Once you decide to invest for your kid, you meet the menu: the new Trump Account, the UTMA your cousin opened in 2009, and the custodial Roth your accountant keeps mentioning. They look similar from the outside - money in, kid’s name on it, grows for decades - and they behave completely differently.
Here’s the one-line version of each, then the honest comparison.
- Trump Account: federally seeded starter account. $1,000 from the government for kids born 2025-2028, up to $5,000 a year from you, locked until 18, becomes an IRA at adulthood.
- UTMA: you gift money into a custodial brokerage account. No limits, no requirements, kid gets full control at 18 to 21 depending on your state.
- Custodial Roth IRA: a retirement account a minor can only fund with money they actually earned.
The Comparison That Matters
Who puts money in
The Trump Account is the only one that pays you to open it: $1,000 federal seed for the 2025-2028 birth years, if you claim it. Your own contributions are capped at $5,000 a year from after-tax money.
The UTMA has no cap and no rules about the source. Grandparents can dump $50,000 into a UTMA tomorrow. That freedom cuts both ways, as we’ll see.
The Roth is the strictest: contributions are limited to what the child earned that year, up to the IRA cap. A summer job, babysitting, the neighborhood lawn empire. Money you gifted them does not qualify. This is why most families can’t touch a custodial Roth until the kid is maybe 12 or 14 and earning.
Who controls the money, and when
The UTMA’s catch is famous among planners: it’s an irrevocable gift. The money legally belongs to the child, and at 18 (or up to 21, depending on your state’s UTMA age) it’s theirs, no strings. If your 19-year-old wants a motorcycle, the account says yes.
The Trump Account is also the child’s money, but with a wall around it: nothing comes out before the year they turn 18. At 18 it converts into their IRA - what that actually looks like is its own post - and after that retirement rules apply. The wall is the product.
The custodial Roth is theirs at 18 too (most custodians hand over the keys then), but retirement accounts have their own walls: earnings withdrawn early are taxed and penalized, which does a decent job of keeping a teenager out of the money.
The tax bill
The Roth wins outright, which is why everyone wants one: growth is never taxed, qualified withdrawals in retirement are never taxed. The only cost is patience.
The UTMA is the weakest tax story. Investment income above roughly $2,600 a year gets hit with the kiddie tax - taxed at your rate, not the kid’s - so the old “shift income to the child” trick mostly died in the eighties. It still works fine as a simple holding pen; it just isn’t a tax shelter.
The Trump Account sits in between: growth is tax-deferred inside the account, and what happens at withdrawal depends on the path taken at 18 - Traditional IRA rules by default, or a Roth election that converts the balance while the kid’s tax rate is low (the mechanics, including the kiddie-tax trap in the popular version of that move).
Financial aid
If college is on the horizon, this column matters more than people expect. UTMA money counts as the student’s asset on the FAFSA, assessed at up to 20%. Parent-held accounts, including parent-owned 529s, are assessed at under 6%. Moving $30,000 from a UTMA to a parent-owned 529 before the base year can change an aid package by real money.
The Trump Account is child-owned, so expect student-asset treatment; the program is new enough that aid formulas are still catching up. The Roth is the sleeper: retirement accounts aren’t counted on the FAFSA at all.
The Order We’d Fund Them
For most families, the sequence falls out of the above:
- Claim the Trump Account. Free $1,000 outranks everything. Twenty minutes, no contribution required.
- Education money to a 529 if college is likely - our full comparison covers why.
- Custodial Roth, the moment the kid has real earned income. Best tax treatment in the lineup, invisible to financial aid.
- UTMA last, for flexible gifting (grandparent money with no strings on your side) when you accept the handover-at-18 part.
If you want to see what the first slot alone compounds to, the calculator runs the numbers - including what the $1,000 does if you never add a cent.
A quiet note: I’m a parent taking notes, not a financial advisor. State UTMA ages vary, kiddie-tax thresholds shift yearly, and the Trump Account rules are still being written. For anything unusual, an hour with a fee-only planner beats a blog post, including this one.