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Week 7 · 50 minutes

For Parents Only

Build a middle-class trust fund for your kids with the right accounts and tax advantages.

The big idea

Parents have access to powerful tax-advantaged accounts that can turn small, consistent contributions into life-changing wealth for children.

How to build a middle-class trust fund for your kids.

The middle-class trust fund

You don't need to be wealthy to build wealth for your kids. Three accounts give most families more than enough firepower: a 529 for education, a UTMA for flexible long-term growth, and a Custodial Roth IRA for earned income.

  • 529 plan: tax-free growth for qualified education expenses — many states offer a tax deduction
  • UTMA/UGMA: a taxable brokerage in the child's name, flexible for any purpose, transfers at the age of majority
  • Custodial Roth IRA: if your child has earned income, this is one of the most powerful accounts in the tax code
  • Start small: even $25–$100 a month compounds into meaningful sums over 18+ years

The middle-class trust fund, explained.

The Trump Account

A proposed account for children that could dramatically change how families save. The core idea is a tax-advantaged investment account seeded at birth and allowed to grow untouched for decades.

  • Could combine elements of a Roth, UTMA, and long-term trust
  • May allow contributions from parents, grandparents, or even the government
  • Watch the policy details closely — rules and limits are still evolving
  • The best move today is still to open the accounts that already exist

What the Trump Account means for your family.

Tax advantages for parents

Tax breaks are a form of leverage. Five of them do most of the work for parents — one credit per child, two ways to cut childcare costs, and two accounts that grow money tax-free.

  • Child Tax Credit: a per-child credit that directly reduces the tax you owe, dollar for dollar. It phases out at higher incomes and part of it can be refundable, so lower-income families may get money back even with no tax bill.
  • Dependent Care FSA: an employer benefit that lets you set aside pre-tax pay (commonly up to $5,000 per household) for daycare, preschool, or after-school care. You skip income and payroll tax on that money, but it's use-it-or-lose-it, so estimate carefully.
  • Child and Dependent Care Credit: a credit on a slice of your childcare costs so you can work. Use it when you don't have an FSA — and remember you can't claim the same dollars twice through both.
  • HSA: with a high-deductible health plan, an HSA is triple tax-free — deductible going in, tax-free growth, tax-free out for medical costs. Family coverage means a bigger limit, and unspent money can be invested and carried for decades.
  • 529 Plan: contributions grow tax-free for qualified education costs, many states add a state income-tax deduction or credit, and leftover funds have limited paths to a Roth IRA for the beneficiary.

Active learning check

Which child investment accounts are you already using, and which one will you open first?

If none, pick one account type and the provider you'll open it with this week.

Lesson quiz

3 of 4 to pass

  1. 1. What is a 529 plan best used for?

  2. 2. A Custodial Roth IRA requires what from the child?

  3. 3. What happens to a UTMA/UGMA account when the child reaches the age of majority?

  4. 4. Which parent tax advantage is 'triple tax-free' — deductible going in, tax-free growth, and tax-free withdrawals for medical costs?

Practice tasks for this week

Do these after the lesson, before you start Week 8.