Saving and Investing

What is the best investment plan for a child’s future?

EarlyBird explores the best investment plans for a child's future.


EarlyBird Team

Last updated:

March 18, 2023

EarlyBird helps parents, family, and friends collectively invest in a child’s financial future. Learn more.

What You'll Learn

We all know what it’s like to first get started when you leave home. The real world sure can sting, and life can be incredibly expensive. 

Fortunately, there’s plenty you can do now to keep the kids you love from getting stung by major debts later in life.

It all starts with investing.

By kick-starting an investment plan for the children in your life now, you’ll be able to accumulate interest, build wealth, and provide those kids with a degree of financial freedom by the time they finally come of age. 

But you’ve got to tread carefully because not all investment plans are created equally.

There are quite a few investment vehicles out there to choose from. The best investment plan for the children you love will depend on their age, your investment goals, time horizon, and more.

This guide will explain why you should invest in a child’s future, the best investment plan for a child’s future, and how you can supercharge your investment plan with the help of EarlyBird. 


Why Should You Invest for a Child's Future?

We all want our kids to grow up free from financial burden — but the truth is that a lot of us simply don’t invest enough. In fact, nearly half of Americans don’t save at all.

According to researchers at FINRA, 46% of adults lack any sort of rainy day fund to cover their expenses for three months. Worse yet, the numbers say that 19% of us spend more cash each month than we’re bringing in.

FINRA chart showing percentage of Americans with a rainy day fund.
(Image source)

You don’t want the children you love to become one of these statistics, right? 

Instead, they should grow up with options, opportunities, and the financial means to explore their passions.

But if you want to provide the kids in your life with that financial freedom in the future, it means you need to start investing while those kids are still young.

If you start an investment plan for a child sooner rather than later, you’ll have years to leverage the power of cumulative interest and build that nest egg. 

That means by the time those little sprouts come of age and are ready to start exploring the world, they won’t have to worry about major life expenses like college, putting a down payment on their first house, or taking a gap year to travel the world.

Thanks to the investments that you’ve already made, the children you love have opportunities and freedom they wouldn’t have otherwise had.

Which Investment Option is the Best for a Child's Future?

We’ve already covered why you should invest in the future of a child — but to be honest, that’s kind of a no-brainer. The more complicated question you’ve got to ask yourself is how you want to save.

If you really want to make your money work and build up some wealth to pass on to the kids in your life, an ordinary bank account probably isn’t going to cut it. You’re going to want to explore investment vehicles that will enable your financial contributions to grow faster and more efficiently.

To help you get started, we’ll break down a few of the most popular investment options for children.

Custodial account

A custodial account is an investment vehicle that enables an adult to invest in various assets on behalf of a child beneficiary.

There are two main types of custodial accounts that you’ll often hear about: a Uniform Gifts to Minors Act ( UGMA) custodial account and a Uniform Transfers to Minors Act (UTMA) custodial account. 

Both account types get their names from the legislation that created them, and both a UGMA account and UTMA account work pretty much the same way.

When an adult sets up a custodial account, they’ve got to name a child beneficiary. Everything in the account then becomes the legal property of that beneficiary. 

But because the beneficiary is only a child, it’s the responsibility of the adult who sets up the account to manage its funds and assets as a “custodian.”

The custodianship generally lasts until the child reaches the “age of majority” in their state. In most states, this is either 18 or 21. After the child becomes a legal adult, everything in the account will pass over to their control.

Illustration of hand placing coin in a row of gifts

The key differences between UTMA and UGMA revolve around asset classes and availability.

A UGMA custodial account is designed to hold financial assets like stock shares, bonds, exchange-traded funds (ETFs), and mutual funds. A UTMA custodial account can hold those financial assets, plus less common ones like real estate deeds, the patents to inventions, and fine art.

Another difference is that the UTMA legislation wasn’t ratified in all 50 U.S. states — which means that you’re not allowed to set up a UTMA everywhere. By contrast, you’re able to set up a UGMA account in every single U.S. state.

Because of these two differences, many families opt for a UGMA account.

Custodial accounts go hand-in-hand with tax benefits, too. 

Because everything in a custodial account is the legal property of the child beneficiary, the Internal Revenue Service (IRS) taxes any unearned income that the account generates up to a value of $2,200 per year at the child’s rate. That generally saves families a decent amount of money each year.

UGMA accounts also offer a lot of flexibility in terms of withdrawal rules. For example, as a custodian, you’re allowed to make withdrawals from the account without any penalties — as long as the assets you’re taking out are directly benefiting the minor beneficiary. 

Likewise, after coming of age, the account beneficiary can use their assets however they wish. There are no rules around how the account’s holdings can or can’t be used.

That’s what makes a custodial account such a popular and beneficial way to set up an investment plan for a child’s future.


529 plan

Another way to invest for a child is by setting up a 529 plan. Unlike other investment plans, a 529 is specifically designed with one purpose in mind: to fund education.

A 529 savings plan is an investment account that enables parents, guardians, or other adults to invest money in a child’s future education. Each U.S. state has its own 529 plans and rules, but they’ve all got a lot in common.

Although the contributions you make to a 529 plan aren’t tax-deductible, earnings that the investments in your plan generate will grow free of federal taxes. 

When it comes time to withdraw cash, you won’t be taxed on any of the money, as long as you’re only using it for a “qualified” education expense.

Allowed expenses contribute to higher education and include tuition, some accommodations, books, and supplies. 

Other expenses might not be covered by your 529 — which is why a lot of parents decide to invest in a custodial account alongside a 529 plan.

Illustrated table showing qualified expenses for a 529 plan.
(Image source)

It’s also important to note that with a 529 plan, you’re not directly buying stocks or making investments. Instead, your 529 provider will take your cash contributions and then invest them on a child’s behalf through a range of pre-selected mutual funds or ETFs.

Custodial Roth IRA

Another tool that adults can use to create an investment plan for their loved ones is to set up a custodial Roth IRA.

A Roth individual retirement account (IRA) is an account that allows an individual to deposit different types of assets or securities and then let that nest egg grow tax-free. 

Just like a brokerage account, you’ve got to be at least 18 to set up your own Roth IRA. That means if you’d like to invest for a child using a Roth IRA, you’ll have to set up a custodial Roth IRA on that child’s behalf.

Illustration of a girl placing coins in a piggy bank.

In terms of management, a custodial Roth IRA works just like a UGMA custodial account. The adult will maintain control over the assets in the Roth IRA on behalf of the child — but only until that child reaches the age of majority in their state.

When kids hit the age of majority, control of the account must be handed over, and the custodianship is terminated.

The major benefit of a Roth IRA is that you can withdraw cash from your account tax-free. But, this rule only applies after you’ve reached the age of retirement. 

Penalties will hit if you try to take cash or assets out of a custodial Roth IRA before the named beneficiary reaches retirement age.

Two other things to keep in mind when considering a custodial IRA are:

  1. The beneficiary must have earned income for anyone to contribute to their IRA. So if you want to contribute money to a child who is still too young to be working, this type of account isn’t an option. 
  2. Contributions are currently limited to $6,000 per year or annual earned income, whichever is lower. 

Let’s say the child in your life made $1,000 this year working summer jobs. In that case, the maximum amount anyone can contribute this year is $1,000. 

And this is the total cumulative amount. So, if other family members already invested $1,000 into the account, you won’t be able to contribute a thing — at least not until next year. 

Using EarlyBird to Invest for a Child’s Future

No two children are alike — so the ideal investment plan for one kid might be totally different from the best savings plan for somebody else. 

But if you’re after flexibility, simplicity, and tax benefits, one of the best investment plans for a child’s future is to set up a UGMA custodial account.

Not only does the UGMA offer the child you’ve invested for freedoms in terms of how they ultimately use their own funds, but it also allows you to save and invest as much as you’d like without having to worry about low contribution limits.

You can contribute up to $15,000 per child per year to a custodial account free of gift-tax consequences.

But if you’re after the benefits of a UGMA custodial account with more personalization and simplicity, you should do yourself one better and check out EarlyBird. 

EarlyBird offers adults an accessible way to invest for kids using a fixed portfolio model. 

We recommend a given ETF-based portfolio made up of securities and bonds that are based on your investment style, risk tolerance, the age of the child, time horizon, and a number of other factors.

The result: a tailored investment portfolio designed to make your money work harder.


The real beauty of the EarlyBird app is that after setting up your UGMA, anybody can contribute to that child’s future without any hassle. 

Grandparents, aunts, uncles, friends, neighbors, and anybody else can quickly deposit cash into an existing EarlyBird account — subsequently placing money into the portfolio you’ve chosen to help diversify the child’s investments.

You can even create personalized video messages to accompany your financial gift. This enables children to watch your video back in the future when they truly understand and appreciate the investment you’ve made for them.


At the end of the day, we all want what’s best for the children we love. Of course, we want those kids to grow up free from financial burdens — but if you want to make those dreams come alive for the kids in your life, you’ve got to come up with an investment plan.

There are lots of child investment plan options out there. But if you’re looking for a flexible, simple, and proven way to build wealth for a child’s future, EarlyBird is an amazing place to start.

But don’t just take our word for it. Download EarlyBird on the app store today to start investing in the kids you love.


This page contains general information and does not contain financial advice. All investments involve risk. Any hypothetical performance shown is for illustrative purposes only. Actual investment performance may be different for many reasons, including, but not limited to, market fluctuations, time horizon, taxes, and fees. Please consult a qualified financial advisor and/or tax professional for investment guidance.


EarlyBird Team

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Download EarlyBird today and start investing in your child’s tomorrow.
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Download EarlyBird today and start investing in your child’s tomorrow.
Get started with your first $10 on us, when you create an account today!
Download EarlyBird today and start investing in your child’s tomorrow.
Get started with your first $10 on us, when you create an account today!
Download EarlyBird today and start investing in your child’s tomorrow.
Download EarlyBird today and start investing in your child’s tomorrow.
Download EarlyBird today and start investing in your child’s tomorrow.
Download EarlyBird today and start investing in your child’s tomorrow.
Download EarlyBird today and start investing in your child’s tomorrow.
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