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Looking to teach your kids about investing but unsure where to start? Whether your children are very young or approaching college, here are some helpful resources for learning about investing together.
Best Investment Accounts for Kids: 5 Options
While minors have limited choices for opening investment accounts, parents can set up several account types on their behalf.
- Custodial Roth IRA
A Roth IRA allows contributions to grow tax-free. Children can use the contributions (but not the earnings) for major expenses like a car or a down payment after five years. Additionally, funds can be withdrawn for qualified education expenses without penalties. - 529 Education Savings Plans
There are two types of 529 plans: prepaid tuition plans and education savings accounts. The latter lets you invest in mutual funds and ETFs, growing a balance that can be used for qualified education expenses. Withdrawals are tax-free for these purposes, and contributions may be tax-deductible or offer tax credits, depending on your state. - Coverdell Education Savings Accounts
Coverdell accounts have a $2,000 annual contribution limit per beneficiary. Higher-income households face reduced contribution limits or may be ineligible based on their income level. - UGMA/UTMA Custodial Accounts
These accounts allow the custodian to invest in stocks, bonds, or mutual funds. Once the child reaches the age of majority, they gain full control and can use the funds for education, a car, or a down payment on a home. - Brokerage Account
These accounts give ownership directly to the child, though parents should supervise account activity. While lacking the tax advantages of other options, they allow kids to learn about investing firsthand with guidance from parents.
