Saving & Investing for Your Children: What Options to Consider

Ken Weingarten |

Starting a family is a major event that will result in parents making major adjustments to their finances. From birthday presents to college planning, raising a child can be costly. Figuring out how and where to save is another hurdle that requires crucial thought. Here, we will go over some of the more common savings/investing vehicles that can provide your children with long-term financial success:

529 College Savings’ Plans

When it comes to addressing future tuition bills, 529 college savings’ plans are normally the go-to savings choice. Tax-deferred growth and tax-free distributions for qualified education expenses are normally the biggest advantages to using a 529 college savings’ plan. Additionally, many states can offer an income tax deduction for contributions made into a 529 account. More information about 529 plans can be found in our earlier blog.

Custodial Accounts

Opening a Uniform Transfer to Minors Act (UTMA) or Uniform Gift to Minors Act (UGMA) account is an option to save for college and even beyond. With these types of accounts, parents can open and manage them on behalf of a minor. Once the minor reaches the age of majority, either 18 or 21 depending on the state of residence, they will become the account owner.

UTMA/UGMA accounts tend to have higher flexibility in terms of funding and contribution limits, unlike 529 plans which are normally restricted to a pool of available investments per plan and contribution limits. While UTMA/UGMA accounts do not have specified contribution limits, it is recommended to contribute up to the annual gift exclusion ($16,000/person for 2022) to avoid filing a gift tax return.

There are a few drawbacks to consider when opening and funding an UTMA/UGMA account:

  • Financial Aid Calculations: When completing the Free Application for Federal Student Aid (FAFSA), custodial accounts must be reported as a student asset for the financial aid calculation. Unlike 529 plans, which can reduce aid by 5.64% of the account’s value (reported as a parental asset), custodial accounts can reduce aid by 20% of the account’s value.
  • Change in Ownership: As stated, once a minor reaches the age of majority, they will become the account owner. While this account can be used for college expenses, they are not limited to this option and can spend the account in any number of ways. If the goal is to transfer assets to the child, it is essential to address the level of trust and freedom that will be granted.

Brokerage Account

While your portfolio may already be comprised of an individual brokerage account (or a joint account with your spouse), opening a separate brokerage account for various earmarked child expenses is an option to consider. Goals such as a future wedding, down payment on a house, vacations, etc. can be funded through this type of account due to its level of flexibility. Setting up this type of account allows you to be more intentional about what you are willing to give/help your child with while still retaining control.


While serious planning may be required for major expenses (e.g., college), it is fundamental to be financially prepared for this journey. Consulting with a fee-only financial advisor can help you determine the best mix of savings/investing vehicles to help insure your child’s financial future.

Weingarten Associates is an independent, fee-only Registered Investment Advisor in Lawrenceville, New Jersey serving Princeton, NJ as well as the Greater Mercer County/Bucks County region. We make a difference in the lives of our clients by providing them with exceptional financial planning, investment management, and tax advice.