A Trump Account may be worth considering for eligible children, especially when the family qualifies for the $1,000 federal seed contribution. But like most planning tools, the account is not the strategy by itself.
The better question is: what is the money ultimately intended to do? If the goal is education, a 529 plan may still be the most direct solution. If a child has earned income, a Roth IRA may be a powerful long-term savings vehicle. The Trump Account may fit best when the family wants to start retirement-oriented savings before the child has earned income.
One planning angle we like is the potential exit strategy after the child reaches adulthood.
Assume a child receives the $1,000 federal seed contribution, receives $1,000 per year in family contributions, and earns a hypothetical 7% annual return. By age 18, the account could be approximately $37,400. The family could then evaluate converting a portion of the account to a Roth IRA during low-income years.
Using a simplified example, converting half at age 18 and half at age 19 would mean two conversions of approximately $18,700 each. Because family contributions create basis, the full amount would not necessarily be taxable. Under the assumptions used here, roughly $9,700 of each conversion would be taxable.
That is why this should not be treated as a simple account-selection decision. Dependency status, the child’s other income, the kiddie tax rules, current tax brackets, and the family’s broader plan all matter. Before making a conversion decision, it is important to coordinate with a qualified tax advisor.
Bottom Line: a Trump Account can be useful, but using it effectively requires a plan. If you'd like to discuss how a Trump Account may fit your plan, please email LWA@janney.com to schedule an appointment.
The concepts illustrated here have legal, accounting and tax implications. Neither Janney Montgomery Scott LLC nor its Financial Advisors give tax, legal, or accounting advice. Please consult with the appropriate professional for advice concerning your particular circumstances. For more information about Janney, please see Janney's Relationship Summary (Form CRS) on www.janney.com/crs which details all material facts about the scope and terms of our relationship with you and any potential conflicts of interest. Thank you
