One of the most important conversations parents can have with their children is to teach them about money. Financial literacy can help them become better savers and investors while avoiding costly mistakes like taking on too much debt or failing to build a meaningful budget. Parents can continue these lessons by helping their children open their own investment account.
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Fortunately, well-known financial institutions including Charles Schwab, Fidelity, Vanguard, E-Trade and Acorns are leaning into account options for up-and-coming generations. The Trump administration’s promotion of government seed-funded Trump accounts for children has also drawn attention to early investing (more on that below).
Schwab is well regarded for its low fees and commission-free trades, Fidelity for its extensive research resources and Vanguard for its wide range of investment options. Professional financial advisors can also provide guidance in selecting the right provider and getting the account established. The five best types of investment accounts for kids and teens include:
— Teen-owned brokerage account.
— 529 college savings plan.
— Coverdell Education Savings Account (ESA).
— Custodial Roth IRA.
— UGMA/UTMA custodial accounts.
Teen-Owned Brokerage Account
Designed specifically for minors, these accounts allow teens to manage after-tax investments on their own or in conjunction with their parents’ guidance. Depending on the account, it may be owned solely by the teen or the parent can be formally added as a joint owner.
Schwab Teen Investor Account
In March 2026, Schwab introduced the Schwab Teen Investor account for teens ages 13 to 17. This account is owned jointly with a parent or legal guardian. Schwab pairs investing access with education by offering an online course that rewards teens with $50 in fractional shares if completed within 45 days. There is no minimum deposit, no commissions for online equity trades and no account opening or maintenance fees.
Teens can access cash through a debit card, which helps them learn to balance short-term needs with long-term goals. Direct deposit is also available for teens with jobs.
Schwab has been effective in attracting younger investors, with nearly one-third of new retail clients coming from Gen Z.
Fidelity Youth Account
Fidelity offers a Youth Account option for its existing clients with teens ages 13 to 17. It allows investing in U.S. stocks, exchange-traded funds and Fidelity mutual funds. There are no account minimums or monthly fees. Unlike the Schwab account, only the teen can trade and withdraw funds.
Both accounts offer zero-commission trades on U.S. stocks and ETFs, though Schwab specifically limits access to high-risk products like margin and options to protect young investors.
529 College Savings Plan
The first 529 plan dates back to 1986, when Michigan launched a prepaid tuition program. These plans were formally codified by the IRS in 1996 and have since become a popular way to save for education. Most 529 plans today are education savings plans rather than prepaid tuition programs.
Earnings grow tax-free and withdrawals used for qualified education expenses are federally tax-free. Many states also offer additional tax benefits. Eligible expenses have expanded over time: Computer purchases were added in 2015, and up to $20,000 per year can now be used for K-12 tuition (as of 2026). Contribution limits are typically high enough to cover the full cost of college.
There is no strict annual contribution cap, though contributions above $19,000 per person or $38,000 for married couples require filing a gift tax return. The Secure 2.0 Act, passed in January 2023, allows certain rollovers from 529 plans to Roth IRAs.
In Morningstar’s most recent study, state direct-sold plans took top honors due to their low fees and customizable options. The five Gold plans cited for 2026 are: Utah’s my529, Illinois’ Bright Start 529 College Savings Plan, Alaska’s T. Rowe Price 529 Plan, Massachusetts’ U.Fund 529 College Investing Plan and Pennsylvania’s PA 529 Investment Plan.
In 2014, Congress approved ABLE accounts for individuals with disabilities, modeled after 529 plans. Rollovers from 529 plans to ABLE accounts are allowed under current law.
Coverdell Education Savings Account (ESA)
Coverdell ESAs are similar to 529 plans but offer more flexibility. Funds can be used for a wider range of education expenses, and investment choices are broader.
This flexibility comes with stricter limits. Contributions are capped at $2,000 per child per year and income restrictions apply. Eligibility phases out at higher income levels, and funds must be used or transferred to another beneficiary before the child turns 30.
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Custodial Roth IRA
If your child has earned income from a job, even part-time or seasonal work, they may be eligible for a custodial IRA. This can be structured as either a Roth or traditional IRA, though Roth IRAs are often preferred.
A custodial Roth IRA works like a standard Roth IRA but is managed by a parent or guardian until the child reaches adulthood, typically between ages 18 and 21, depending on state rules. Contributions are made with after-tax dollars and can be withdrawn at any time, though earnings are subject to restrictions. This flexibility can help with future expenses like college, starting a business or a home purchase. Earnings can be withdrawn tax-free after age 59½ if the account has been open for at least five years.
For 2026, contributions are limited to $7,500 or the child’s earned income, whichever is less. Contributions made on behalf of a child may have implications for Social Security or Medicare if coming from older relatives. Withdrawals can also affect financial aid eligibility, as they may be counted as untaxed income on the Free Application for Federal Student Aid (FAFSA) form.
UGMA/UTMA Custodial Accounts
Uniform Gift to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts are among the oldest custodial account types, dating back to 1956. They were originally designed as simpler alternatives to trust funds. These accounts can be opened by parents, relatives or even non-family members.
An adult manages assets on behalf of a minor until the child reaches the age of termination, which can vary from the age of majority. The age of termination is typically between ages 18 and 21, but some states permit the donor or transferor to specify a different age of termination at the time the gift or transfer is made. Once the child reaches the termination age, they gain full control of the account and can use the funds for any purpose.
There are no contribution limits. These accounts can trigger a “kiddie tax,” however. For 2026, the first $1,350 of unearned income in a UTMA account is tax-free, and the next $1,350 is taxed at the child’s rate (usually 10%). Any amount over $2,700 is taxed at the parent’s marginal rate. Unearned income includes dividends, capital gains, rents and royalties.
UGMA accounts are limited to financial assets such as cash, securities and insurance policies. UTMA accounts are more flexible and can include real estate, art and intellectual property.
Trump Accounts: What to Know Before Their July 4 Debut
Created in the One Big Beautiful Bill Act, Trump Accounts are set to debut on July 4. These accounts, known as 530A IRAs, will be available for eligible children born between Jan. 1, 2025, and Dec. 31, 2028. To open an account, you can submit IRS Form 4547 through the online portal.
Unique to these accounts, eligible children will receive a one-time $1,000 government deposit. Parents, legal guardians and relatives will be able to contribute up to an annual $5,000 limit and employers may contribute up to $2,500 of the annual limit. The money will be managed by private financial institutions and invested in index-based funds tied to U.S. equities.
Michael Dell, the founder of Dell Technologies, and his wife, Susan, have pledged $6.25 billion to fund accounts for 25 million children, contributing $250 to each eligible account. Children must be age 10 and under and live in a ZIP code with a median household income below $150,000. Their gift was noted by President Trump as being “one of the largest private donations in American history.”
Parents or guardians will manage these accounts until the child turns 18. At that point, the funds become accessible and the account transitions to rules similar to a traditional IRA, allowing tax-advantaged withdrawals for education or home purchases.
An Investment Account for Teens Offers a Head Start
Starting early gives children a powerful advantage. They gain financial knowledge, develop investing habits and may accumulate meaningful assets by adulthood. By age 18, these funds can support education, entrepreneurship or a first home. These are key building blocks of long-term wealth.
The biggest advantage is time. When money is invested early, compound growth, especially in a tax-advantaged wrapper, can have a dramatic impact. A $1,000 investment made at birth and earning 7% annually could grow to roughly $93,000 by age 67.
Helping children understand and experience this process firsthand may be one of the most valuable financial lessons parents can provide.
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5 Best Investment Accounts for Kids and Teens originally appeared on usnews.com
