Saving for Your Child's Future: 529 Account or Brokerage Account?
New or soon-to-be parents, I'd love your insights and advice. We are going to be welcoming twins this November (so soon!), and I'd like to start putting a small amount of money away for them each month with the goal of building a modest gift that I can turn over to each of them after they graduate high school.
It seems like the standard advice is to open a 529 account for each child. I definitely appreciate that this money can be withdrawn tax-free and used for a range of educational expenses, including trade school and some apprenticeship programs. But it still seems somewhat restrictive.
What if one of my children wants to start a business? What if they want to use the money for an around-the-world backpacking trip or to purchase a house? (I know not everyone will agree that travel is an appropriate way to spend this money, but I think travel can be life-changing and an educational experience in its own right.)
I guess what it comes down to is that I want our children to have options on how to spend the money. College isn't right for everyone or it might not be the right choice when my children become adults. So, I was thinking of simply opening a brokerage account for each child that we own and control and investing the money into low-cost index funds.
I like this idea because the kids can help choose or change their investments when they're older (with our guidance and permission). Also, if for any reason we feel our children are not ready for the money when they're older, we can choose to hold onto it or use it for something to support them in another way.
But, of course, we'll lose the tax benefits of the 529 plan. It does look like, however, if our children don't earn a lot of money when they're young adults, we could transfer the accounts to them and then if they sell the assets they may pay low or minimal taxes.
I'd love to hear from other parents. How are you saving for your children's futures?
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Congratulations!! We have three sons (ages 30, 27, and 19), and we opened 529s for all of them. We just assumed that they were going to go to college, and didn't think much about any other possibility. So, we never worried about the using that 529 money. Here is what we have learned about 529 over the past 24 years of using them:
- Son #1 went to college and we drained his 529 within a year and a half. He would have had more in it, but we got spooked in 2008 and moved all his money into a mostly cash position within his CollegeAmerica account (we regret this now that I know so much more about personal finance).
- Son #2 went to college, but it was a Federal Service Academy ($260,000 of tuition, room, board, etc. for FREE). We still had to pay roughly $1,200/year for fees, plus all of the travel costs of visiting him and flying him home (travel is not covered under the 529). We were able to easily roll over his 529 into Son #1's name, and use a lot of it on Son #1.
- Husband got into an online IT Master's Program, and we were able to rollover the leftover 529 from Son #2 (which was originally Son #1's) into a new account for my husband. As long as 529s stay in the family, you can roll them around. If we were to try to withdraw the money, we would have to pay a penalty and tax on the growth UNLESS the student won a scholarship. It's very hard to just take your money back once it's in a 529.
- Fast forward to Son #3's freshman year in high school a few years ago. He began to tell us that he didn't know if he wanted to go to college. At that point, I began worrying about the 529 money and how we would be able to use it if he wasn't going to go to college or a trade school. So, I stopped contributing to the 529 and decided to put our monthly contribution into a High Yield Savings Account. That way, it would still be earning interest, but it wouldn't be tied up in a brokerage account with which I would have to pay taxes on withdrawals when it wouldn't have much time to grow if he decided to go to college. He ended up applying to college, and is now a junior in a Florida school (after bypassing sophomore year due to the amount of Dual Enrollment credits he earned in HS).
If I had it to do over again, I might do half-and-half with the college savings- half 529 to benefit from some pre-tax growth, and half in a brokerage, knowing I'll have to pay capital gains taxes on withdrawals. Along with that, I'd instill in my kids the value of Dual Enrollment courses. Our school division didn't really push that much with my older two sons, but with the youngest, our school DID encourage students to participate in our state's Early College program. This allowed my son to transfer in credits from 5 college-level courses because of Dual Enrollment (plus he earned a high score on 1 AP course, so he was able to get credit for a 6th college course). Between those transferred credits and summer school courses this past summer, our son completed all 2-year's worth of pre-requisite courses in 1 year! That allowed him to get accepted into the business school as a junior, saving 1 year of college!
I hope this helps! ~AHC
I'm not an expert, but I have some thoughts on it. I would lean toward doing part of the savings in a 529 and then also saving an investment account in your name. My husband's father opened a UGMA account for my kids, and that is not the direction I would go. They have to pay taxes on it and they will have access to that money when they turn 18, which I'm not sure I want. I also read a little bit about "Trump accounts" that start in 2026 that might be a good option for saving for kids. I set myself a reminder to learn more about that as the new year approaches! I think it will be a way to save for the kids' pretax and roll it into a Roth IRA at some point. I also know there are implications to having money in their name for the FAFSA and college financial aid. So many things to consider!
This is a great question — and honestly, it’s smart that you’re thinking beyond just the default 529 option. Both accounts have clear trade-offs.
529 Plans give you unbeatable tax advantages if the money is used for qualified education expenses. For families who are fairly confident their children will pursue some form of education (including trade schools), they can be very efficient. The flexibility to transfer funds between family members is also a big plus — if one child doesn’t use all of it, another family member often can.
On the other hand, a regular brokerage account gives you full flexibility. You can invest in low-cost index funds, involve your kids in managing it as they grow, and decide later how to gift or transfer it. The trade-off is potential capital gains taxes and the kiddie tax if the account is in their names.
A lot of parents end up splitting the difference — putting part of the money in a 529 to get the tax-free growth, and the rest in a taxable brokerage for flexibility. This way, you’re not locked into one path, and you maintain control over how the funds are used when the kids get older.
The key is to balance your tax strategy, your flexibility needs, and the values you want to instill. If you believe experiences or entrepreneurial opportunities might be just as valuable as traditional education, it makes sense to keep some funds outside of a 529.
I'd like to remind everyone, also, that with the Secure Act 2.0, up to $35,000 from a 529 can be rolled into a Roth IRA for the beneficiary. So if your child doesn't go to college or ends up using only part of the money, when they get their first job, you can transfer some every year. It means they don't have to use their own income to fund the Roth, the money stays with them as intended, and no penalties.It made me feel better contributing once this change was added.
Saving For College | 529 to Roth IRA: Rollover Rules, Conversion Guide, and FAQs for 2026
Be aware of the Kiddie Tax. The Kiddie Tax is a Federal tax rule that taxes a child's unearned income (like interest, dividends, and capital gains) at the parent's higher marginal tax rate, rather than the child's lower rate. It applies to children under 18, or full-time students under 24, whose unearned income exceeds a certain annual threshold ($2700 in 2025). The purpose is to prevent parents from shifting income to their children to avoid taxes. Senior year is tricky as for tax purposes, the IRS considers a person a full-time student if they were enrolled for at least any part of five months of the year at an educational institution.