Building a Lasting Gift: Investment Options for Children and Grandchildren

Few gifts have the potential to grow in value the way a thoughtfully designed investment portfolio can. While toys and clothes are quickly outgrown, an investment account can benefit from years of compounding growth, ultimately giving a child or grandchild a meaningful financial head start in life.

At-a-Glance Comparison

Option	Contribution Limit	Income Limit	Investment Flexibility	Control	If Not Used for Education
Coverdell ESA	$2,000 per child, per year	Yes — phases out at higher incomes	Broad (stocks, ETFs, mutual funds)	Parent/guardian until age 30 of beneficiary	May transfer to another family member; can be rolled into a 529 plan; otherwise, earnings taxable + penalty if withdrawn for non-education
529 Plan	No hard cap; gift tax exclusion applies ($18,000 in 2025) with 5-year front-load option	None	Limited to plan’s menu (mutual funds/portfolios)	Account owner maintains control	May transfer to another family member; under current law, certain unused funds can be rolled into a Roth IRA (within limits/restrictions)
UTMA/UGMA	No set maximum; subject to gift tax rules	None	Very broad (stocks, ETFs, mutual funds, some alternative assets)	Child assumes full ownership at 18 or 21 (state-dependent)	Not limited to education — can be used for any purpose benefiting the child

A Real-World Example

One grandfather we work with wanted his gifts to stand apart. He noticed his grandchildren already had more toys, clothes, and gadgets than they could possibly appreciate. Instead of adding to the pile, he contributed $500 every year into a Coverdell ESA for each grandchild on their birthday.

Over 18 years, he invested $9,000 per child. With steady, disciplined contributions, those accounts matured into a significant resource to cover a large portion of their college expenses. At each high school graduation party, he revealed the accounts and balances. His grandchildren not only received financial support, but also a powerful lesson in patience, investing, and long-term thinking.

He later remarked that this gift of an investment portfolio, started nearly two decades earlier, became far more impactful than any toy or outfit ever could have been.

_{This is a hypothetical example and is not representative of any specific investment. Your results may vary.}

The Bigger Picture: Creating Your Legacy

Coverdells can be converted into 529 Plans, allowing families to start with the broader investment flexibility of an ESA and later take advantage of a 529’s features — including the ability to redirect funds or even roll unused balances into a Roth IRA under current law.
529 Plans can now be partially rolled into Roth IRAs (with restrictions), ensuring that even if funds aren’t used for education, they can still support long-term financial security.

Your Family, Your Legacy, Your Plan

At Jackson Wealth Management, we believe every family is unique. That’s why we provide prescriptive strategies after first understanding your goals and objectives. Whether it’s an ESA, a 529, a UTMA/UGMA, or other planning opportunities, we help clients design a roadmap that aligns with their vision for legacy and impact.

As an independent investment advisor powered by LPL Financial, we have the freedom to offer a wide range of options tailored to what truly serves you and your family.

Time Keeps Moving. Legacy Doesn’t Wait.

Time keeps moving, and opportunities to establish a legacy don’t wait. If you’re passionate about leaving a lasting gift for your family — one that encourages responsibility, hard work, and wise choices — let’s schedule a time to discuss the options available. Even a 15-minute clarity call can be the first step toward creating a legacy that grows as they do.

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