Piggy Bank: A piggy bank is a simple way for young children to save cash while learning the basics of money management.
Best for: Young children who are just beginning to understand saving.
Things to consider: Cash can be lost, stolen, or damaged, and it doesn’t earn interest.
My take: I love the visual excitement of watching a piggy bank fill up, but I’d limit it to loose change and small bills. Larger gifts should be moved to a more secure account.
Certificates of Deposit (CDs): Certificates of Deposit (CDs) allow you to earn a guaranteed rate of interest for a fixed period of time while protecting your principal.
Best for: Short-term savings when preserving the balance is more important than maximizing growth.
Things to consider: Interest is taxable, rates may not keep pace with inflation, and you’ll need to monitor maturity dates and reinvest the proceeds. The same concept generally applies to savings accounts and savings bonds.
My take: A CD can be a reasonable temporary home for a very young child’s money, but I generally wouldn’t recommend it as a long-term strategy. Over time, investing is more likely to outpace inflation.
Uniform Transfers to Minors Act (UTMA/UGMA): A UTMA or UGMA account allows a child to own investments while a parent or other custodian manages the account until the child reaches the age of majority (21 in Massachusetts).
Best for: Birthday gifts, holiday money, and earnings from a child’s part-time job.
Things to consider: The money legally belongs to the child and must ultimately be turned over to them. Unlike college savings accounts, the funds can be used for virtually any purpose, including a first car, laptop, travel, or general spending needs.
My take: For money that truly belongs to the child, this is often my favorite option. It provides an excellent opportunity to teach investing while giving children the flexibility to save toward whatever goals become important as they grow.
Trump Account: A Trump Account is a custodial investment account designed to help families build long-term wealth for a child. Family members and others can contribute, with investments intended to grow over many years.
Best for: Long-term savings for children who don’t yet have earned income to contribute to a Roth IRA.
Things to consider: The account is designed to encourage long-term investing while still providing flexibility for qualifying expenses, such as higher education, purchasing a first home, or starting a business. Unlike a 529 plan, education isn’t the only potential use, but the account is less flexible than a UTMA for everyday spending goals.
My take: I view Trump Accounts as one of the best long-term savings vehicles for children without earned income. They allow families to begin investing years before a child is eligible for a Roth IRA, giving compound growth more time to work. While the funds may be used for qualifying life expenses along the way, I’d generally encourage families to think of those as backup options. The greatest benefit comes from allowing the account to continue growing toward retirement whenever possible.
Roth IRA (Child’s Name): A Roth IRA allows investments to grow tax-free and can provide decades of tax-free retirement growth.
Best for: Children with legitimate earned income from employment or self-employment.
Things to consider: Contributions are limited to the child’s earned income for the year, up to the annual IRS contribution limit. Birthday money, allowances, and gifts do not qualify as earned income.
My take: Once a child begins working, few savings opportunities are more powerful. Starting retirement savings as a teenager allows decades of compound growth that can be nearly impossible to replicate later in life.
Roth IRA (Parent’s Name): A parent can contribute to their own Roth IRA while mentally earmarking those dollars for future family goals.
Best for: Parents who are saving their own money but haven’t yet decided whether it will ultimately be used for retirement or to help their children.
Things to consider: The account remains the parent’s asset and is subject to the normal Roth IRA contribution and income eligibility rules.
My take: If you’re debating whether your own savings should be earmarked for retirement or future education expenses, a Roth IRA provides valuable flexibility. You can continue growing the money tax-free and decide years later how best to use it.
UPLAN Prepaid Tuition: The UPLAN allows families to prepay future tuition at participating Massachusetts colleges and universities.
Best for: Families who are reasonably confident their child will attend an eligible Massachusetts school.
Things to consider: Rather than investing in the stock market, your return is tied to tuition inflation at participating schools. If your child attends a different school, the plan can generally be transferred to another family member or redeemed with modest interest.
My take: UPLAN is an attractive option for families who prefer certainty over market fluctuations. Its biggest limitation is that its value depends on where your child ultimately chooses to attend college.
UFUND College Savings (529 Plan): A 529 plan allows investments to grow tax-free when used for qualified education expenses.
Best for: Parents, grandparents, and others who know the money is intended for education.
Things to consider: Investments fluctuate with the market, but qualified withdrawals for education are tax-free. Massachusetts taxpayers who contribute to the MEFA U.Fund may also deduct up to $1,000 of contributions if filing single or $2,000 if married filing jointly on their Massachusetts income tax return. At the state’s 5% income tax rate, that’s up to a $50 or $100 annual tax savings, respectively. If the funds ultimately aren’t needed for education, there are now several flexibility options—including transferring the account to another family member or, in certain circumstances, rolling a portion into a Roth IRA. Non-qualified withdrawals may be subject to income tax and a 10% penalty on the earnings.
My take: For education savings, the UFund is generally my preferred 529 option because of its tax-free growth, Massachusetts tax deduction, and increased flexibility under recent law changes. However, unless everyone agrees that birthday and holiday gifts are specifically intended for college, I usually prefer allowing children to keep those gifts in an account they can more directly engage with, such as a UTMA or Trump Account.
Trusts: A trust is a legal arrangement that allows someone else to manage and distribute assets according to rules established by the person creating the trust.
Best for: Larger gifts, inheritances, or situations where protecting the assets is more important than teaching day-to-day investing.
Things to consider: Trusts allow you to control how and when money is distributed, name successor trustees, and provide protections that standard custodial accounts cannot. They also require legal documents and involve some upfront cost.
My take: When significant sums are involved, such as grandparents making annual exclusion gifts, or when a child has special circumstances, a trust often provides protections that no other account can match. The legal expense is usually modest compared to the value of the assets being protected.
