5 Expert-Backed Investment Tips for Your Newborn’s Future Beyond the 529 Plan

A recent post on Reddit’s r/personalfinance captured a planning dilemma:

Just had our first child. Child’s grandparents want to invest $25k. Where do we put it? The child will have access to the GI Bill for college expenses.

​When education costs are handled through benefits like the GI Bill, which covers full in-state public tuition plus up to $29,920.95 annually at private schools, the usual 529-first advice stops making sense.

“Flexibility is key,” Marguerita Cheng, CFP and CEO of Blue Ocean Global Wealth tells Investopedia. The real question becomes: how do you build wealth that’s there when your kid needs it—whether that’s at 25 for a first home or at 40 to launch a business—without locking everything behind education-only walls?

Custodial Brokerage Account (UTMA/UGMA)

The Uniform Gifts to Minors Act (UGMA) and the Uniform Transfers to Minors Act (UTMA) paved the way for custodial accounts for children.

A custodial account puts investments directly in your child’s name. You manage it until they hit 18 (or up to 25, depending on your state), then they take over. The upside is that the money can be used for essentially anything. That $25,000 can grow into enough for a down payment on a house, seed capital for a startup, or an emergency fund.

The catch is how these funds are counted by the federal financial aid formula. Because custodial accounts are the child’s asset, colleges assess them at 20% when calculating need-based aid—about four times the 5.64% hit for parent-owned accounts, including 529 plans. Tax treatment offers some relief: the first $1,350 of unearned income in 2026 is tax-free, the next $1,350 gets taxed at the child’s income tax rate, and anything over that gets taxed at the parent’s rate.

Roth IRA for Kids

If your child has earned income—even from babysitting, lawn mowing, or modeling gigs—you can open a custodial Roth IRA.

The 2026 contribution limit is $7,500 or your child’s total earned income, whichever is less.

Cheng calls Roth IRAs “super powerful,” and she’s not overselling. As long as your child has had the account for five years, you can withdraw contributions at any time without tax or penalty. After five years, your kid can withdraw up to $10,000 of earnings for a first home, tax-free.

Parent-Owned Brokerage Account

If control matters more than tax perks, keep the money in your own name. “If the parents open a brokerage account, they have more flexibility and control,” Cheng says.

You’re assessed at only 5.64% for financial aid purposes. You can also change beneficiaries if circumstances shift. What’s more, the funds in the account stay protected even if your future teenager wants to withdraw funds for something frivolous.

The trade-off is that you’re taxed at your income tax rate, not your child’s, so you lose that first $2,700 of preferential treatment.

I Bonds or Treasury Securities

If you’re more interested in the security of your funds than their growth, consider Series I savings bonds. Their rate changes every six months based on inflation, so your purchasing power stays protected. (They currently pay 4.03% through April 2026.) I bonds are government-backed, making them about as risk-free as investing gets.

The annual purchase limit is $10,000 per person, and you’ll forfeit the last three months of interest if you cash out before the five-year mark. For families who want to preserve capital while earning more than a typical savings account, though, I bonds deliver steady returns.

The Hybrid Approach

Cheng recommends splitting the $25,000. “Depending on the writer’s state of residence, they could consider putting enough in their state-sponsored 529 to take advantage of state tax deductions or credits,” she says. “Because they have access to benefits through the GI Bill, I’d certainly include the taxable brokerage account. I wouldn’t want the family to over allocate savings to education at the expense of retirement.”

Plus, if you end up with unused 529 funds, you can roll up to $35,000 into a Roth IRA account for your child after 15 years.