5 best investment accounts for kids of November 2024

It's never too early to start investing for your kids and teaching them the concept of setting aside money for a goal. The more time you have in the market, the more your money can grow.

Below, CNBC Select breaks down the best investment accounts for kids, not including savings vehicles like certificates of deposit (CDs) or high-yield savings accounts. When it comes to choosing the right investment account, deciding first on what your goal is for your kid — investing for a college education or investing for their retirement years — can steer you in the right direction. (See our methodology for more information on how we made this list.)

Who's this for? Brokerages have investment accounts exclusively for minors, which are ideal for parents who want their older kids to learn more actively about investing. Just note that a brokerage account in a minor's name is considered a student asset when it comes to eligibility for federal financial aid for college, which carries a heavier weight than parental assets.

Standout benefits: Teen-owned brokerage accounts are a good way to have kids learn about money hands-on while keeping an eye on their activity. For example, with the Fidelity Youth^® Account, an investment account for teens 13 to 17, the teenager controls the account but parents first open it and can monitor activity, transactions and trades. There are no minimums required and no account fees, and teens can invest in most U.S. stocks, some ETFs and mutual funds.

Who's this for? A 529 college savings plan is popular among parents who want to start investing in their kids' educational future. 529s are state-sponsored education savings accounts where parents, relatives or friends can make after-tax contributions. 529 earnings grow tax-free and withdrawals are tax-free if used for qualified college educational expenses (tuition, room and board, books and tech equipment, etc). You don't have to live in the state of the 529 plan you choose.

Standout benefits: If your child assigned to the 529 plan doesn't end up needing the funds for college, you have options you can transfer the plan to another child, a grandchild or use it for your own qualified educational needs. You can also roll over the unused 529 funds to the same beneficiary's Roth IRA, untaxed and unpenalized, up to $35,000. Note that rules vary from state to state.

Although 529 contributions are not federally tax deductible, if you choose the 529 plan your state offers, you could get tax benefits as a resident. Here are some 529 plans that reward their residents:

Who's this for? A Coverdell education savings account (Coverdell ESA) is another tax-advantaged way to invest in your kid's education, but unlike a 529 plan, there are income limits on who's eligible. The income limit for married couples filing jointly is $220,000 modified adjusted gross income (MAGI) and $110,000 MAGI for single filers. Contributions are not tax-deductible, but your money grows tax-free and withdrawals are tax-free as long as it's used for qualified education expenses (tuition, books, supplies, uniforms, tutoring, etc) for kindergarten through college schooling.

Standout benefits: Coverdell ESAs stand out for their ability to be used for virtually all levels of education, starting at kindergarten. They also are easily accessible, as parents can open an account at a bank, credit union or brokerage, and investment choices are expansive, including individual stocks, bonds, mutual funds, real estate investment trusts, ETFs, etc.

Who's this for? A custodial Roth IRA is a tax-advantaged retirement account that an adult (often a parent) opens and manages for a kid, so this investment option is for those who want to start building a nest egg early on for their child. Custodial Roth IRAs require that the beneficiary on the account (i.e. your kid) has earned income, so it's ideal for families with an older kid with a part-time job like babysitting.

Standout benefits: As with a normal Roth IRA, a custodial Roth IRA's contributions are already taxed, so there's tax-free growth, and contributions (not investment gains) can be withdrawn at any time, penalty- and tax-free. You can withdraw your earnings early, too, with no 10% penalty tax for qualifying exceptions like birth/adoption, higher education or a first-time home purchase. Once the kid turns 18 or 21, depending on the state, they take over the custodian as the account holder.

Who's this for? A custodial account is a brokerage account adults can open on behalf of a kid and manage until they're 18 to 25, depending on the state. Once the kid is a legal adult, they take over the account and choose how to use the funds. The two types of custodial accounts available fall under the Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA). These investment accounts are for adults who want kids to have the most flexibility in using their funds — with neither account making users earmark the funds for retirement or education, or anything else for that matter. Contributions are not tax deductible and anyone can contribute to the custodial account.

Note that because the investment assets held in these accounts are in the minor's name, they show up as a student asset when it comes to eligibility for federal financial aid for college, which carries a heavier weight than parental assets.

Standout benefits: Money in UGMA or UTMA custodial accounts can be used for anything. In addition to this flexibility, there are no contribution or income limits, so anyone can take advantage. While both UGMA and UTMA accounts allow you to invest in cash, stocks and bonds, only UTMA accounts offer more variety with the addition of real estate assets as well.

The kind of investment account you should open for your child ideally is representative of your intended goal. If it's to grow funds for your kid's education, a 529 plan or Coverdell ESA is your best route. If it's to grow a nest egg for your kid's golden years and they currently earn income, a custodial Roth IRA is the way to go. Otherwise, UGMA or UTMA custodial accounts, as well as teen-owned brokerage accounts, allow funds to be used for anything — but with the former, the parent manages until the kid is an adult and with the latter, the kid manages so it's more hands-on.

There's no one best place to invest a child's money as there are a lot of factors to consider, such as how old your kid is, their education goals, whether or not they earn any income currently, as well as your level of comfort with them managing their own investment account or receiving a wad of cash when they enter adulthood.

A kid can start investing by having their parent open a teen-owned brokerage account on their behalf that they then manage on their own. This gives kids direct access to buying and trading stocks, ETFs and mutual funds. A less hands-on, and more relaxed, approach would be investing in something like a custodial Roth IRA if they earn income.

At CNBC Select, our mission is to provide our readers with high-quality service journalism and comprehensive consumer advice so they can make informed decisions with their money. Every investment account review is based on rigorous reporting by our team of expert writers and editors with extensive knowledge of investment products. While CNBC Select earns a commission from affiliate partners on many offers and links, we create all our content without input from our commercial team or any outside third parties, and we pride ourselves on our journalistic standards and ethics. See our methodology for more information on how we choose the best investment accounts.

To determine the top investment accounts for kids, CNBC Select looked at what options parents have to begin investing with their kids. We took into account why you'd want to open an investment account for a child in the first place, such as saving for college or retirement, as well as the unique perks and different limitations that each account provides users. We also considered the educational tools that investment accounts provide for your family.

Contributions and earnings in an investment account are subject to fluctuations in the market and returns are not guaranteed. Earnings overall depend on any associated fees, your balance and the contributions you make to your investment account.

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