Trump Accounts: The $3 Million Roth Opportunity Parents Are Missing

Posted On July 18, 2026 By Scott Stratton, CFP(R), CFA In Financial Planning / No Comments

When Congress created Section 530A accounts, commonly called “Trump Accounts”, most of the headlines focused on the $1,000 government contribution for babies born between 2025 and 2028. That’s understandable—everyone likes free money.

But after studying the legislation and recent IRS guidance, I believe the real opportunity isn’t the $1,000. It is the possibility of turning a relatively modest childhood investment account into a multi-million dollar Roth IRA.

Ironically, this opportunity may be most attractive for higher-income families who initially dismissed Trump Accounts as inferior to 529 plans, UGMA accounts, or trusts.

If you haven’t read my first article explaining how Trump Accounts work, who qualifies, and why I generally prefer other planning vehicles for wealthy families, start here: Trump Accounts for Children

This article focuses on one specific planning opportunity that deserves far more attention: the Roth Conversion option.

Who Can Use and Fund a Trump Account?

The $1,000 government contribution is limited to eligible children born between January 1, 2025 and December 31, 2028. The account itself is much broader. A Trump Account may be established for a child who has not turned age 18 before the end of the calendar year in which the election is made and who has a valid Social Security number.

Should you contribute for a 12-year-old? Yes. A 12-year-old may still have six years of contributions before adulthood, followed by decades of tax-advantaged compounding. The child does not need earned income for contributions to be made during the growth period.

Parents are not the only people who may contribute. Grandparents, aunts, uncles, friends, the child, and essentially any other person may fund a Trump Account. Employers, governments, and nonprofit organizations may also contribute under separate rules. Ordinary individual and employer contributions are generally subject to a combined $5,000 annual limit, which will be indexed for inflation after 2027.

To establish an account, visit TrumpAccounts.gov, sign in to the parent or guardian’s IRS account with ID.me, and submit IRS Form 4547. Contributions began on July 4, 2026.

What Can the Account Own?

Trump Accounts do not offer an unrestricted brokerage menu. During the growth period, investments generally must be low-cost ETFs that track a broad index of primarily U.S. companies, do not use leverage, and charge no more than 0.10% annually.

Treasury has announced a specific ETF lineup. At launch, all contributions are invested in the State Street SPDR Portfolio S&P 500 ETF (SPYM) as the default. Treasury also selected the following four funds, which parents or guardians are expected to be able to choose in the coming months:

iShares Core S&P 500 ETF (IVV)
Vanguard Total Stock Market ETF (VTI)
State Street SPDR Portfolio S&P 1500 Composite Stock Market ETF (SPTM)
iShares Core S&P Total U.S. Stock Market ETF (ITOT)

These are sensible, low-cost choices, but the menu remains restrictive. Families cannot build a diversified portfolio containing international stocks, bonds, or cash during the growth period. The Total Stock Market funds are more diversified, as they include mid-cap and small-cap stocks. There is no guarantee that the diversification will outperform the S&P 500 Index funds, but given valuations today, I like the Total Market funds.

A Traditional IRA in Disguise

During childhood, Trump Accounts operate under their own set of rules. However, beginning on January 1 of the year the child turns 18, the account is generally governed by the rules applicable to traditional IRAs. At that point, the account may be converted to a Roth IRA, subject to the normal taxation of Roth conversions.

That conversion is where planning becomes critical.

Unlike a regular Roth IRA contribution, a Roth conversion does not require earned income. The child simply recognizes taxable income on the pre-tax portion of the account and moves the assets into a Roth IRA, where future growth can potentially be tax-free. Contributions to Trump accounts are after-tax (except for employer contributions), so these will form the cost basis of the account. The gains on the Trump account will be taxable as ordinary income at the time of the conversion.

The Kiddie Tax Trap

You could convert the Trump Account to a Roth immediately at age 18. I think that there may be a better option to wait a bit longer.

If the child is still a full-time college student under age 24 and does not provide more than half of their own support through earned income, the Kiddie Tax may apply. In that case, much of the taxable conversion income could effectively be taxed using the parents’ marginal tax rate rather than the child’s.

The Kiddie Tax age test is determined at the end of the tax year. The calendar year in which the child turns 24 is often the first opportunity to complete a Roth conversion without the Kiddie Tax applying solely because of age.

That creates an attractive planning window for many families.

A Better Conversion Strategy

Rather than converting the entire account at age 18, consider this sequence:

• Continue allowing the account to grow during college.

• Avoid large Roth conversions while the Kiddie Tax may apply.

• Beginning in the calendar year the child turns 24, evaluate converting the account over two or three low-income years.

Spreading the conversion over multiple years can significantly reduce the overall tax bill by keeping more of the taxable income within the lower federal tax brackets.

An Example

Suppose parents contribute the maximum $5,000 annually from age 1 through age 17. Assume the investments earn 7% annually. By age 18, the account would be worth approximately $160,000.

For this example, assume the entire $5,000 annual contribution comes directly from the parents using after-tax dollars. Over 17 years, the parents contribute $85,000, creating an $85,000 cost basis. The remaining $75,000 represents investment growth.

Trump Account basis is allocated proportionately to each distribution or conversion. You cannot convert only the gains or only the basis. If the entire $160,000 account is converted, $85,000 would represent a tax-free return of basis and $75,000 would be taxable income.

Using today’s 2026 federal income-tax rates, assume the child is single, is not subject to the Kiddie Tax, and has no other income. They claim the $16,100 standard deduction.

Converting the entire account in one year

$160,000 gross conversion – $85,000 of basis = $75,000 of taxable conversion income.
$75,000 of taxable conversion income – $16,100 standard deduction = $58,900 of taxable income.
Federal tax = $7,670 (2026 tax rates).

Spreading the conversion evenly over two years

Each $80,000 gross conversion includes $42,500 of basis and $37,500 of taxable conversion income.
$37,500 of taxable conversion income – $16,100 standard deduction = $21,400 of taxable income in each year.
Federal tax each year = $2,320. Over two years, the estimated federal tax is $4,640.

Spreading the conversion over two low-income years reduces the estimated federal tax from $7,670 to $4,640, a savings of $3,030. Actual results 18 or more years from now will depend on future tax law, the child’s other income, the account value at conversion, and state taxes.

Those conversion taxes should ideally be paid with outside funds, not from the Trump Account itself. Paying the tax separately allows the entire account balance to enter the Roth IRA, maximizing decades of future tax-free compounding. This may require the Parents gifting the money to cover the tax bill, but it makes a lot of sense to do it before your kids start earning a high income.

The Self-Employed Opportunity

Self-employed parents have another planning opportunity.

A business may contribute up to $2,500 per employee to Trump Accounts under an employer contribution program. The $2,500 limit is per employee, not per child, and it counts toward the child’s overall $5,000 annual limit. If both spouses legitimately work in the business as employees, each spouse may qualify for a $2,500 employer contribution. Whether a business owner qualifies as an employee depends on the entity and compensation structure, so this should be confirmed with a tax advisor.

These employer contributions may be tax deductible to the business, subject to the applicable rules, and are excluded from the employee-parent’s current taxable income. However, they do not create after-tax basis in the child’s account.

That changes the Roth conversion calculation. If the annual $5,000 contribution consists of $2,500 from the parents and $2,500 from the employer for 17 years, the account would have only $42,500 of basis rather than $85,000. At a $160,000 account value, approximately $117,500 would be taxable during a full Roth conversion.

Using the same assumptions and today’s 2026 tax rates, converting the entire account in one year would produce an estimated federal tax bill of $17,020. Splitting the conversion evenly over two low-income years would reduce the estimated total to $9,740. The employer contribution therefore creates an immediate tax benefit for the family or business, but it also transfers a larger future tax liability to the child. This is still beneficial both for the years of potential tax deferral, plus the parents are likely in a much higher tax bracket than the children at the age of Conversion.

Business owners should also remember that employer contribution programs are subject to nondiscrimination rules. They generally cannot be structured solely to benefit owners while excluding rank-and-file employees. You may have to provide this benefit to all employees.

The Long-Term Payoff

This is where the math becomes remarkable.

Suppose the child successfully converts the entire $160,000 account into a Roth IRA after paying the conversion tax from outside funds.

A $160,000 Roth IRA at age 18 earning 7% annually until age 65 would grow to approximately $3.85 million. The actual balance converted later—perhaps beginning in the year the child turns 24—would be different, but this illustrates the value of 47 years of compounding at 7%.

At Retirement, all of that $3.85 million account could be withdrawn tax-free under the current Roth IRA rules. That is an extraordinary gift to your children or grandchildren by investing just $5,000 a year from ages 1-17. The Roth Conversion opportunity is what really makes this so brilliant: Without the conversion, you would still have $3.85 million, but in a Traditional IRA. And that would be fully taxable!

Does This Change My Opinion of Trump Accounts?

Somewhat.

In my first article, I concluded that wealthy families should generally prioritize 529 plans, UGMA/UTMA accounts, and trusts over Trump Accounts. I still believe that is true for many situations.

A 529 plan remains the better vehicle for college funding because qualified withdrawals are tax-free.

UGMA/UTMA accounts continue to offer greater investment flexibility, favorable long-term capital gains treatment, and no $5,000 annual contribution cap.

Trusts remain the superior solution for larger estate planning strategies.

However, the Roth conversion opportunity makes Trump Accounts much more compelling than I originally believed.

For families willing to follow a disciplined long-term strategy, a Trump Account may become an outstanding retirement planning tool rather than simply a children’s savings account.

That is a very different way of thinking about these accounts.

The best strategy for many affluent families may be surprisingly simple:

Take the free $1,000 if your child qualifies. Contribute the maximum $5,000 a year until the year when they turn 18. Then convert it thoughtfully to a Roth IRA during the child’s low-income years—ideally over multiple years and with taxes paid from outside funds. Look out for the Kiddie Tax.

Sometimes the greatest opportunity isn’t found in the government incentive. It’s found in the tax planning that comes afterward.

Disclaimer: The 7% hypothetical return used in this article is not guaranteed. Past performance is no guarantee of future results and investments are subject to the potential for loss.

The Bank of Mom and Dad

Posted On October 22, 2024 By Scott Stratton, CFP(R), CFA In Financial Planning /

More and more young adults are relying on the Bank of Mom and Dad. For perhaps the first time in US history, today’s 30 year old faces a tougher time than their parents did. Today’s young adults may be worse off than their parents were at age 30. And it’s not because of laziness. It has gotten harder for young people to reach the same milestones as their parents.

Thirty years ago, the average house price in the US was $154,200. Today, it is $501,700. The average private university tuition was $11,481, 30 years ago. Today, my Alma Mater, Oberlin College charges $66,410 for tuition alone and has a total annual cost of $86,800. Many of my classmates pursued a 5-year double degree program, which today will probably cost over $450,000.

Wages in many careers have not kept pace with inflation. Students are encouraged to go to the best college possible and to pursue advanced degrees, racking up massive student debt. 45% of student loans are on an income driven repayment plan, and over one million Americans have so little income that they qualify for a $0 monthly payment on their federal students loans. Of course, the interest still accrues and they cannot discharge student loans in bankruptcy.

The cost of healthcare has risen more than inflation and child care expenses have made it difficult for parents. Many have calculated that after-tax, they are better off having one parent stay home.

I think the Wealth Inequality in America is likely to widen rather than shrink for the decades ahead. Who will come out ahead? Adults from wealthy families will likely stay ahead of young adults from less privileged backgrounds. We would like to think that America is a meritocracy, but it is becoming harder for young people to create their own economic security. 70-year old millionaires can lecture young people about hard work, but it’s not in touch with the reality of the times.

I’ll leave it to Washington to solve the nation’s problems, but I doubt that solutions will be coming soon. I think parents are going to have to look out for their kids more and for longer than just getting them to age 18 or 22. Parents will have a role in making sure their children become wealthy. We can only take care of our own family, so let’s start there.

This does not mean setting up a massive Trust Fund so that your kids don’t have to earn a living. No, parents don’t want their kids to become dependent on their generosity. We don’t want to create the moral hazard that they would fail to pursue their own career to the fullest. But there are ways that The Bank of Mom and Dad can help establish your child’s financial success, security, and stability.

The Good News

The good news is that wealthy parents tend to have wealthy children. At age 30, children’s income is highly correlated to their parent’s income. Children may not listen to what you say, but they often make similar decisions as their parents, including in their careers.

Minimizing Student Loans

Here is an important rule of thumb for college students. Keep your total student loans to no more than one-time (1X) your future salary. Entering a career with a $50,000 salary? Your student loans should be $50,000 or less to allow you to repay over the standard 10-year schedule. And only a surgeon making $350,000 a year should ever consider having $350,000 in student loans. But I have seen people with incomes under $100k with that level of student debt.

Here’s some advice for parents:

Make sure your kids are thinking about the 1X rule and choosing a college which will not cripple them with future debt. It’s okay for your children to have some skin in the game and have to pay or borrow a little for college. But don’t let them be foolish and invest $500,000 into a field that will only pay $50,000 a year. Debt is not the path to economic security.
Start saving earlier in a 529 Plan or be willing and able to absorb more of the college costs at the time they are in school.
Aim to have them go into a field with 90% plus employment. There are great careers which are highly in demand and offer a terrific salary. Are there jobs which will have this exact degree as a pre-requisite? Seek degrees with value.
After college, help your kids be mobile. In their 20’s, it is the time to pursue a career and go where that takes them. If the great jobs are on Wall Street, Silicon Valley, or wherever, that flexibility gives them a leg-up versus older job candidates who are unwilling to move. My wife’s company has promoted her four times, including most recently to Paris. This is how you build a career in 2024, not by going back home and living in the same town as your parents.

Fund Their Roth IRAs

I got my first job at age 16 at the minimum wage of $3.35 an hour. I worked at the Long Point amusement park for about four weeks before it burned down from an electrical short. The owner didn’t have insurance and that was the end of the 80 year old park – and my first job. I do think having a part time job is a great learning experience and can help young people develop important skills.

Anyone who has earned income can fund a Roth IRA, including someone who is 16 or younger. What I would suggest parents do is allow your kids to keep their income while the parents fund their children’s Roth IRAs. You will give them a tremendous advantage in their future wealth by getting this early start. You can invest up to $7,000 a year, or the level of their annual income, whichever is lower.

Let’s say you fund a Roth IRA for your son or daughter for $5,000 for 10 years from age 16 through 25. We invest in an Index Fund and earn 7% per year. By the time they are age 66, they would have $1,181,000 in their tax-free account, all thanks to Mom and Dad funding a Roth IRA for their first 10 years of part-time work. That’s the power of compound interest.

Annual Gift Exclusion

If you have enough in resources to know that your retirement is secure and you will have more than enough, then you may want to start giving away some money during your lifetime to your children. The annual gift tax exclusion for 2024 is $18,000 per person. You can give that amount to each child and a married couple can double that, to $36,000 per child per year.

Every article seems to get this wrong: If you give away more than the annual exclusion you don’t immediately owe a gift tax. But you must file a gift tax return and the amount above the exclusion will reduce your lifetime unified estate/gift exemption. For 2024 that amount is $13.61 million and again it is double for a married couple. Most parents are going to be below the lifetime exemption amount and could give away more. But, the easiest first step is to use the full $18,000 annual exclusion.

This could be a great way to gradually create an account which your adult children could use as a house down payment, or to start a business, or pursue extra career development. This account could also serve to teach them about long-term investing, the benefits of index funds, and planning for goals.

Housing and Living Expenses

Certainly a lot of parents are helping their young adults with housing, a car, health insurance, cell phones, etc. Hopefully, this will allow them to focus on developing their long-term career and avoid going into debt. In a lot of expensive areas, kids are returning home to live with their parents after college. This can help them pay down their student loans faster. And with rents having gone up so much since 2019, this seems to be becoming more and more common.

What about buying a duplex for your child to House Hack? There are lots of creative ways to help your children with expenses. The goal is to have them get started investing and be able to save aggressively or pay down debt faster.

Managing The Bank of Mom and Dad

No One Is Self-Made. We have all benefited from the Education system in America, as well as the laws and regulations which promote free trade and protect employee rights. Compared to the rest of the world, the US remains a great place to become an entrepreneur or highly paid professional. We shouldn’t forget the unique opportunities we have to find economic security in the US. But even with all the benefits, the fact remains that parents have a very large role to play.

It is getting harder for today’s young adults. Inflation is a problem for housing, college tuition, health care, and starting a family. Those costs have grown much faster than incomes. As a result, young adults are falling behind previous generations. The Bank of Mom and Dad can help with planning, wisdom, and yes, sometimes with more money. Nearly half of all first-time homebuyers under age 35 have had some family assistance with their purchase.

Hopefully, well-to-do parents are already thinking about how they can create inter-generational wealth. What are the most effective ways and times to be giving money to your kids? What can go wrong or what are some unintended consequences? How do you treat two or three kids with different needs and abilities to handle the money? These are not easy decisions or conversations. But they are vital discussions to be having as a family, and yes, with your financial planner, too.

We can help you determine what you can truly afford and think about how to best help children with your financial support. We have a number of families where we work with the parents and with their children in their twenties and thirties. Wealth is a habit, and financial planning is a skill. Being good with money is not a skill which is being taught in school, unfortunately. But parents do have a role in talking about money, and even more importantly, modelling the behavior and generosity which you hope to instill in your children.