What Actually Belongs in Your Kid's Portfolio

The moment my wife told me she was pregnant, I did not say "I love you." I did not say "we're going to be parents." I looked her dead in the eyes and said, "We need to open a 529 account." She has never let me forget it, and honestly, she shouldn't. Somewhere between the ultrasound and the nursery paint swatches, my brain skipped straight to tax-advantaged education savings. That's just who I am as a person.

But these days, a 529 isn't the only new-kid account on the block. Between the brand-new Trump Account and the old reliable custodial account (UTMA/UGMA), parents have more options than ever — and more ways to overthink it.

529 Plans Still my favorite, and still the most flexible tool for education-specific goals. Contributions grow tax-deferred, withdrawals are tax-free for qualified education expenses (college, K-12 tuition, apprenticeships, even some student loan repayment), and many states offer a tax deduction on contributions. You control the account for life — the child never takes it over — and if one kid doesn't use it, you can shift it to a sibling or even roll $35,000 of leftover funds into a Roth IRA under recent rules. That flexibility is the whole ballgame.

If you’re a business owner and have kids, you may be able to talk with your CPA about putting the kids on payroll for doing legitimate work for the company, paying them up to the standard deduction for that year where they receive the dollars completely tax free. Since it’s in their own bank account now, they can then put their money into a 529 account where it grows tax free and can be used for education funding before college or during, as described above completely tax free. It goes in tax free, it grows tax free, and it’s taken out tax free when used correctly.

Not to mention some of the pay they receive can kickstart maxing out a Roth IRA. Win, win, win in my book!

Trump Accounts The new kid on the block, launched July 4, 2026, as part of the 250th-anniversary rollout. Every child born between January 1, 2025, and December 31, 2028, gets a $1,000 seed deposit from the Treasury, invested automatically in a low-cost index fund. Families can add up to $5,000 a year on top of that. It's essentially a custodial IRA in disguise — no withdrawals until 18, then it behaves like a traditional IRA. They can use the funds for college penalty free but still pay the taxes as income. Other than a few other instances, they can’t use it until 59.5yrs old unless it’s taxed as income and pay the 10% early withdraw penalty.

Another interesting fact similar to a custodial account you will read below, is the kids take full ownership and control of the account when they tun 18. This can obviously be good or bad. But imagine mom, dad, or grandma funds this account for years thinking they are setting them up for retirement and then they take the money out on their 18^th birthday and buy a nice new car. Not ideal I know!

Here's where it gets interesting for business owners: employers can contribute up to $2,500 of that $5,000 annual limit pre-tax through a cafeteria plan. If you own your business, that's a legitimate way to fund part of your kid's account without it touching your taxable income. For everyone else, it's a nice long-term retirement head start, but it's rigid — the money's locked up until adulthood and taxed on withdrawal, so it doesn't flex the way a 529 does.

One redeeming factor, it may be used after 18yrs old to convert to a Roth IRA, but participants will need to be cautious of the “Kiddy Tax” where they are taxed at their parent’s marginal tax bracket instead of the younger persons low bracket.

Custodial Accounts (UTMA/UGMA) The most flexible in terms of what the money can be used for — literally anything, once the child reaches the age of majority. But that's also the catch: at 18 or 21 (depending on your state), the account and everything in it becomes theirs. No strings, no say-so from Mom and Dad. It's also taxed less favorably than a 529, and it counts more heavily against financial aid eligibility.

So just like the Trump account, there may need to be some education around the power of compounding and to not get the itch to squander it away after the kid has access to the account at the age of majority.

My take For most families, the 529 still wins on flexibility and planning control. You decide how and when the money gets used, and you can adapt as goals change. Trump Accounts may be worth layering in, especially if you're a business owner who can route employer contributions in pre-tax, but I wouldn't make one the centerpiece of your strategy. And custodial accounts? Fine for smaller, non-education goals, but know you're handing over the keys eventually.

As for my wife — she's since forgiven me for the 529 comment... Mostly.

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-            Baby Jude – World’s Cutest Tax Deduction

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual or firm.

Prior to investing in a 529 Plan investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.​ Please note that information regarding Section 530A (Trump) accounts is still evolving and is not final. To ensure you receive the most updated information, please refer to IRS.gov or Trumpaccounts.gov.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.

Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC. Shoreside Wealth Management is a separate entity from LPL Financial.