The real potential with Trump accounts
The $1,000 seed money is getting all the attention. But there's a much bigger opportunity...
“The best time to plant a tree was 20 years ago. The second best time is today.”
That old saying could have been written for the new 530A accounts (also known as Trump accounts).
Just not for the reason most people think.
I get some version of the same question from clients all the time: how can I help my kids or grandkids financially?
Most often, that question is about college.
A 529 plan. Tuition. Books.
But there’s a new tool, and it opens up something bigger than college.
Back in June, I wrote about the new Trump accounts: what they are, the $1,000 the government deposits for children born between 2025 and 2028, and how the basic tax rules work.
If your child or grandchild was born in that window, go claim it. It’s free money.
Actually it’s Treasury-funded, taxpayer money. So not entirely “free.”
But here’s what I really want you to hear: that $1,000 is a headline that’s distracting almost everyone from the bigger idea.
The better question
Most people hear about Trump accounts and ask: does my child qualify for the $1,000?
Fair question. Free money is free money.
But it only applies to kids born in a three-year window. If your grandchild was born in 2019, or won’t be born until 2030, that seed money was never on the table for them.
Here’s the better question:
Could you open and fund one of these accounts for any child in your life under 18, seed money or not, and let them benefit from the power of compounding over the next several decades?
The answer is yes!
And it changes what these accounts can do.
What you can do
Any U.S. citizen under age 18 with a Social Security number can have a Trump account. Not just babies born in the last couple of years.
Anyone can contribute up to $5,000 a year on that child’s behalf.
Parents, grandparents, aunts, uncles, or friends can contribute.
It doesn’t matter whether they ever received the free $1,000.
That money grows tax-deferred in a low-cost index fund until the child turns 18.
At that point, the account simply becomes a Traditional IRA in their name.
Then it keeps growing, for as long as they’re willing to leave it be.
What this could actually look like
Say you have a 5-year-old granddaughter.
You decide to contribute $3,000 a year on her behalf, starting this year, through the year she turns 18.
That’s 14 years of contributions. $42,000 out of your pocket, total.
At a hypothetical 6% average annual return, that account could grow to somewhere around $67,000 by the time she’s 18.
Then the contributions stop.
But the money can continue compounding.
By the time she’s 60, another 42 years down the road, that same account, still growing at that same hypothetical rate, could be worth somewhere in the neighborhood of $770,000.
From the $42,000 you contributed.
Nothing about that is guaranteed. It’s simply what the math shows if a 6% average holds for 55 straight years.
But that’s not how investment markets work, so your reality will absolutely be different.
I built an interactive calculator to show how this could work:
Click here to access the interactive calculator and play around with your own numbers and assumptions.
Using the account
You contribute to these account with money you’ve already paid tax on.
So the dollars you put in come back out tax-free later.
Only the growth inside the account gets taxed as ordinary income when it’s withdrawn, the same as any Traditional IRA.
A window for Roth conversions
Once your grandchild turns 18, the account becomes a Traditional IRA in her name.
It’s likely she’ll have little-to-no income those first few years out of high school, so that’s often the lowest income tax bracket she’ll ever be in.
That can be a good window to convert some or all of the account to a Roth IRA.
She’d pay income tax (at her presumably low rate) on the conversion of the growth and earnings so it can grow and be accessed tax-free for good after that.
The account could be converted to Roth all in one year or spread over multiple years.
We won’t work through the Roth conversion mechanics here.
But it’s a real strategy, and one I can write more about if you’re interested.
And a quick word on gift taxes
One more note...
Contributions to these accounts count as gifts.
Earlier this year, the IRS clarified that contributions like the $3,000-a-year example above won’t require a gift tax filing, as long as your total gifts to that child stay under the annual exclusion for the year.
I wrote about how the annual and lifetime gift exclusions fit together here, if you want the fuller picture.
None of this is tax advice. Talk with your tax advisor about your specific situation before you contribute.
One important caveat
This isn’t a strategy to pursue in isolation just because it sounds appealing.
It only makes sense in the context of your own retirement plan.
You need to first consider what you need for yourself.
What you can comfortably set aside for the people you love, second.
And nobody actually knows what the next 14 years hold, let alone the next 55. Growth could run higher than 6%. It could run lower.
Markets will do what markets do.
That uncertainty isn’t a reason to avoid this.
It’s the reason a real financial plan gets reviewed and adjusted regularly, not set once and forgotten.
Is there a child or grandchild in your life this could help?
Not because they qualify for the $1,000, but because they could benefit from the power of compounding. And time.
What would $42,000, turned into something like $770,000, actually mean for them at age 60?
And is there a version of “helping family” you’ve been waiting to do later that you could start now instead?
You can’t buy a fifty-five-year-old tree. You can only plant one today and let it grow.
Bottom line: The $1,000 is a nice bonus, if your family happens to qualify.
The real gift is compound growth over the coming decades.
And almost any child in your life still has time for compounding to work for them.
If any of this sparks something, hit reply or reach out anytime.
I’m always happy to help you think through whether it fits your family and your plan.
Until next Wednesday,
Russ