Investing for Kids: How to Start Building your Child's Financial Future

Time is likely the single biggest advantage your kids have as investors. Assuming a hypothetical 7% annual return rate, a child who has $100 a month invested from birth would have around $43,000 by age 18. That same account could grow to roughly $262,000 by age 40 if the money is left to keep compounding, even if no one adds another dollar. That's the magic of starting early. The earlier money is invested, the more time it has to grow through compound interest.

The hard part isn't the math. It's choosing the right account. Custodial accounts, 529 plans, custodial individual retirement accounts (IRAs), and brokerage accounts all work differently in terms of flexibility, taxes, and who controls the money. This guide walks through each option in plain English, compares them side by side, and helps you decide which one (or which combination) fits your family.

Why invest for your kids

There are two big reasons to invest for your kids: the math and the mindset.

On the math side, time does most of the heavy lifting. Starting at birth versus starting at age 18 doesn't just give your child the chance to have a bigger balance later — it changes the shape of the curve. The years before age 18 may feel small, but they're the ones that can compound the longest. A modest amount invested early can outperform larger amounts that get invested later, simply because it's been growing for decades.

On the mindset side, kids who see money being saved and invested grow up thinking it's a normal part of life. Showing your child their account balance, talking about why their money goes up and down, or letting them help decide what to invest in are simple ways to build financial literacy that sticks. The earlier kids learn that investing is something regular people do, not just rich grown-ups, the more confident they'll be in making money decisions on their own.

The main types of accounts to invest for kids

The most common ways to invest for your kids are UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act) custodial accounts, 529 education savings plans, and custodial IRAs.

• UGMA and UTMA accounts offer the most flexibility. Funds can be used for any purpose as long as it benefits the child
• 529 plans are primarily designed for education expenses but offer tax-free growth potential
• A custodial IRA is available if your child has earned income and provides the potential for decades of tax-advantaged compounding

• A regular brokerage account in your own name is another option that gives you maximum control

Each account is built for a different goal. The right one depends on what you're investing for, how much flexibility you want, and what tax advantages you can get along the way.

What are UGMA and UTMA custodial accounts?

UGMA and UTMA accounts are the two types of custodial brokerage accounts. Both work similarly, where an adult (the custodian) opens and manages the account on behalf of a minor, and the money legally belongs to the kid from day one. When the kid reaches the age of transfer in your state (typically 18 or 21, sometimes up to 25), they take over full control. Contributions are irrevocable, there are no contribution limits (though gift tax rules apply above $19,000 per recipient in 2026), and investment income is taxed under kiddie tax rules.

For the full breakdown, including a state-by-state age of transfer table, kiddie tax worked examples, and FAFSA treatment, see our deep-dive on UGMA and UTMA custodial accounts.

At Acorns, we offer Acorns Early Invest, a UTMA custodial investment account for kids, available on the Acorns Gold plan. You can open one for each of your kids, set up Recurring Investments, and invest in expert-built ETF portfolios, all in the same app you use for your own investing. Family and friends can chip in too.

529 college savings plans

A 529 plan is a state-sponsored, tax-advantaged investment account primarily designed for educational expenses. Contributions aren’t deductible on federal taxes, but earnings grow tax-free and qualified withdrawals are also tax-free. Many states also offer a state income tax deduction for contributions to their plan. The account owner (usually a parent or grandparent) keeps full control of the money and can change the beneficiary to another family member if plans change. 529s are assessed at up to 5.64% of value on the FAFSA, which is more favorable than the 20% assessment on custodial accounts.

Thanks to the SECURE 2.0 Act, unused 529 funds can now be rolled into a Roth IRA in the beneficiary’s name (up to $35,000 lifetime, subject to several conditions), which reduces former concerns about overfunding. For a head-to-head comparison between a custodial account and a 529 plan, see our custodial account vs. 529 plan guide.

Custodial IRAs

If your child has earned income from a job (babysitting, lifeguarding, mowing lawns, a part-time gig), they're eligible for a custodial IRA. You open and manage the account on their behalf, and they take over when they reach the age of transfer.

For 2026, the contribution limit for Roth IRAs is $7,500 or your child's total earned income for the year, whichever is less. That means if your child earns $2,000 babysitting, you (or they) can contribute up to $2,000 to the account. Many parents use this as a matching strategy: the child keeps their summer earnings, and the parent funds the IRA on their behalf up to the same amount.

A Roth IRA can be a more powerful choice for kids. Because contributions are made with after-tax dollars and the child is almost certainly in a 0% or very low tax bracket, the upfront tax cost is essentially nothing. From there, the money has a chance to grow tax-free for decades. Assuming a 7% average annual return, a single $2,000 contribution at age 16 could compound to roughly $59,000 in 50 years, all of it tax-free in retirement.

A regular brokerage account in your name

The fourth option is the simplest: open a brokerage account in your own name and earmark it for your child. There's no special tax treatment, but you keep complete control. You decide when, how, and whether to give your child the money. There's no automatic transfer at age 18, no kiddie tax to track, and no rules about how the funds get used.

The trade-off is taxes: you may owe capital gains and dividend taxes on the account each year at your own (likely higher) rate. And when you do hand the money over to your child, the gift tax rules apply: $19,000 per child in 2026, or $38,000 if your spouse joins you.

This option works well if you want flexibility about timing and recipient (for example, you're not yet sure how to divide money among multiple kids) or if you want to avoid the FAFSA hit that custodial accounts can create.

How to choose the right account for your child

There's no single right answer. The best account depends on what you're trying to accomplish, and many families end up using more than one. Here are some ways to think about it:

• Want maximum flexibility for your child? Consider a UGMA or UTMA. The money can be used for anything on behalf of the child.
• Saving specifically for education? Consider a 529. No taxes on qualified expenses is the strongest benefit, and the SECURE 2.0 rollover gives you a backup plan if some money goes unused.
• Your child has earned income? Consider a custodial Roth IRA. Decades of potential tax-free compounding is hard to match.
• Want to keep full control over timing and taxes? Consider opening a regular brokerage account in your own name.
   

Many parents combine accounts. For example, you might fund a 529 for college and a UGMA/UTMA for everything else. If your kids are also old enough to benefit from learning about money in real time, the Acorns Early kids' debit card pairs well with an Early Invest account, building strong spending and saving habits while you handle the long-term investing.

How to open an investment account for your kids

Whichever account you choose, the most important factor is starting. Time is the resource your child has more of than anyone else, and every year of compounding adds up. You don't have to fund a college education in one go or commit to a specific monthly number forever. With Acorns Early Invest, you can open a UTMA custodial account for each of your kids and set up automatic Recurring Investments. Each kid gets their own expert-built ETF portfolio where the money gets invested in ETFs, which contain a mix of different stocks. Want to see what regular contributions could grow into? Try our compound interest calculator to see the numbers behind the plan.

Investing involves risk, including loss of principal. Past performance does not guarantee future results. No level of diversification or asset allocation can ensure profits or guarantee against losses.

Start investing for your kids with Acorns Early Invest.

Frequently asked questions

What is the best investment account for kids?

The best investment account depends on what you're investing for. UGMA and UTMA custodial accounts offer the most flexibility. Funds can be used for any purpose on behalf of the child. 529 plans are the strongest option for education-specific savings because qualified expenses are not taxable. A custodial Roth IRA is a powerful account if your child has earned income, since decades of potential tax-free compounding can turn small contributions into substantial retirement savings. Many families use a combination, such as a 529 for college and a UTMA for general investing.

When should I start investing for my kids?

The earlier the better. Time is likely the single biggest resource in how much your child's account can grow, and the years before they reach adulthood are the ones that can potentially compound the longest. That said, there's no wrong time to start. If you can't contribute consistently yet, starting with whatever you can manage is still far more valuable than waiting for the perfect moment.

How do I decide which account type to choose?

Start with the goal. If you’re saving primarily for education, a 529 plan offers the strongest tax benefits and the most favorable FAFSA treatment. If you want flexibility to use the money for anything that benefits your kid, a custodial account (UGMA/UTMA) is the better fit. If your kid already has earned income from a job, a custodial IRA adds retirement savings on top. Many families fund more than one account to cover multiple goals at once. If you’re early in the research process and want to think through your options in detail, our deep-dive articles on each account type cover the specifics.

Can grandparents and family members contribute to an investment account for my child?

Yes. Most investment accounts for kids, including UGMA/UTMA custodial accounts and 529 plans, allow contributions from anyone. The account owner (parent or custodian) stays in control of the investment decisions, but grandparents, aunts, uncles, and family friends can all contribute. This is also a common way families can give gifts for birthdays, holidays, or milestones. Just keep in mind that contributions are subject to federal gift tax rules: for 2026, a single donor can give up to $19,000 per child ($38,000 for married couples) without triggering a gift tax return.

How much should I invest for my kid?

The right amount depends on your goals, your timeline, and your own financial situation. A common rule of thumb: prioritize your own retirement savings first, because your kid can borrow for college but you can’t borrow for retirement. Beyond that, even modest consistent contributions can grow meaningfully over a 15- to 18-year timeline.

Does Acorns offer investment accounts for kids?

Yes. Acorns Early Invest is a UTMA custodial investment account designed for kids, available on the Acorns Gold plan. You can open an account for each of your kids. They each get their own expert-built portfolio, and any investments or gifts are automatically invested across a mix of ETFs, which contain a wide array of stocks. Acorns also offers Acorns Early, a kids' debit card and money app that helps kids learn and build smart money habits.