Looking for Meaningful Gifts? Three Ways to Save for a Loved One's Future

Finding meaningful gifts for loved ones can be a challenge. Here are three ways to give financial gifts to a child, grandchild or loved one to help save and invest for their future.

https://tickertapecdn.tdameritrade.com/assets/images/pages/md/Several family members giving gifts around the holidays
4 min read

Key Takeaways

  • UGMA/UMTA custodial accounts allow an adult to transfer cash and other assets to a minor

  • 529 Plans and Coverdell ESAs are two ways to save for education expenses

  • Minor IRAs and Minor Roth IRAs can get retirement saving started early for a child or grandchild

Some people always seem to be able to effortlessly come up with incredible gift ideas around the holidays. I, on the other hand, rack my brain every year trying to come up with the perfect gifts for the loved ones in my life. Thankfully my brother gave me the rundown on Paw Patrol characters last year to make sure I knew Marshall, not Rocky or Ryder, was the favored toy for my nephew, as I doubt I would’ve learned that on my own. 

While Marshall was certainly the showstopper in terms of my nephew’s Christmas, behind the scenes I’ve been giving him something that I hope will be a far more meaningful gift in the future: stocks. 

With many gifts only staying in favor long enough to make it to the next holiday, it’s tough to find ones that will last and have a potentially positive impact on the lives of the people you care about. So, in the spirit of giving a gift that’ll hopefully last through the years, here are different ways to start investing for a child, grandchild, or other loved one.  

Start Investing 

Opening a Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) custodial account allows an adult (custodian) to gift cash and certain assets to a minor (beneficiary) with no contribution limits and no minimum required to open the account. 

These accounts were designed to make it simple to transfer property to a minor without having to create a formal trust. Any adult can be the custodian, even if they’re not the minor’s parent or guardian. 

UGMA/UTMA accounts are widely used to save for education expenses, but they do offer a little more flexibility around withdrawals than other education savings accounts. The withdrawals need to be “for the use and benefit of the minor.” That is open to interpretation and there are still rules, so be mindful when making withdrawals. When in doubt, double check with a qualified professional such as a financial advisor. 

To make sure this type of account can accomplish what you want, some additional things to consider include: 

  • These accounts are not tax-deferred and taxation of dividends, interest and capital gains will depend on the minor’s age and tax rate. If the account earnings are above certain thresholds and the child is still under 18, they could be subject to the parent’s tax rate. 
  • All assets transfer to the minor at the age of termination (18 to 25, depending on the state). At that time, the minor can use the funds however they desire. 
  • Because the assets in the account belong to the minor, they can have a greater impact on the amount of financial aid they potentially receive compared to the amount of parent’s assets and savings in education-specific savings accounts like Coverdells and 529s. 

Get started opening a UGMA/UTMA account today. 

Get Ready for School 

For the 2017-2018 school year, the average cost of tuition and fees was $9,970 for state residents at a public college, according to the College Board. That average jumps to $25,620 for out-of-state residents at a public university and $34,740 at a private college. 

Naturally, helping build education savings is high up on the list for many people when it comes to financial gifts. “Even if you start small and save just a little bit on a regular basis, that’s still more that the child will have to go to college with,” Dara Luber, Senior Manager of Retirement Products at TD Ameritrade points out. 

Two common ways to save for education are through a 529 college savings plan, commonly referred to as a 529 plan, and a Coverdell Education Savings Account (ESA). 

529 plans can be used for college education and some states allow them to be used for primary and secondary education, up to $10,000 per student per year. 529 plans used to only be eligible for college expenses, but recent changes to Federal laws made it so that 529s plans could be used for primary and secondary education expenses as well. Not all states have implemented the same changes though. Coverdell ESAs, on the other hand, can be used for primary and secondary education as well as college. 

The chart below provides a side-by-side comparison of the main features of a 529 plan and a Coverdell ESA. 

Learn more about the different accounts that can help you start investing for college for a loved one. 

Jumpstart Their Retirement

It’s never too early to get a jumpstart on saving for your child or grandchild’s retirement. The more time their investments have to grow, the more they can potentially benefit from compounding.  

To do that, a Minor IRA or Minor Roth IRA can be set up in the minor and custodian’s name. With the long investing timeframes kids have before retirement, Minor Roth IRAs are often favored due to the prospect of long-term growth combined with tax-free withdrawals.  

To be eligible to contribute, the minor needs to have earned income in the tax year, which cannot include gifts or inheritances. Parents and grandparents can contribute as well as the minor. However, contribution limits are capped at the minor’s earned income or the IRA contribution limit for that year, whichever is less. 

Outside of those differences, the accounts carry the same rules as traditional IRAs and Roth IRAs

Don’t Set it and Forget it

Once you’ve set up the account, figure out how you want to maintain it going forward. Why you opened the account and the age of the person you’re saving and investing for will play a big part in what that looks like. 

For my nephew, I buy a small amount of individual stocks and ETFs on his birthday and other major holidays throughout the year. As he gets older, I’m hoping I’ll be able to teach him what I know about investing and that his portfolio will be filled with lessons we can examine together. 

I don’t have a particular goal for the money I’m saving and investing on my nephew’s behalf. Whether he ends up needing it for education or to take a trip he otherwise wouldn’t have been able to afford doesn’t matter to me. I just hope that it will be a gift that helps him have a better future. 


Key Takeaways

  • UGMA/UMTA custodial accounts allow an adult to transfer cash and other assets to a minor

  • 529 Plans and Coverdell ESAs are two ways to save for education expenses

  • Minor IRAs and Minor Roth IRAs can get retirement saving started early for a child or grandchild

Call Us
All investments involve risk, including the loss of principal.

An investor should consider the Plan’s investment objectives, risks, charges and expenses before investing.  The Program Disclosure Statement which contains more information, should be read carefully before investing.

Investors should consider before investing whether their or their beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program and should consult their tax advisor, attorney and/or other advisor regarding their specific legal, investment or tax situation.  

Participation in a 529 Plan does not guarantee that contributions and the investment return on contributions, if any, will be adequate to cover future tuition and other higher education expenses, or that a beneficiary will be admitted to or permitted to continue to attend an eligible educational institution.  

A donor may elect to treat a contribution to a beneficiary’s account as made ratably over a five-year period. As a result a donor may make a contribution to a beneficiary’s account of up to $70,000 (or up to twice that much if the donor and his or her spouse elect to “split” gifts) without any negative gift tax consequences, so long as the donor does not make any additional contributions to the account (or any other gifts to the account beneficiary) during that tax year or any of the succeeding four calendar years. A Federal Gift Tax Return (Form 709) is required to be filed. Please consult with your tax or legal professional. If the donor dies before the end of the five-year period, the portion of the contribution allocable to years after the donor’s death will be includible in the donor’s estate for Federal estate tax purposes.


Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2019 TD Ameritrade.

Scroll to Top