Should I open a bank account for my kids?
Family & legacy
Yes, opening a bank account for kids is one of the highest-leverage financial education moves you can make. Custodial accounts (UTMA/UGMA), 529s, custodial Roth IRAs (if they have earned income), and basic checking/savings each serve different purposes.
The four account types and what each is for
1) Basic kids' checking/savings: financial literacy and small-purchase autonomy. 2) UTMA/UGMA: long-term gifting, transfers to child at majority age. 3) 529: education-specific tax-advantaged. 4) Custodial Roth IRA: only if the child has earned income (W-2 or 1099), the most powerful long-term wealth tool available.
The custodial Roth, the best-kept secret
If your 16-year-old earns $5,000 in W-2 income, they can contribute up to $5,000 to a Roth IRA. Invested at 7% from age 16 to 65, that single $5,000 grows to over $130,000, tax-free. Five years of $5,000 contributions: over $700,000 by retirement.
The 529-to-Roth rollover bonus
Under SECURE 2.0, up to $35,000 of unused 529 funds can be rolled to a Roth IRA in the beneficiary's name (account must be 15+ years old, annual rollovers limited). Makes 529s less risky for parents worried about overfunding.
What people often get wrong
- Using a UTMA when a 529 or custodial Roth would be better
- Forgetting that UTMA assets become the child's at age 18 or 21, no strings
- Missing the custodial Roth opportunity when kids start summer jobs
What to think about next
- If your child has earned income, open a custodial Roth IRA at Fidelity, Schwab, or Vanguard.
- Open or fund a 529 if college is on the radar.
- Set a small monthly automated contribution and explain it to your child.
When to consider working with a CFP®
Working with a CFP® can help when these decisions feel intertwined, taxes, investments, cash flow, and life goals tend to move together, and a planning relationship can offer structure, prioritization, and accountability over time.
Frequently Asked Questions
What if my kids don't go to college?
529 funds can transfer to other family members, used for K-12 (limited), apprenticeships, student loan repayment ($10k lifetime), or rolled to Roth IRA under SECURE 2.0 rules.
Talk to a CFP® who works with high earners.
Connect with a CFP® to help you navigate this decision and build a comprehensive financial strategy.
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