We are big believers that you should secure your own retirement before saving for others (even your children!), because there is no guarantee that anybody will save on your behalf aside from you. However, many of us physicians also want to pay for our children’s education so they don’t have the large student loan burden that most doctors have, as well as set them up for financial success long term. Additionally, your children may receive cash gifts or earnings, and investing the money rather than keeping it in a bank account is financially smarter. As such, we often get questions on our online physician communities about how to save and invest on behalf of a child. Below, we cover different options depending on your situation and your goals, including the pros and cons of different options, as well as how to wisely invest within tax-advantaged accounts to maximize your investments.
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Are you ready to start saving and investing for your children?
Many new parents and parents-to-be begin thinking about saving for their children’s future. While it’s great to begin investing as early as possible to maximize the advantage of compounding growth, especially in the tax-advantaged accounts we discuss below, we like to remind physicians to pause and assess their current financial situation first. If you are still struggling to tackle your own student loan debt burden, or you haven’t started saving for retirement yet, it’s important to get a plan in place to make sure you are covered for your future before shifting your focus to your children’s future.
While this might mean you have to pause and wait a little longer before opening any of the accounts below, it can help free up more of your most powerful financial tool–your income–once you’re ready to invest on behalf of your children.
Explore related PSG resources to help you along your financial journey:
Options for investing on behalf of your children
While a small bank account for your child to learn about money management and savings and interest can be a great tool for raising financially savvy children, keeping their money in a bank account isn’t the best idea for long term growth, especially for large sums of money. Therefore, ideally any more substantial sum of cash that is under your child’s name or intended to be used for your child is invested.
Fortunately, there are several options when it comes to investing for your kids, many of which offer tax advantages.
529 savings plans
This is one of our favorite options available for doctors interested in saving a college fund for their children. While you contribute money with post tax dollars, 529 plans offer tax-free growth and withdrawals on contributions, so long as they are used for educational purposes. In recent years, the number of ways you can use your 529 account have expanded, so if you’re worried that they might not go to college, or if you think they might get a scholarship, know that there are still options for what to do with the money you’ve put in those accounts.
When you open a 529 plan, you are the owner and manager of the account, and your child is the beneficiary of the account.
Contribution limits for 529 plans
With this setup, 529 plans boost high contribution limits. These are determined by gift tax rules and regulations, since you are contributing and investing on behalf of your child. As of 2025, the annual gift tax exclusion is $19,000. This means that each parent can contribute up to $19,000 on behalf of each child before having to worry about gift taxes. For a dual parent household, this means you can contribute up to $38,000 per year per child (up to the plan’s maximum limit, which is determined by the state the 529 plan is under).
It’s important to note that contributions to 529 plans aren’t limited just to parents. Grandparents and other family members can contribute as well.
In addition to a high annual contribution limit, there’s a way to superfund 529 plans by making multiple years’ worth of contributions up front at once. This can be a great option for parents hoping to catch up on college savings for their children, but make sure you understand the process and pros and cons before electing to go down this route.
Learn more about superfunding a 529 plan.
Pros and cons of 529 plans
While we love 529 plans, they aren’t without a few disadvantages that you should be aware of:
While 529 plans were originally intended only for college savings, with legislation changes over the years, what qualifies as education-related expenses has increased significantly. This includes that up to $10,000 per year can be applied toward private K-12 tuition (remember though, the point of the plans is to have tax free growth for the maximal number of years possible, so withdrawing soon after contributing will give it minimal in the way of tax advantages). As such, 529 plans can be a great option even if your kids decide to go to a trade school instead of college. And, in the event of overfunding a 529 plan, there are now options to roll at least a portion of the remaining funds over into a Roth IRA for your children.
When choosing a 529 plan, you aren’t restricted to the options in your specific state, but those are typically the ones that offer state tax incentives, if they exist. Before opening a 529 plan, we recommend researching the various options, the associated fees, and what investment options are available inside of the plan, as the state often restricts what contributions can be invested in.
Learn more about 529 college savings plans.
Coverdell Educational Savings Accounts (ESAs)
A ESA is a trust or custodial account also aimed for saving for educational expenses that works similar to a 529 plan, but with some noticeable differences:
Advantages to ESAs
Tax advantages: ESAs offer tax-free withdrawals for qualified educational expenses covering kindergarten through college.
Flexibility in investment options: While many 529 plans are limited in what investments they offer within the account, there are far more investment options with an ESA plan.
Disadvantages to ESAs
Lower contribution limit: No more than $2,000 can be put in an ESA for your child per year. This is significantly lower than the contribution limits for 529 plans discussed above.
Income restrictions: High-income earners aren’t eligible to open ESAs for their children. The income limits, based on your modified adjusted gross income (MAGI) are low enough that many physicians, especially in dual-income households, don’t qualify for this type of account. As of 2025, that limit is $220,00 for joint filers and $110,000 for single filers.
Restriction on holding funds: Funds within an ESA must either be used up or transferred to another beneficiary within 30 days of the child’s 30th birthday. Similar to a 529 plan, though, there are options to transfer the funds, up to once a year, to another family member.
Lack of state tax breaks: While ESAs offer tax-free growth, they don’t offer the same tax deductions that many state 529 plans do.
Can you contribute to an ESA and a 529 plan?
It is possible to have both a 529 plan and an ESA for your child, but it’s important to note that since both are beneficiary accounts, the total combined annual contribution across both must be less than the annual gift tax limit. If you’re planning on trying to superfund a 529 plan, this can cause some tricky accounting, and we highly recommend working with a qualified financial planner or tax advisor to make sure you aren’t over contributing.
Explore our financial advisor database for physicians.
Uniform Transfer to Minors Act (UTMA) accounts
UTMA accounts predate 529 plans, so for a while, they were the preferred method of saving for college expenses for many American households. While 529 plans have taken over as the preferred method for saving and investing for kids’ educations, UTMA are a great general tool for saving and investing on behalf of a child, offering a lot more flexibility than either 529 plans or ESAs. However, as discussed below, the accounts belong to the child, and you must feel comfortable with the fact that they will have access to the money within them once they are of legal age. Many physicians fear that giving their children access to such large sums of money at the age of 18 may disincentivize them from working hard to build their own careers and wealth.
Investment options within an UTMA account
UTMA accounts are custodial accounts that can hold several types of assets. This isn’t just limited to the commonly used types of financial investments such as index funds, mutual funds, stocks, and bonds. UTMA plans can also include physical assets such as:
Real estate
Paintings and other fine art
Precious metals
Jewelry
Cars
They can also include intangible assets such as intellectual property.
Given the wide range of assets an UTMA account can hold, it’s likely not a surprise that UTMA accounts aren’t just for college savings. UTMA assets can be used for anything, though they don’t offer the same tax advantages for common educational expenses.
Ownership of UTMA accounts
Ownership of UTMA accounts differs from 529 plans and ESAs. With a custodial account, the account is held under your child’s name with you as the custodian until they reach legal age. At that point, the assets within the account transfer to your child and no longer belong to you. This can be used as a strategy for asset protection and estate planning for physicians who wish to protect and transfer certain family assets, but it’s important to note that once these assets are transferred to the UTMA account for your child, you cannot undo it. If you decide for any reason later on you want to maintain ownership or control over that asset, it’s impossible to reverse the decision. Think carefully about what assets you place in an UTMA account, and how much money you want the children to have access to at a relatively young age.
Contribution limits for UMTA accounts
While there are no maximum contribution limits to UMTA accounts, since you are transferring ownership of assets to your child when adding them to an UMTA account, gift tax rules still apply. If you’re considering transferring assets such as real estate that can trigger a potential issue, we highly recommend working with an estate planning attorney, who can help walk you through gifting laws, as well as alternative options you may want to consider to maximize your tax advantages.
Tax advantages to UTMA accounts
Unlike 529 plans or ESAs, UTMA accounts don’t offer physician parents tax breaks or incentives. There is, however, the “kiddie tax” consideration that offers some advantages. Since UTMA accounts are custodial accounts instead of accounts you personally own and manage for your beneficiary, UTMA accounts aren’t taxed at your income level. Instead, they are taxed at your child’s tax rate. Given the marginal tax rate system in the US and standard deductions available for income taxes, your child may very well owe no or low taxes.
Roth IRAs for kids
We love the Roth IRA as a tax-advantaged retirement plan for physicians. Helping your kid open a Roth IRA can be a great way to jumpstart their retirement planning and investing. The sooner your child has a Roth IRA, the more powerful the tax advantages of this type of account become, as having decades of tax free growth can amplify your investment dramatically to result in a very large amount of money when your child hits retirement age.
You can help your minor children open up a Roth IRA as a custodial account, which works in some ways like an UTMA account. The Roth IRA is opened under your child’s name and thus is managed by their income. Note that unless your child is a high income earning child star, they likely won’t need to worry about doing a Backdoor Roth IRA like most physicians need to do, but the income contribution limits apply to them as well.
Since the custodial Roth IRA is owned by your child, this does mean that they have to have earned income in order to contribute to a Roth IRA, and their annual contributions cannot exceed their earned income. Given this restriction, a Roth IRA can be a great investment tool for kids who work at their parent’s private practice or other business.
Explore what you should know about hiring your kids as employees.
Physician parents are welcome to let their children keep their earnings and invest into a Roth IRA on behalf of their kid (be careful about gift tax limits here), but not above their earned income amount.
Pros and cons of opening Roth IRAs for your kids
Tax advantages to Roth IRAs
Contributions to a Roth IRA are made post-tax, but offer tax-free growth and tax-free withdrawals in retirement. If you open a Roth IRA on your child’s behalf while they’re a minor, that can allow for decades of tax free growth, giving them a huge jumpstart on saving for retirement.
Like UTMA accounts, Roth IRAs are taxed at the “kiddie tax” rate, so even though contributions are post-tax, the taxes your child owes will likely be minimal or nothing. Also like UTMA accounts, Roth IRA investments aren’t limited by investment assets. It’s possible to hold physical assets such as real estate in a self-directed Roth IRA. This can be a great option for a future real estate investor.
Roth IRA contribution limits
There is a maximum contribution limit for Roth IRAs that’s higher than ESAs but lower than 529 plans. As of 2025, the annual contribution limit is $7,000. There is no maximum contribution limit besides the annual limit.
As a reminder, your child can’t contribute more than they personally earn and report on their tax return for that year. If you’re unsure of your child’s contribution limit given how much they work and earn, we recommend reaching out to an accountant to help walk you through the rules. A financial advisor can also help you set up the Roth IRA account for your child.
ABLE accounts
ABLE accounts are tax-advantaged accounts that allow you to contribute post-tax dollars that grow tax-free, similar to 529 plans and ESAs. ABLE accounts, however, are only available for children with disabilities.
The tax benefits of ABLE accounts apply to qualified educational and care related expenses. Money withdrawn for other purposes can be subject to penalties. It’s prudent to speak with an estate planning attorney specializing in special needs issues about whether this is the best option for your family.
Eligibility for an ABLE account
Children with disabilities are eligible for an ABLE account prior to age 26. ABLE accounts are easier to set up if your child is already receiving SSI or SSDI benefits as it makes them automatically eligible. Your child is still eligible for an ABLE account without having to receive benefits from the social security administration, but a letter of disability certification is required from a licensed physician.
Contribution limits for ABLE accounts
Since ABLE accounts are owned and managed on behalf of a beneficiary, they follow the gift tax rules and limitations similar to 529 plans.
In addition to the annual gifting limit, many states impose a maximum restriction on how much can be contributed into an ABLE account for your child.
Investing in a taxable brokerage account
Another great way to save and invest for your kids’ future is through a regular taxable brokerage account. This type of investment account doesn’t offer any of the tax advantages noted for other options above, though investment income is often taxed at capital gain rates, which can be significantly lower than income tax rates for high-income earners such as physicians.
With a taxable brokerage account, you maintain complete control over the assets and ownership of the investments, giving you the highest amount of flexibility. Funds can be used for college, to help pay for your child’s wedding, to help them with a house downpayment, or any other gifting you would like to do in the future. Since you maintain ownership of the assets, you aren’t restricted by any contribution limits such as gift tax limits either.
The caveat here is how you will eventually transfer the balance to your child if you would like to do so prior to them inheriting it at the time of your passing. At the point where you transfer funds over to your child, gift tax rules will kick into effect.
Work with an estate planning attorney for physicians to help you map out and optimize any large gifting planning for your children.
How to invest inside accounts for your kids
In addition to contributing money into one or more of the savings options above, you’ll want to invest your contributions to maximize the potential of the tax-free or tax-advantaged growth offered by many of the accounts we’ve discussed. If you’re new to investing, we understand it can be overwhelming.
Explore related PSG resources:
Your specific investment strategy can depend a lot on your timeline. If your child is heading off to college in a few years and you’re building a college fund for them, you’ll likely want to be a little more risk adverse with the investments you choose, especially if you started saving late and aren’t sure you’ll have enough to cover all their projected college related expenses. In this situation, you may want to lean more into conservative assets versus stocks to ensure market dips don’t risk your college funding plan, and may even want to consider short-term investment options in this case.
If you start investing early in your child’s life and are able to save up a significant amount to help toward a car, college, a house, or other goals, you will likely find yourself favoring a different asset allocation strategy for investing. Here, you can lean heavier into stocks than bonds, as the investments will have more time to cover from drops in the market. Particularly if these things are more ‘nice to haves’ than ‘have to haves’, you may be able to take more risks.
Learn more about asset allocation and common investing strategies.
If you need help determining your investment strategy, or if you aren’t sure which account to open to maximize the tax benefits, reach out to one of our partnered financial advisors for physicians today who can help walk you through the process.
If you prefer to DIY but with a little guidance, a roboadvisor can help manage your investment strategy. While roboadvising isn’t offered on all the types of accounts listed above, many are allowing the incorporation of this powerful option for busy physician partners.
Related PSG resources:
We have partnered with Wealthfront to provide robo-advisory services for our members. They have a quick and easy setup process. You can start investing in just a few minutes. Use our affiliate link to learn more about their services and to set up your robo-advisor account today.
Learn more about using a robo-advisor to invest as a doctor
Conclusion
There are several ways to save and invest on behalf of your children, and many offer tax advantages so your kids get to keep more of your contributions. In addition, tax-free growth options help your contribution toward their future compound substantially, which can give them a huge advantage by avoiding student loans and setting up their retirement planning early. We hope the guide above has helped you determine the best account or accounts based on your savings goals and personal situation.
Additional related resources for physicians
If you want to learn more about personal finances and investing, you can watch recordings of past live events we’ve hosted or explore our wealth of free educational content, such as:
If you have a specific question regarding your situation, don’t hesitate to reach out to the hive mind in our online physician community.