How should parents and grandparents give their kids and grandkids a financial leg up?
Grocery bills and gas prices keep climbing. A dollar does not go nearly as far as it did when most people of the Generation X and Baby Boomers were getting started. As financial advisors, we talk to clients who understand that the rules have changed, but they aren’t quite sure how to help the next generation in a tangible way.
The good news is there are several account types beyond basic savings accounts and CDs built for exactly this purpose, each suited to a different goal.
529 College Savings Plans
A 529 plan is one of the most common ways families invest for a child's education. Contributions grow tax-free, and withdrawals avoid taxes as well, as long as the money
goes toward qualified education costs. That includes tuition for college or K-12 school, room and board, books and even some professional certifications and licenses.
Tennessee does not offer a state tax deduction for 529 contributions the way some states do, but the federal tax benefits still apply. Money withdrawn for anything other than education is subject to income tax and a 10% penalty, so a 529 works best when the goal is strictly educational.
Rising college costs make that tax-free growth more valuable. According to the College Board's 2025-26 Trends in College Pricing report, average tuition and fees at private nonprofit four-year colleges reached $45,000. A separate Sallie Mae survey found the typical family spent $34,019 on college in the 2025-26 academic year, a 10% jump from the year before.
IRAs and Roth IRAs
It’s never too early to get started on a retirement account. A Roth IRA is often a good fit for young people because the money grows completely tax-free as long as withdrawals wait until age 59 and a half. A child must have earned income before contributions can be made, so their first summer job is a great starting place. These accounts offer a wide range of investment options. However, early withdrawals trigger penalties, so this account is not a good source of funds for education, housing or other near-term expenses, though a limited exception allows up to $10,000 toward the down payment on a first home.
Custodial Brokerage and UTMA Accounts
For families who want more flexibility, a custodial brokerage account, often called a UTMA account, allows an adult to invest on a child's behalf in stocks, bonds, mutual funds and other assets. The adult controls the account until the child reaches adulthood, at which point ownership transfers fully.
There is no tax benefit tied to contributions or growth, but the money can be used for any purpose the family chooses. That makes UTMA accounts a good option for goals like a down payment on a first home, seed money for a business or funding a trip abroad. Unlike 529 plans, IRAs or Trump Accounts, which must be funded with cash, a UTMA account can also be funded with appreciated stock, which passes the tax liability to the child once the shares are eventually sold.
Trump Accounts
The newest option is the Trump Account, a retirement savings vehicle established under 2025 federal tax legislation that allows contributions starting at birth, with no earned income requirement. Investments are limited to a small set of approved mutual funds tracking U.S. stock indexes, and no distributions are permitted before the child turns 18.
There is no tax deduction for contributions, and early withdrawal penalties apply much like an IRA. Funding the account while a child is very young gives decades for the money to compound. Families can also choose to pay the tax due at age 18 to convert the balance into a Roth IRA, letting it continue growing tax-free from there.
Paying Costs Directly
Family members can pay a child's tuition or medical bills directly to the school or healthcare provider, and the IRS does not count those payments as gifts, no matter the amount. That means grandparents and other relatives can offer meaningful support without touching the annual gift tax exclusion.
Families should set clear expectations for their children here. They need to know what you’ll pay for and what you won’t. Open communication is always more effective than ambiguity. On your side, your contributions need to be sustainable. It’s admirable to help the next generation, but take care not to put your own financial needs in jeopardy.
Every family's situation is different, and the right combination of accounts is up to each individual. In most cases, the solution doesn’t have to be perfect in order to make a real difference. Any of these options can make a real difference.
Blake Harrison, CPA, PFS, is the executive vice president of wealth management at CapWealth. For more information, visit capwealthgroup.com.
This article originally appeared on Nashville Tennessean: How to help build a strong financial future for the next generation | Opinion
