Let’s play a game.
How do you play?
- Think about what financial goals you want to instill in your child.
- Schedule a free consultation with one of our Certified Financial Planners™ professionals to help codify those goals into a comprehensive financial plan.
- Put that plan into action and marvel as the 8th wonder of the world (compound interest) works its magic.
- The sooner you play, the sooner your child’s investment vehicle works for them. The sooner you pick your child’s investment vehicle and stick with it, the better shot your child has at meeting the future financial goals you set for them.
Who wins?
- You win when you utilize the right investment savings vehicle for your child’s financial future.
- You lose if you don’t effectively plan out your child’s financial future.
- I win if you read the rest of the article.
- I lose if you skip past my section of this quarter’s perspectives.
What do you win?
- A sense of achievement in knowing you optimally planned out your child’s financial future.
What do I win?
- A sense of achievement in knowing we helped prepare you for your child’s financial future.
What vehicles can you use?
- A UTMA/UGMA account (Uniform Transfer to Minor’s Act/Uniform Gifts to Minor’s Act account)
- A 529 Plan
- A Trump Account
Now that we’ve established the rules, let’s play!
Game Start:
I know about UTMA/UGMA accounts and 529 plans, but I didn’t know about the Trump Account. What is a Trump Account, and how can I use it to save for my child’s future?
Great question! The Trump Account’s structure was created under the Working Families Tax Cut Act of 2025. However, you can’t contribute to it just yet. You’ll have to wait until July 4, 2026, to make contributions to a Trump Account. If you want to get a head start, you can open your Trump Account now by either going to trumpaccounts.gov or filing a Form 4547 with your Tax Return.
Well, I want to know the pros and cons before just opening a Trump Account to help me decide on what’s best for my family.
Of course! Here are some pros and cons (this list isn’t exhaustive):
- Pros:
- The funds in a Trump Account grow tax-advantaged. Withdrawals of your original contributions are never taxed, since you did not receive a tax deduction for those contributions.
- After your child is 18, you can convert up to 50% of the funds in a Trump Account to a Roth IRA. At 24, you can convert the remaining 50%. Since these Roth conversions would be at the child’s tax rate, they should be in the lowest income tax bracket of their lives, since they are at the beginning of their careers.
- If your child was born between 01/01/2025 and 12/31/2028, the federal government will contribute $1,000 for a Trump Account in your child’s name. If this describes you, then opening the account and getting the $1,000 contribution is a no-brainer.
- Since there is some restriction on the funds when the child reaches age 18, they can’t blow it all on whatever they want, like they potentially could with a UTMA/UGMA account.
- An employer can make tax-deductible contributions of $2,500 per year (indexed to inflation) to an employee’s Trump Account.
- Cons:
- Your child cannot access the funds within a Trump Account until they are 18 (except for the death of the beneficiary or removing excess contributions). At that point, they have access to 50% of the funds. At 24, they have access to the remainder. At age 30, any remaining funds within a Trump Account are treated as a Traditional IRA.
- Withdrawals of earnings or contributions made by an employer are taxed as ordinary income and not at the more favorable capital gains tax rates.
- There are no special circumstances for avoiding the tax on earnings like there are on a 529 plan. 529 plan distributions when used for qualified education (college, most trade schools, or even private schools up to $10k/yr) are tax-free.
- Some states (such as California and Hawaii) do not recognize the tax-advantaged treatment of investment earnings. This means dividends, interest, and capital gains incurred each year while investing in a Trump Account could be taxed at the state level and require you to file a child tax return.
How much can I contribute to a Trump Account?
You can contribute $5,000 per year. Any contributions made by an employer count towards this $5,000 limit.
What about a UTMA/UGMA account or a 529 Plan? Should I do one of those instead?
It depends on your goals. If your family is focused on education, then a 529 plan would likely be a better savings vehicle. If you want flexibility and can contribute more than the Trump Account limits, a UTMA/UGMA account would most likely meet your financial goals for your child better than a Trump Account. Check out our blog post that elaborates on the pros and cons of UTMA/UGMA accounts and 529 plans.
What types of investments can I make within a Trump Account?
Trump Accounts can only be invested in ETFs (Exchange Traded Funds) of U.S. companies, which cost around 0.10% on average.
Should I open a Trump Account?
Like with most things in financial planning, the answer is…maybe. If you’re like me and had a kid born between 01/01/2025 and 12/31/2028, the government will give you $1,000 of seed money on July 4th of this year to start the account. It’s free money from the government. If that doesn’t pertain to you, the answer is more nuanced. If you are 100% dead-set on having your kid go to college, a 529 plan is generally a better investment vehicle. If you want flexibility and can contribute more per year than the Trump Account limits, then a UTMA/UGMA account would most likely be a better bet.
Is the game over? Did I win?
Yes, the game is over, and you won! Congrats, you made it to the end of the article. To claim your prize, elevate your plan from concept to action. I know you know that investing in your child’s future isn’t a game. From parent to parent, how to invest in your child’s financial future is a serious decision you and your partner need to make. The sooner that plan is brought to fruition, the better your child’s financial future will be.
Did you win?
Yes, and thank you for playing along. If you need help claiming your prize, call us at 714-282-1566 or email us at financialplanning@bfsg.com to help you craft an investment savings strategy that’s right for your child.
Disclosure: Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Benefit Financial Services Group [“BFSG”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, no portion of this discussion or information serves as the receipt of, or a substitute for, personalized investment advice from BFSG. contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from BFSG. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Neither BFSG’s investment adviser registration status, nor any amount of prior experience or success, should be construed that a certain level of results or satisfaction will be achieved if BFSG is engaged, or continues to be engaged, to provide investment advisory services. BFSG is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the BFSG’s current written disclosure Brochure and Form CRS discussing our advisory services and fees is available for review upon request or at www.bfsg.com. Please Note: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please Remember: If you are a BFSG client, please contact BFSG, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Unless, and until, you notify us, in writing, to the contrary, we shall continue to provide services as we do currently. Please Also Remember to advise us if you have not been receiving account statements (at least quarterly) from the account custodian. Please see important disclosure information here.
