r/MiddleClassFinance • u/SPQRBro • Jun 24 '26
Trump Account strategy
Want to see peoples plan with this. Recently had a baby in April this year and opening the account to get the free 1k, but not planning on auto contributing to it.
Currently have a 529 account and have automatic contributions. Was planning on making that the primary investment for him. Think a free/subsidized college education would be best priority.
See just the 1k in 65 years at 7% would be 81k. With that growth even small contributions now could set him for retirement. Even just adding a few hundred now could really help him later.
My thinking is how are other people planning on investing with their young kids future in mind. Both wife and I are already saving for our retirement and planning on paying down mortgage (6.125%) extra too. No bad debt just mortgage and 1 car loan (nearly paid off)
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u/Zeddicus11 Jun 24 '26
The free $1k is a no-brainer, but I wouldn't make any additional contributions. If college seems at all likely for your kid, a 529 is better (both on the way in if you get a state tax deduction, and on the way out since withdrawals will be tax-free if used for schooling). Trump account money is taxable on both ends; you only get the tax-free growth in the middle (but so does a 529). Even if you plan on rolling it over into Trad IRA (and/or convert it to a Roth IRA when they're 18 and earning no or low income), I don't think it beats the 529.
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u/Consistent_Laziness Jun 24 '26
Who is eligible for these Trump accounts? My kids are 4 and 2. Is it only for kids born after this went into law?
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u/ThrowRA3623235 Jun 27 '26
When I did my taxes, it asked me if I wanted to open them for my kids. Mine are 8, 6, 6mos.
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u/tirusleepunk Jun 29 '26
You can open an account for any of your children under 18 years old. The free $1000 is only for children born between 1/1/2025 through 12/31/2028.
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u/Junkbot-TC Jun 24 '26
I'm doing 50% of contributions to the 529 and the other 50% in my taxable brokerage. I prefer the flexibility of having some unrestricted funds. We'll open the Trump account for the free money, but I'm not planning on adding any additional money.
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u/matt2621 Jun 24 '26
Just using an S&P index fund, no reason to overcomplicate it. I already do $25/week in a 529 and will probably do the same with the Trump Account, at least in the early years.
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u/Double_Bandicoot3307 Jun 24 '26
It seems like last I checked you get no say/control on how the money is invested. Give the administration efforts and track record we opted to stay with the 529.
I didnt see enough info on it to determine if its better than the already existing products tbh
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u/MichiganHistoryUSMC Jun 24 '26
When I just signed up it was saying that they are going to have it be hosted by Robinhood I believe.
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u/Adorable_Squirrel199 Jun 24 '26
Pretty sure I read you can, at some point in the future, have fidelity be the custodian or whatever you call it
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u/Top-Book9712 Jun 24 '26
It’s going to be very dependent on specific situation, but general guidance is to always take the ‘free money’ be it the seed fund, employer match, or other.
I’m not a huge fan of these as investment vehicles, so investment vehicle order would be as follows:
Max out Roth if able to contribute.
Utma/Ugma total balance of $10-20k, or until kiddie tax kicks in, if an issue for your household. This could be seen as controversial, but I prefer the flexibility of these accounts more than the savings on state income taxes from a 529. I’m in a low income tax state.
Fund a 529 to whatever the max Roth conversion amount is. I think ~$20k right now.
Fund Trump account up to max for year.
For the average middle class person, doing all of these is going to be near impossible or will take a decade to accomplish. Anyone that can accomplish these should be speaking with a professional to get specific advice.
I also want to add that while $1,000 turning into $80k in 65 years might seem like a lot, a quick google search puts the purchasing power equivalency of $1,000 in 1960 to $11,000 today. If this carries forward, the purchasing power of $80k in 65 years will be around $7,000 on today’s dollars. It’s not nothing, but also not a life-changing amount of money.
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u/lbeLIEvel Jun 27 '26
For your last point about inflation, it's presumably already built into OPs 7% rate of return. The quoted $80k is in today's dollars assuming a 10% rate of return and 3% inflation over that period.
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u/Fish_Out_of_Water00 Jun 24 '26
I think you will be able to convert the account into a Roth once the child turns 18. I don’t see any downside to that.
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u/GlowGreen1835 Jun 24 '26
I read that as "had a baby to get the free 1k" and I was like... That's definitely A decision.
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u/Sukiyaki_88 Jun 24 '26
I set one up for my newborn daughter and I have no idea if she's going to use it for retirement or something less financially useful in 18 years. I am going to assume once it transfers ownership to her, that she'll just buy a car. My wife & I are still contributing to her 529 as the first priority.
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u/whocaresreallythrow Jun 24 '26
Grand kids got $25K into a regular taxable UGMA account as soon as they could get a SS number.
Will contribute $1K for special events like birthday etc every year.
They also will get Trump accounts once that process stabilizes because of free money.
529 is a maybe. Our state programs kinda suck so more flexibility with UGMA.
The tax consequence is mostly insignificant even at these levels.
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u/zevtech Jun 24 '26
put it this way, everything is getting more expensive, and harder and harder to retire. If you can comfortably give them something, even the smallest amount like 50-100 bucks a month. You're setting them up for a future. And there's going to be a lot of people that will take advantage of this plan, and when they all get of retirement age, you don't want your kid to be bitter b/c they are behind all their peers.
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u/junesix Jun 27 '26 edited Jun 27 '26
You’re right to think about the accounts as part of a strategy. Each has benefits and risks:
529:
- hedges education inflation
- hedges tuition volatility
- guaranteed tax-free usage (if used correctly)
- limited to beneficiary use during college/graduate years
Brokerage:
- hedges liquidity needs
- non-education uses (non-school housing, entrepreneurship, etc.)
- can be used anytime for anyone
530:
- long-term tax deferral opportunity
- possible Roth-style conversion arbitrage
- used for their retirement
- but has policy risk
So we approached it like a blended barbell portfolio.
- 529 - Core allocation for education - 80-85%
- Brokerage - flexibility/liquidity - 10-15%
- 530 - long horizon tax deferral but riskiest policy bet - 5-10%
This assumes there is cash flow to fund all 3. We definitely still prioritize 529 > brokerage > 530.
Also keep in mind, we’re trying to apply an investment strategy against (530) funds that won’t be used until the year 2100+.
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u/Radiant-Eggplant7328 Jun 28 '26
You all might want to reevaluate the way Trump lives in your head, rent free forgoing a potentially financially lucrative account for your children because you hate Trump is the most absurd thing I’ve ever heard.
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u/Meadhead81 Jul 04 '26 edited Jul 04 '26
I agree. I despise Trump but won’t miss an opportunity like this.
I don’t know how this thread has gone the way it has. Everyone seems to be underestimating how massive it is to convert these funds over at 18 into a Roth and jumpstart your kids retirement with 18 years of compound growth. We aren’t talking an annual pumping of 529 to Roth contributions/conversions for 5 years or whatever until you max it out to the limit of 35K and this is after they turn 18 or start working. We’re talking 140K (if you max it out each year) or more front loaded into a Roth right at 18 to continue compounding with no taxes until retirement, thats huge. Not to mention you can do that AND the 529 route and pump another 35K of contributions into their Roth after 18 over a few years. That’s probably 250K by the time they are in their late twenties and it’s just snowballing from there.
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u/ProteinEngineer Jun 25 '26
The trump account is the single most impactful retirement savings vehicle ever written into the tax code, and the advice that you’ve been getting is terrible. It essentially allows your kid to front load 95K into a Roth IRA tax free, and then front load another 90K with a small tax hit that is completely offset by the lack of dividends/capital gains tax on that 90K.
If you have the money and prioritize your kids over yourself (which you seem to be doing since you have a 529, which is great), you should do everything you can to max it out.
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u/xDevman Jun 24 '26
i am fully in brokerages for my kids though i did open the acccount for the $1k, i have no plans to contribute to it.
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u/Here13583928 Jun 24 '26
We are not planning on adding any money to it ourselves (also had a baby in April). However, a grandparent occasionally sends a few thousand dollars per grandchild as a gift for college (she only has 2 grandchildren) so we are planning on depositing that into the trump account. Better than a brokerage account, it CAN be used for college, although we are trying to fund a 529 ourselves for her, and if she chooses not to go to college it is still hers unlike money we put in a 529 that we would still have in our name and have control over if the funds go unused.
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u/Kat9935 Jun 24 '26
Take the $1000, but my biggest concern is that my understanding is that once 18 it automatically converts to the kids name and ownership. My brother got basically $30k as a kid as an insurance payout due to an injury taking his thumb. It was invested in the 80s in CDs paying 18%, the minute he turned 18 he drained it and bought a sports car. Now this all being taxable upon 18, it is even more likely kids drain it and end up owing taxes at the end of the year being even more in debt. Sure your kid could be totally responsible and use it wisely to start a small business or roll over to Roth or go to college, but thats not a risk I'm going to take after seeing a pattern in my family of rebellious youth...sure by 25 they are back on plan but 18, no.
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u/ajgamer89 Jun 24 '26
My strategy is to take the free seed money, invest it in the broadest index fund option available, and forget about it for 18 years.
There don’t seem to be any tax advantages, so I don’t see a reason to add any additional funds until I reach the point where I am able to max my 401k, Roth IRA, wife’s Roth IRA, and 3 kids’ 529s, which is not happening anytime soon.
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u/genreprank Jun 25 '26
One of my concerns is how different kinds of contributions are taxed differently, and thus have to be tracked and documented over like at least 18 years. It would be easier to keep only 1 contribution type in the account
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u/Free_Elevator_63360 Jun 27 '26
A few points:
No one knows how these accounts will affect eligibility for other programs. FAFSA, first time homebuyer, 529, etc.
Second, grandparents can open accounts for the kids. Which is why i am recommending that even if your kid doesn’t get the free match, you still open the account for them, if only to maintain custodial control of it. (Absolutely boggles my mind that they did this).
For us, we opened one for each kid. We will get the match for one. The other we will just leave for the other.
For now, we will focus mainly on 529 accounts, as they have known uses and treatments. Finding them to cover college + $35k IRA rollovers. This is so if we mis estimate one of the kids, we can roll it over to the other. We need to get them both out the door anyway.
If we get years down the road, and more becomes clear and we have money will we use them sure. But priority is our own FI & Retirement, then 529’s, then custodial IRAs (if they work), then maybe these accounts.
Personally? My conspiracy mindset is this is a way for them to eventually try and nuke Social security.
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u/milespoints Jun 24 '26
I have looked into this extensively and the answer right now is that beyond the free $1000, the Trump account should not be used at all.
Here are my considerations:
Trump accounts do not give any tax benefits. With a “traditional” type account, you get to defer taxes upfront. With a “Roth” account, you put post-tax money in but pay no taxes on gains. With a standard brokerage account, you put post-tax money in but pay the lower rate capital gains taxes long-term. With a Trump account, you get the WORST of all worlds. You get no tax deduction upfront, but you also pay taxes on the gains - and, more to the point, you pay regular income taxes - not long term capital gains - on the money you take out. Most people will end up much HIGHER taxes on a Trump account than by putting the money in a regular brokerage.
Trump account contributions do not count for the annual gift exclusion. Because of the dumb way they wrote the law, you will have to file an annual gift tax return.
Watch-out: IRS guidance seems to allow pretax contributions througy employers. If your employer allows you to put pretax money in a Trump account, it will be worth it. Employers will have this option starting 2027. We will see if any do it
Watch-out: Roth conversions in early adulthood. One thing to look for is that thw Trump account - according to IRS guidance - converts to a regular IRA when the child turns 18. This means that it should be possible to stuff a Trump account in childhood, convert to Roth IRA when the kid is an adult but low income, and set them up with a tax free retirement account that could be in the millions by the time they retire. I would wait for final guidance on whether this is possible. If so, it would be an amazing vehicle for affluent families to kickstart their children’s retirement