Want to teach kids about investing but don’t know where to start? I’ve been thinking about this recently too, and I found that there are actually quite a few solid options.

First, it’s important to clarify one thing: minors have limited options for opening investment accounts directly, but as parents, we can open accounts on our children’s behalf. The key is choosing the right type of account, which depends on whether your child has taxable income.

If your child has part-time income, I’d recommend considering a custodial Roth IRA. This is one of the current best investment for kids options, because contributions can grow tax-free. And after 5 years, the child can even use this money to cover major expenses—such as buying a car or putting money toward a home down payment. Most importantly, when used for qualified education expenses, there are no early withdrawal penalties.

What if your child has no income? Then you should pay attention to the 529 education savings plan. This tool is especially useful for saving for college—there’s no contribution limit, anyone can open an account, and withdrawals for qualified education expenses are completely tax-free. Depending on your state, your contributions may also be tax-deductible. By comparison, while a Coverdell account is also a good option, its annual contribution limit is only $2,000, and high-income families face income restrictions.

There are also UGMA/UTMA trust accounts. These accounts offer greater flexibility: the funds can be used not only for education, but for anything that benefits the child. Once the child reaches adulthood, they fully control the account. However, this flexibility comes at a cost—tax benefits aren’t as good as with a 529 plan.

If you want your child to get involved in investment decisions earlier, consider a youth brokerage account. The youth account Fidelity launched in 2021 is one example: teens ages 13 to 17 can invest directly in U.S. stocks, ETFs, and funds, and it even supports fractional shares. Although these accounts don’t offer tax advantages, they give kids a real sense of ownership and participation—which is very helpful for building long-term investing habits.

Another simple option is to invest for your child within your own brokerage account. In this way, you can fully control investment decisions, but remember that selling the profitable portion will trigger capital gains tax, and the tax rate is likely to be relatively high.

Why start investing for your child sooner? The power of compound interest shouldn’t be underestimated. By contributing a little each month starting when your child is 1 year old, the wealth they can accumulate by the time they turn 18 will be far beyond what you might imagine. This not only helps build an education fund, but also noticeably reduces the pressure of needing loans later. According to Vanguard data, tuition at public universities could rise from the current $22,000 to $52,000 in 2039—right around the time a 1-year-old would be entering college.

But there are a few things to keep in mind. First is the impact on financial aid. Different account types have different effects on the FAFSA (Free Application for Federal Student Aid). Custodial IRA funds aren’t reported as assets, but if withdrawals are used for education, the money counts as student income. The impact of a 529 plan is relatively smaller. UGMA/UTMA accounts are treated as student assets, which can have a bigger effect. If a Coverdell account is owned by grandparents or other relatives, only the withdrawn portion is counted—but it will still be treated as student income, which could significantly affect eligibility for need-based aid.

Second is gift tax. In 2022, contributions over $16,000 per child may trigger gift tax. This is the government’s mechanism to prevent people from avoiding taxes through gifting. Before setting up accounts, it’s best to consult a tax advisor.

Finally, don’t forget to take care of your own finances first. If your retirement savings are insufficient or you don’t have an emergency fund, you should prioritize those. Investing in your child’s future is important, but only after your own financial foundation is secure.

Overall, investing for your child is an excellent way to teach them financial basics and build a solid financial foundation. The key is choosing the right account type, understanding the various tax and aid implications, and taking action starting small. Involve your child throughout the process, teach them risk management and the power of compound interest—this is the real value that the best investment for kids can provide.