New Trump Accounts: A Once-in-a-Generation Opportunity for Your Kids' Future
If you've got young kids or grandkids, there's a new savings vehicle hitting the scene this summer that I think deserves your attention. Itmight actually be one of the most powerful long-term wealth-building toolswe've seen in a generation — and most people aren't talking about the best wayto use it yet.
They're called "Trump accounts" — tax-advantaged retirement savings accounts that parents can open for their children starting at birth. Children born between 2025 and 2028 are even eligible for a $1,000seed contribution from the federal government. That's free money, depositedinto your child's account, no strings attached beyond keeping it invested in aU.S. stock index fund until age 18.
But here's what really gets me excited as a planner: the$1,000 is just the beginning. The real power play is what happens when families commit to funding these accounts consistently over time — and then execute awell-timed Roth IRA conversion down the road.
The Basics: What You Need to Know
Parents can sign up for accounts now, with contributions opening up in July. You can contribute up to $5,000 per year per child.Employers and charities can also contribute on your child's behalf, which is anice bonus if your workplace decides to get involved.
The accounts must be invested in a U.S. stock index fund until the child turns 18. After that, they start following the same rules asindividual retirement accounts. Withdrawals before age 59½ generally come withtaxes and a 10% penalty, though there are exceptions for things like highereducation expenses or a first home purchase (up to $10,000).
There may also be state income taxes and early-withdrawal penalties depending on where you live, so that's worth a conversation with your tax professional.
The Numbers: What Could This Actually Be Worth?
Let's start with the simplest scenario. Your newborn gets the $1,000 government seed money. You don't add another dime. Assuming a 8%annual rate of return, that single deposit could grow to around $3,996.02 byage 18. Not life-changing. But leave it alone and let it compound until age59½, and you're looking at roughly $56,000. All from a thousand-dollar headstart.
Now here's where it gets interesting. Let's say you or the grandparents contribute $5,000 a year on top of that seed money, every year for18 years. Same 8% return assumption. By the time your child becomes an adult,the account balance could be approximately $205,000.
That's a significant sum — but we're not done yet.
The Roth Conversion: Where the Magic Happens
This is the part of the strategy I want every client to understand, because it's the difference between a good outcome and a great one.
Once your child turns 18, the Trump account starts operating under standard retirement account rules. Withdrawals are taxable. Requiredminimum distributions would eventually kick in. It's fine — but it's notoptimal.
The better move? Convert the account to a Roth IRA.
The trick is timing. There's something called the Kiddie Tax that can apply to unearned income for certain children under 24, where part oftheir investment gains get taxed at their parents' higher rate. So you probablydon't want to convert the day they turn 18. Instead, the sweet spot is oftenaround age 24, when your child is working, filing independently, and likely ina lower tax bracket.
Yes, there's a tax bill on the conversion. On a $325,000balance, we're talking around $70,000 in taxes at that point based on a 22% tax bracket. But here's the thing — parents or grandparents can pay that tax billas a gift, using non-IRA dollars. The child doesn't have to dip into theaccount at all.
From that moment forward, every dollar in that Roth grows tax-free. No taxes on withdrawals after 59½. No required minimum distributions.Ever. At a 8% return, that converted balance could grow to over $3 million bythe time your child reaches retirement age.
Let that sink in for a moment. A $91,000 total investment($1,000 seed plus $5,000 a year for 18 years), combined with a well-timed conversion, potentially turning into close to $5 million tax-free nest egg. And the $5,000 annual limit is expected to adjust for inflation starting in 2028,which would only improve the outcome.
How This Fits Into the Bigger Picture
I know what some of you are thinking: "I'm already maxing out 529s, funding my own 401(k), and trying to pay off the house. Where does this fit?"
Fair question. Here's how I'd think about it.
If you're already in a strong financial position —retirement accounts funded, emergency savings solid, no high-interest debt —this is a natural next step. It's not an either/or with your 529. It serves a different purpose. The 529 is for college. The Trump account, especially with aRoth conversion, is for your child's long-term financial independence.
For parents or grandparents, this could be one of the most efficient legacy-building moves available. Instead of leaving money in ataxable brokerage account that your kids or grandkids will eventually inherit(and owe taxes on), you're seeding a tax-free retirement account that hasdecades to compound.
And even if you can only contribute a modest amount each year — say $1,000 or $2,000 instead of the full $5,000 — the early start andlong time horizon still make this worth doing. Compounding doesn't care whetheryou're wealthy. It just needs time.
What I'd Recommend
Get the account open. If your child was born between 2025and 2028, make sure you're signed up so you don't miss the government seed money. From there, if paying for college is not a priority then contribute whatyou can — even if it's not the full $5,000 right away.
Most importantly, have a conversation with your advisor(that's us) about how the Roth conversion piece fits into your family's plan.The timing, the tax implications, the Kiddie Tax rules — these details matter, and getting them right is the difference between a good strategy and a greatone.
This is one of those rare opportunities where the government is essentially handing you a head start on your child's financial future. Let'smake sure you take full advantage of it.
If you'd like to talk through how this fits into your family's plan, give us a call. This is exactly the kind of strategy we love helping clients with.
This blog post is for informational purposes only and does not constitute personalized financial advice. Please consult with aqualified financial advisor before making any investment decisions.