You may have seen a question about a “Trump Account” on your taxes and wonder what it’s all about? Well, it’s similar to an IRA, but for kids under 18. I’m a little disappointed they didn’t make it a Roth account, because you kind of get a “worst of both worlds” on the tax break. You pay tax on your income up front, then on any growth instead of getting the lower long term capital gains rate, your kid pays income tax again upon withdrawal. There are certainly scenarios where you would end up with more money in a regular old taxable account. That said, you do get the normal tax-advantaged account benefit of “deferred taxes”. That means any dividends or gains along the way compound right inside of the account with any tax drag. There’s also a cool opportunity for a “backdoor Roth” strategy. Basically, dump a bunch of money in the Trump account before your kid is 18, then in their 18th year, you convert the whole thing to Roth. At that point two things will be true: 1.) A lot of the value will be principal, leaving relatively small gains, and 2.) Your child is likely in a very low income situation. That means you can turn the entire Trump account into a Roth IRA paying little to no tax.

ALL THAT SAID, for me the bottom line is I’m definitely gonna grab that $1,000. Beyond that, I’m not sure yet if I’ll contribute to my kids account any more. But for those who were considering a “Custodial Roth” for their kids, this may be a great option because it notably doesn’t require the child to have earned income.

Did you see this on your taxes? Are you going to contribute to a Trump account if you have kids?

As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.

-Jeremy