People have been asking me how Trump Accounts fit in the mix of options for setting their kids up for the future. Here’s how I think about it based on their current form.
First, take any free money on offer:
– For any of your kids born between Jan 1, 2025 and Dec 31, 2028, signing up is a no brainer. You get a $1,000 seed deposit from the government for enrolling.
– Similarly, it makes sense to enroll if your employer offers contributions to these accounts as part of your benefits package.
If you’re not eligible for free money, then signing up depends on what your goals are.
Trump accounts should be viewed as retirement savings vehicles that you can contribute up to $5,000 a year for children under 18. There are no in-year tax deductions for making these contributions, but the funds will grow tax-deferred.
Once your kid turns 18 the the account will be treated like a Traditional IRA. Contributed funds will continue to grow tax deferred. Anything they take out before they turn 59.5 will be taxed at their income rate and come with penalties (with some exceptions). The penalties go away after 59.5.
But there are plenty of other options for setting your kids up for the future. Here’s a high level framework for thinking through what makes sense for your objectives.
Each come with unique benefits and limitations. The flow in the chart is based on the role each of these accounts were intended for. There are other funding strategies if you want to prioritize tax mitigation, control, flexibility, etc.
If you’re thinking about your children’s future, check out our other posts:
- The Four Disadvantages of Trump Accounts
- Can I Afford Private School?
- Paying for K-12 Tuition with a 529
Or feel free to reach out to me directly at [email protected] if you want a second opinion on financial planning for your children.
Nathan
Founder & Lead Advisor
Kangpan & Co. is a flat-fee financial advisory firm specializing in helping mid-career professionals navigate the career, family, and financial tradeoffs that come with this stage of life. This content is for educational purposes only and is not financial, legal, or tax advice. Consult a licensed advisor for help with your individual situation.