA is more limited (cash, stocks, mutual funds), while UTMA allows for more asset types (even real estate, in some states).

You can use this account to invest in stocks, ETFs, or mutual funds. It’s a flexible tool for investing for kids because there are no specific restrictions on how the money is eventually used—as long as it benefits the child.

Pros

• Wide range of investment choices (unlike some other kids investment accounts)
• No contribution limits
• Relatively simple to set up
• Teaches kids about money and investing if you involve them early

Cons

• Assets legally transfer to the child at age 18 or 21 (varies by state)
• Could reduce financial aid eligibility
• No tax-deferred or tax-free growth like a Roth IRA for kids

One thing I didn’t expect? The loss of control once the child becomes a legal adult. That’s right—when my nephew turns 21, he’ll have full access to everything in that account. Whether he uses it for college tuition or a trip to Ibiza… well, that’s out of my hands. And that’s the trade-off you make.

So if you’re okay with handing over the reins at adulthood and want flexible, non-restrictive options, a custodial brokerage account is a strong first step in building wealth for the next generation.

2. Roth IRA for Kids

When I first heard about a Roth IRA for kids, I thought it was a myth. Retirement account… for a child? But the more I looked into it, the more I realized it might just be the smartest long-term wealth-building tool out there.

Here’s the catch: your child needs to have earned income to qualify. That means money made from a job—babysitting, lawn mowing, working at a local shop. Gifts or allowance don’t count. Once that’s in place, you (as the parent or guardian) can open and contribute to a custodial Roth IRA on their behalf.

Why it’s a game changer

With a Roth IRA, your child contributes after-tax dollars, and in return, all the investment growth is tax-free—forever. That’s huge. Imagine contributing $1,000 a year for your teen, from age 14 to 18. Even if you stop there, by the time they hit retirement age, it could grow to over $100,000—assuming a 7% average return.

Major Benefits

• Tax-free growth and qualified withdrawals in retirement
• Can withdraw contributions (not earnings) anytime, penalty-free
• Encourages early investing for kids with a long-term mindset

Things to Watch Out For

• The child must have documented earned income
• Contribution limit is the lesser of their income or $6,500 (as of 2024)
• Earnings withdrawn before age 59½ may be taxed and penalized—unless for exceptions (like first home or education)

Personally, I opened a Roth IRA for kids when my teen cousin got his first part-time job. It started a conversation about retirement that most adults don’t have until their 30s. And honestly? That’s the kind of head start we all wish we had.

If your child earns money and you’re thinking beyond just saving for college, this is one of the most powerful kids investment accounts you can set up.

3. 529 savings and investing accounts

The first time someone mentioned a 529 savings plan to me, I assumed it was a special kind of checking account. Spoiler: it’s way more powerful than that. Once I understood how it worked, I knew it had to be part of our strategy for investing for kids—especially when education was the goal.

So, what is it exactly? A 529 plan is a state-sponsored investment account designed to help families save for education. While it’s mainly used for college, it can also cover K-12 tuition and even trade schools or apprenticeship programs in some cases.

State-Specific Rules

Here’s where it gets tricky. Each state runs its own 529 plan, with slightly different rules, fees, and benefits. For example, my state offers a tax deduction on contributions—but not every state does. You don’t have to choose your home state’s plan, but if there’s a tax incentive, it might make sense to stay local.

Tax Advantages

• Investment growth is tax-deferred
• Withdrawals for qualified education expenses are 100% tax-free
• Some states offer state income tax deductions or credits on contributions

Impact on Financial Aid

This is the part I didn’t fully understand until much later: 529 plans are considered a parental asset if the account is in your name. That’s actually a good thing—because it only reduces financial aid eligibility by up to 5.64%, unlike custodial brokerage accounts, which are assessed at the child’s rate (up to 20%).

Just keep in mind: if the account is owned by a grandparent, withdrawals might count as untaxed income for the student, which can hurt aid eligibility more. Recent FAFSA updates are addressing this, but double-check your situation.

Bottom line? A 529 savings plan is a powerful tool for families planning ahead. It’s one of the most tax-efficient kids investment accounts if your primary goal is education. Just don’t forget to read the fine print—especially from your state’s plan.

4. ABLE Accounts

When I first learned about ABLE accounts, I was honestly surprised they weren’t more widely known. For families raising children with disabilities, these accounts can be life-changing. They allow parents to save and invest for their child’s future—without affecting eligibility for crucial government benefits like SSI or Medicaid.

ABLE stands for “Achieving a Better Life Experience,” and the program was created through federal legislation back in 2014. Think of it like a specialized kids investment account for those with disabilities, but with unique protections and spending rules.

Who’s Eligible?

Eligibility is specific. To open an ABLE account, the individual must have a disability diagnosed before age 26. This includes a wide range of conditions—physical, developmental, or mental—and they must qualify for Social Security benefits or have a signed disability certification from a licensed physician.

Spending Guidelines

Funds from an ABLE account must be used for “qualified disability expenses.” That might sound restrictive, but the list is actually pretty broad. It includes:

• Education and training
• Housing and utilities
• Transportation
• Healthcare and therapies
• Assistive technology
• Legal fees and financial planning

Withdrawals used for these expenses are completely tax-free. But any non-qualified withdrawals? They’ll be taxed and penalized—so it’s best to keep solid records.

Why It Matters

Before ABLE accounts existed, parents had to be very careful about saving in traditional custodial brokerage accounts or trust funds. Even modest savings could disqualify a child from government aid. But with ABLE, families can save up to $100,000 without affecting SSI eligibility—and even more without touching Medicaid access.

In short, an ABLE account is more than just a financial tool. It’s peace of mind. It lets you invest in your child’s future while protecting their present support systems. For eligible families, it’s a critical part of smart investing for kids.

5. Custodial IRA

Before I got deep into financial planning, I used to confuse a custodial IRA with a Roth IRA for kids. Turns out, they’re similar in structure but very different in function—and knowing the difference can seriously shape your child’s financial future.

Like the Roth, a custodial IRA is opened by an adult on behalf of a minor who has earned income. But instead of using post-tax dollars like in a Roth IRA, this one uses pre-tax dollars if it’s a traditional IRA. That means you might get a tax deduction on contributions now, but withdrawals in retirement are taxed as regular income.

Key Differences from Roth IRA

• Tax timing: Roth IRAs are taxed now, grow tax-free. Custodial IRAs may be tax-deferred but are taxed on withdrawal.
• Withdrawal rules: Traditional custodial IRAs have more penalties for early withdrawal (before age 59½), while Roth IRAs allow you to take out contributions anytime.
• Retirement strategy: Roths are better for those who expect to be in a higher tax bracket later. Traditional IRAs may benefit those in a high tax bracket now.

Contribution Rules

The contribution limit is the same as other IRAs—up to $6,500 per year (as of 2024) or the child’s total earned income, whichever is less. Remember, no earned income = no IRA contributions. Babysitting gigs, freelance design, or part-time retail jobs all count.

Investment Flexibility

This is where it gets fun. A custodial IRA can hold stocks, ETFs, mutual funds, and more. You’re not locked into boring Children’s Savings Accounts with limited growth. In fact, pairing this with basic lessons on long-term investing is a great way to build financial literacy while building wealth.

Just like other kids investment accounts, the assets legally become the child’s when they hit adulthood (usually 18 or 21). So while you’re planting the seed now, they’ll eventually take the wheel—hopefully with a solid understanding of what they’re holding.

If your goal is to teach serious long-term planning and your child has earned income, a custodial IRA might be a strong alternative or complement to a Roth IRA for kids.

6. Custodial 401(k)

Let’s be real—most people haven’t even heard of a custodial 401(k), and I hadn’t either until a friend mentioned setting one up through their family business. It’s a rare option, but under the right conditions, it can be one of the most powerful tools for investing for kids.

Here’s the deal: a custodial 401(k) isn’t something you can open like a regular savings or brokerage account. It has to be offered by an employer—which means your child must be employed, and the employer must set up the plan. In many cases, this only works if you own a business and can hire your child legitimately.

Employer Involvement

This isn’t a DIY account. The employer creates the 401(k) and includes the minor as an employee participant. That means payroll records, tax documentation, and legal compliance are all involved. If you’re a business owner who’s serious about building generational wealth, this can be a game changer.

Suitable Scenarios

• You run a family business and can put your child on payroll
• You want to teach the value of work + long-term investing
• You want to maximize retirement contributions for your child

There are two flavors here: traditional and Roth. A traditional 401(k) reduces taxable income now but taxes withdrawals later. A Roth 401(k) (if offered) works more like a Roth IRA for kids, with tax-free growth and tax-free qualified withdrawals.

Contribution limits are higher than IRAs—up to $23,000 in 2024 for those under 50—but realistically, kids won’t earn enough to max that out. Still, even a few thousand invested yearly can explode in value over decades thanks to compounding.

It’s not for everyone, and yes—it’s paperwork-heavy. But if your child works for your business, and you’re thinking long-term, the custodial 401(k) is a heavy-hitter among kids investment accounts. Just be ready to do it by the book.

7. Stock trading accounts

If you’ve got a teenager glued to their phone all day, why not turn that screen time into something educational—and potentially profitable? That’s exactly what youth trading accounts aim to do. These platforms let teens invest real money in stocks, ETFs, and more, under the supervision of a parent or guardian.

It’s a hands-on way to teach investing for kids—something I wish I had at 14 instead of figuring out mutual funds in my 30s. The best part? Many of these accounts come loaded with tools to help kids (and their parents) learn as they go.

Popular Platforms

• Fidelity® Youth Account: Available to teens aged 13–17 with a parent’s approval. No account fees, plus access to real-time stock trading and a debit card.
• Greenlight + Invest: Combines allowance management with real investing features. Kids request trades, but parents approve them.
• Acorns Early: More focused on automatic investing, but it’s a solid intro to money management for minors.

Educational Features

• Real-time trading with low barriers to entry
• Built-in tutorials and investing tips for teens
• Parental oversight tools to approve, reject, or monitor trades

Limitations to Know

• No tax advantages (unlike a 529 savings plan or Roth IRA for kids)
• Short-term gains are taxed at standard rates
• Emotional investing: kids may need coaching on risk and patience

From my experience, youth trading accounts are amazing conversation starters. You can sit down with your teen, research a company together, and decide whether it’s worth buying. It’s not just about making money—it’s about making smarter decisions, learning from mistakes, and building real financial confidence early on.

8. Special Needs Trusts

If your child has a disability, a special needs trust is another important option to consider alongside an ABLE account. While both can protect government benefits, a special needs trust offers more flexibility and can hold a much larger amount of money.

These trusts are set up by a parent, guardian, or even the court, and are managed by a trustee—not the child. They’re designed to pay for things that government benefits don’t cover, like education, entertainment, medical costs, or personal care.

Why Choose a Special Needs Trust?

• No contribution or balance limits (unlike ABLE accounts)
• Can be funded with life insurance, inheritance, or gifts
• Maintains eligibility for SSI, Medicaid, and other public benefits

The downside? They’re more complex to set up and usually require a lawyer. But for families looking to provide long-term support beyond what an ABLE account can offer, a special needs trust is worth serious consideration.

In some cases, using both—an ABLE account for day-to-day expenses and a special needs trust for larger, long-term planning—gives you the best of both worlds.

9. Trump Account (Pilot Program)

The “Trump Account” is a newly proposed, pilot-style savings account for children—essentially a tax‑advantaged investment vehicle launched under the “One Big Beautiful Bill” in 2025. It’s intended to give kids a financial head start by combining government seed money, parent/guardian contributions, and long-term investing.

Who Qualifies & Seed Funding

Under the pilot phase, children born between January 1, 2025 and December 31, 2028 who are U.S. citizens and have a Social Security number are eligible for an automatic one‑time $1,000 government deposit into a Trump Account. Children outside that birth window but under age 18 may still open such accounts, though they won’t receive the seed deposit.

Contributions & Investment Rules

Parents, relatives, and others can contribute up to $5,000 per year (starting July 4, 2026) in after-tax dollars. Employers may contribute up to $2,500 annually to a child’s Trump Account without it counting as taxable income. The funds must be invested in a qualifying mutual fund or ETF that tracks a U.S. stock index—with capped fees (e.g. ≤ 0.10% annually).

Withdrawals & Tax Treatment

No withdrawals are allowed before age 18. At age 18, limited distributions become allowed for certain purposes (education, first-time home purchase, etc.). After that, the account functions similarly to a traditional IRA: earnings and employer/government contributions may be taxed as ordinary income, with penalties for early withdrawal (unless meeting qualified exceptions).

One important thing: because Trump Accounts are still in the pilot phase and many administrative rules are TBD, details may change as regulations are issued. If you’re considering it as part of your child’s financial plan, treat it as an evolving option—alongside other more established kids investment accounts.

They may not be the most powerful of the kids investment accounts, but they’re arguably the most engaging. And in this game, engagement is everything.

Watch also: 401k Early Withdrawal: Rules, Penalties, and Smart Alternatives to Protect Your Retirement

How to Choose the Right Investment Account for Your Child

Choosing the right kids investment account isn’t about picking the “best” one overall—it’s about picking what fits your child’s life and your long-term goals. When I started researching investing for kids, I quickly learned that each account has its strengths… and some serious limitations. Here’s how I narrowed it down.

Start With the Goal

• Education: If your main goal is saving for college or private school, a 529 savings plan is hard to beat. It offers tax-free growth and withdrawals for qualified education expenses.
• Retirement: Got a teen with a part-time job? A Roth IRA for kids is ideal. It turns small earnings into huge long-term growth—plus tax-free withdrawals in retirement.
• General Wealth Building: A custodial brokerage account gives you the most flexibility. The money can be used for anything once your child reaches legal age.

Factor in Age, Income, and Special Needs

• Young kids with no income: You’ll likely be looking at 529 plans or custodial brokerage accounts.
• Teens with earned income: This opens the door to a Roth IRA for kids or even a custodial 401(k) if they work for your business.
• Children with disabilities: An ABLE account protects benefits and provides tax-free funds for essential needs.

Tax Implications

If you want tax-free growth and withdrawals, go for a 529 or Roth IRA. A custodial brokerage account is taxed annually on earnings but at the child’s lower tax rate (up to a limit). Just keep in mind that some accounts—like custodial brokerage or youth trading—don’t offer any tax breaks at all.

Control and Access

Here’s a biggie: who controls the money, and for how long? Most custodial brokerage accounts and IRAs transfer full control to the child at 18 or 21, depending on your state. With 529s and ABLE accounts, parents typically retain control longer, especially if used for specific goals.

At the end of the day, there’s no perfect choice—only the right one for your child’s situation. Review your options, match the account to the goal, and remember: the earlier you start, the more powerful the outcome.

How to Open and Manage a Child’s Investment Account

Once you’ve picked the right kids investment account, the next step is actually opening it—and trust me, it’s easier than you think. I used to imagine hours of paperwork and complicated banking appointments. But most accounts today, like a custodial brokerage account or a Roth IRA for kids, can be opened online in under 30 minutes.

Step-by-Step Setup

1. Choose a provider: Go with a trusted platform like Fidelity, Vanguard, or Schwab. Each offers accounts tailored for investing for kids.
2. Gather your documents: You’ll need your ID, Social Security numbers for you and the child, proof of income (for Roth IRAs), and possibly address verification.
3. Open the account: Follow the prompts online. You’ll choose the account type (529, custodial IRA, etc.), add the beneficiary info, and confirm everything.

How to Fund It

You can fund most accounts via bank transfer, direct deposit, or recurring contributions. For Roth IRAs or custodial 401(k)s, the contribution must match the child’s earned income. In 529s and youth trading accounts, anyone can contribute—parents, grandparents, even friends.

Teach While You Invest

This part is gold. Involve your child. Show them how their 529 savings plan or stock investments grow over time. Use platforms that include educational dashboards or paper trading features. Explain how compound interest works or what diversification means. These lessons are just as valuable as the dollars themselves.

Risk Management and Diversification

Don’t dump everything into one flashy tech stock. Diversify across sectors and include low-cost ETFs or mutual funds. Even in a youth trading account, help your child build a basic portfolio with growth, value, and safety in mind. That way, they learn not just how to invest—but how to do it wisely.

Opening and managing a child’s investment account isn’t just about money. It’s about mindset. You’re not just growing dollars—you’re growing discipline, confidence, and a future investor.

Mistakes to Avoid When Investing for Kids

Setting up a kids investment account is a great move—but only if you avoid the common traps I (and many others) have stumbled into. Here are four big mistakes you don’t want to make when investing for kids:

1. Ignoring Tax Consequences

Not all accounts are created equal when it comes to taxes. A custodial brokerage account gets taxed annually, even if the earnings are small. And if you’re not careful, the “kiddie tax” could kick in and reduce your returns. On the other hand, a 529 savings plan or Roth IRA for kids offers tax-free growth—if used correctly.

2. Not Involving the Child

Investing without teaching is a wasted opportunity. If your child has a youth trading account, don’t just make trades for them—sit with them. Talk about what you’re buying and why. Financial literacy starts with curiosity, and the earlier the better.

3. Overlooking Withdrawal Restrictions

This one hurt me personally. I once assumed a Roth IRA could be tapped anytime—but earnings are locked until retirement unless you meet certain conditions. Always check withdrawal rules before you lock in your cash.

4. Choosing the Wrong Account Type

If you’re saving for college, don’t pick a custodial brokerage account over a 529. If your child has earned income, don’t skip the Roth IRA. Matching the account to your goal is critical—or you risk taxes, penalties, or just losing out on better growth options.

Avoid these mistakes, and you’ll set up your child not just with money—but with a lifelong money mindset.

Conclusion

Look, I get it—figuring out the best way to handle investing for kids can feel overwhelming at first. But trust me, the hardest part is starting. Once you open that first kids investment account, everything begins to click. And the earlier you start, the more powerful your impact.

Whether it’s building college savings through a 529 savings plan, launching a custodial brokerage account for long-term growth, or setting up a Roth IRA for kids to give them a retirement head start—the tools are already there. All you need to do is take action.

By investing early, you’re giving your child more than money. You’re giving them choices, freedom, and a financial education that will serve them for life.

Next steps? Pick the account type that matches your goals. Gather the documents. Open the account. And most importantly—talk to your child about it. Make them part of the journey.

You’re not just building their future wealth. You’re shaping their mindset. And that’s something no market can ever take away.

Frequently Asked Questions

Can I open an account without the child earning income?

Absolutely. You don’t need earned income to open every type of kids investment account. For example, custodial brokerage accounts, 529 savings plans, and youth trading accounts can be opened and funded by parents or guardians—even if the child has never made a dime. However, accounts like the Roth IRA for kids and custodial IRA do require the child to have earned income from a job or self-employment.

What happens to the account when the child turns 18 or 21?

This depends on the account type and your state laws. With a custodial brokerage account, custodial IRA, or youth trading account, control of the account transfers fully to the child at the “age of majority”—usually 18 or 21. That means they can use the funds however they want. If the account is a 529 savings plan or ABLE account, the parent or account owner usually retains control longer, especially if it’s used for a designated purpose like education or disability-related expenses.

Can other family members contribute?

Yes! Grandparents, aunts, uncles, and even close family friends can contribute to many kids investment accounts. This is especially common with 529 savings plans and custodial brokerage accounts. Some platforms even allow for gifting links to share with family members, making birthdays and holidays a lot more meaningful—and financially productive.

Can I open multiple accounts?

Yes, and in many cases, you should. I’ve personally opened both a 529 plan and a custodial brokerage account for the same child. The key is to match each account to a specific goal: one for education, one for long-term investing. Just be sure to track contributions and understand how each account impacts taxes and financial aid.

What if my child has special needs?

That’s where an ABLE account can be a game-changer. It allows you to save and invest up to $100,000 without affecting SSI eligibility, and there are even more protections for Medicaid. It also offers tax-free withdrawals for qualified disability-related expenses. If your child was diagnosed with a disability before age 26, an ABLE account should absolutely be on your radar.

Still unsure which path is right? The good news is you’re already ahead—most people don’t think about investing for kids until it’s too late. Just take it step-by-step, stay flexible, and focus on what fits your child’s needs and future goals.