Looking beyond Trump Accounts? These 5 investment accounts for kids offer more flexibility

Trump Accounts, also called 530A accounts, launched on July 4. The accounts can be opened for any U.S. child under 18 with a Social Security number, though only babies born between Jan. 1, 2025, and Dec. 31, 2028, qualify for a one-time, $1,000 Treasury deposit.

The money grows tax-deferred, and withdrawals are generally taxed under rules similar to a traditional IRA. Many withdrawals before age 59½ are subject to a 10% penalty, though some exceptions apply, such as for a first home purchase or qualified education expenses.

Beyond the initial $1,000, accounts can also receive additional contributions, including from employers and charitable organizations. While those funds have the potential to grow through compound returns, investment choices are currently limited.

At launch, all contributions are invested in a single low-cost S&P 500 ETF, with Treasury planning to add four more ETF options in the coming months. Parents looking for broader investment choices may also want to consider alternatives such as 529 plans, UGMA or UTMA custodial accounts or brokerage accounts for teens. Here's how those options compare.

State-sponsored 529 plans are best known for helping families save for college, but recent federal law expanded the list of qualified education expenses to include certain trade and vocational programs, professional licensing, continuing education and some K-12 expenses.

Unlike Trump Accounts, 529 plans offer tax-free investment growth and tax-free withdrawals for qualified education expenses. Many states also provide tax deductions or credits for contributions. Investment menus vary by plan but typically include age-based portfolios and static allocation options, giving savers more flexibility than the single ETF currently available in Trump Accounts.

You don't have to use your home state's 529 plan, though it's worth comparing tax benefits, investment options and fees before choosing one. Many plans can be opened online without working with a financial advisor.

CNBC Select recommends Utah's my529 for its low fees and broad investment options, and Illinois' Bright Start College Savings 529 plan for its no-minimum opening balance and online gifting feature. Both plans are available to residents nationwide.

A Coverdell education savings account (ESA) offers tax-free growth and tax-free withdrawals for qualified education expenses, similar to a 529 plan. Unlike many 529 plans, Coverdell ESAs typically allow a broader range of investments, including stocks, bonds and mutual funds. Some self-directed Coverdell ESAs may even allow alternative investments.

However, eligibility is limited. To make the full $2,000 annual contribution, your modified adjusted gross income must generally be below $95,000 for single filers or $190,000 for married couples filing jointly, with contributions phasing out above those limits.

A Uniform Gift to Minors Act (UGMA) or Uniform Transfer to Minors Act (UTMA) account is a custodial brokerage account where an adult manages assets for a child until they reach the age of majority, typically 18 or 21 depending on the state. Unlike education-specific accounts, these funds can be used for any purpose that benefits the child.

These accounts can hold assets such as cash, stocks and bonds, while UTMAs may also allow assets like real estate. Contributions aren't tax-deductible, and investment earnings may be taxable under the rules for a child's unearned income. There are no income limits or annual contribution limits, though large gifts may have tax implications.

Many brokerages, including Fidelity and Schwab, offer UGMA/UTMA accounts.

A custodial Roth IRA allows children with earned income to start saving for retirement while gaining experience investing. Like adult Roth IRAs, contributions can generally be withdrawn at any time without taxes or penalties. However, withdrawing earnings before retirement age may trigger taxes and a 10% penalty unless an exception applies, such as qualified education expenses or a first-time home purchase.

Some brokerages offer investing accounts for teens, typically with parental oversight and features designed to help young investors learn. These accounts can offer more investment flexibility than many child-focused savings options, though trading choices may be limited and assets may affect financial aid eligibility.

CNBC Select recommends Charles Schwab's Teen Investor Account for its investing education resources and Fidelity's Youth Account for its in-app parental controls, no minimum balance and no account fees.

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