Austin Stuhr, LPL Financial Advisor with Cornerstone Investments
With school starting back up again, I thought it would be a good time to talk about our youth. As parents and grandparents, one of the greatest gifts we can give our children is a solid financial foundation. There are several ways to put money aside for children, each with different benefits, tax rules, and purposes. Today, I want to walk you through four accounts available:
- NEST 529 College Savings Plans
- UTMA Accounts (Uniform Transfers to Minors Act)
- Custodial IRAs
- The New “Trump Accounts” for Kids
NEST 529 College Savings Plans
The NEST 529 Plan is Nebraska’s version of the college savings account [2]. If you’ve got kids or grandkids who may pursue college, trade school, some apprenticeships or K-12 education. Though some states that offer state tax deductions or credits in their 529 plans may not allow for K-12 educational costs. Residents of these states may incur state taxes for K-12 expense feature must be fair and balanced with these tax considerations. This plan is designed to help you save while giving the account owner some tax breaks. Contributions are not tax-deductible for federal income tax, but some states may allow for state income tax deductions [2].
- Flexibility: Funds can be used for most colleges nationwide, and if your child doesn’t use all of it, you can switch the beneficiary to another family member. Also, any funds not used for educational reasons can be rolled over into a Roth IRA for the child, up to $35,000 if specific criteria are met (Roth IRA earnings are subject to ordinary income tax, and a 10% penalty if withdrawn prior to age 59 ½). Some states may impose penalties or recapture of credits for rollovers to another state’s plan [2].
- Tax benefits: Contributions are made with after-tax dollars, but they grow tax-deferred, and withdrawals are tax-free when used for qualified education expenses (tuition, books, certain room and board, etc.). Nebraska also gives the account owner a state income tax deduction if they are a resident (up to $10,000 per year for married couples filing jointly) [2].
- Considerations: If the money is used for something other than education, the earnings are taxed and hit with a 10% penalty [2].
Who it’s best for: Families who strongly value higher education and want tax-deferred growth.
UTMA Accounts (Uniform Transfers to Minors Act)
Think of them like a regular investment account, but held in your child’s name with you (the parent or guardian) as custodian until they reach adulthood (age 21 in Nebraska, other states may vary) [3].
- Flexibility: Money can be used for anything that benefits the child such as a car, braces, college tuition, even starting a small business when they’re older [3].
- Tax Benefits: Earnings are subject to the “kiddie tax.” The first $1,300 in unearned income (as of 2025) is tax-free, the next $1,300 is taxed at the child’s rate, and anything above that is taxed at the parent’s rate [4].
- Considerations: Once the child turns of age, they get full control [3].
Who it’s best for: Families who want flexibility beyond education and don’t mind the child having full control when they hit adulthood.
Custodial IRAs for Kids
A Custodial IRA (either Traditional or Roth) can be opened for a minor as long as they have earned income (wages from a job, self-employment, even farm work if it’s properly documented) [5].
- Why it matters: Starting retirement savings as a teenager means decades of compounding growth [5].
- Tax Benefits: With a Roth IRA, contributions are made after tax, but withdrawals in retirement are tax-free [5].
- Considerations: Contributions are capped at the child’s earned income or $7,000 for 2025, whichever is less [6].
Who it’s best for: Families who want to instill the value of long-term savings and have kids with part-time or summer jobs.
The New “Trump Accounts” Proposal for Kids
- How it works: Parents and grandparents can contribute to a savings or investment account for a child. Growth inside the account will be tax-free, with funds available later in life for things like buying a first home, starting a business, or continuing education [7].
- Tax Benefits: Tax-deferred growth until the year the child turns 18 [7].
- Considerations: A new program with a lot of moving components still [7].
Who it’s best for: Families looking ahead and wanting to stay informed about new opportunities for children’s financial security.
Final Thoughts
No two families are the same. What matters is knowing the tools available and choosing the ones that match your goals and values. Setting up accounts for your children isn’t just about money; it’s about teaching responsibility, creating opportunity, and making sure the next generation starts off on the right foot.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
