Trump Account Strategy: A Potential Wealth-Building Opportunity for Your Kids
When it comes to building wealth, time is one of the most powerful tools an investor has. The earlier you start, the more years compound growth has to work in your favor.
That’s why the new Trump Account has generated so much interest. While the government-funded contribution grabs the headlines, the real opportunity lies in what happens over the next several decades.
What Is a Trump Account?
Think of a Trump Account as being similar to a traditional IRA, but designed specifically for children.
Any child under the age of 18 can have a Trump Account. If your child is a U.S.-born citizen born between January 1, 2025, and December 31, 2028, they may also qualify for a $1,000 government-funded starter deposit.
That money is automatically invested in a low-cost U.S. stock index fund, giving it the opportunity to grow over time.
Parents, grandparents, and others can also contribute up to $5,000 per year, creating an opportunity to build meaningful wealth over a child’s lifetime.
One of the Biggest Advantages
One of the features we like most is that, unlike a traditional IRA for a child, your son or daughter does not need earned income before contributions can be made.
Normally, a child would need wages from a part-time job or other earned income before qualifying for IRA contributions. With this account, you can begin investing much earlier, allowing compounding to start working from birth instead of waiting until their teenage years.
The Power of Compounding
Let’s look at a simple example.*
Assume the only contribution is the government’s initial $1,000, and it earns an average annual return of 10%.
- By age 18, that $1,000 could grow to approximately $6,000.
- By age 23, after graduating from college, it could be worth approximately $9,800.
While those numbers are impressive, this is where the planning opportunity really begins.
A Potential Roth Conversion Strategy
After your child graduates, begins working, and files their own tax return, they may be in one of the lowest tax brackets they’ll ever experience.
That may create an attractive opportunity to convert the account into a Roth IRA.
Although taxes would generally be due on the amount converted, completing the conversion while your child is in a relatively low tax bracket could significantly reduce the overall tax cost compared with waiting until later in life.
Once those assets are inside a Roth IRA, future qualified growth and withdrawals can potentially be tax-free.
Using the same assumptions, if that original $1,000 remained invested until age 65 while earning a 10% annual return, it could grow to approximately $650,000 inside a Roth IRA.
Remember, that illustration is based solely on the government’s initial $1,000 contribution.
(Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. (22-LPL)
What If You Invested More?
Now consider what happens if you contribute $100 per month while your child is growing up.
Instead of relying only on the government’s contribution, you’re consistently adding to the account during the years when compounding has the greatest impact.
Over several decades, that additional savings has the potential to dramatically increase the account’s value and could ultimately grow into a retirement account worth well over $1 million, depending on investment performance and future contribution limits.
The Real Opportunity
The biggest takeaway isn’t the $1,000 government contribution.
It’s the opportunity to start investing earlier than ever before and allow compound growth to work over an entire lifetime.
Small contributions made during childhood can potentially become substantial retirement assets because of one simple factor: time.
Is This Strategy Right for Your Family?
Every family’s financial situation is different, and there are important considerations surrounding eligibility, taxes, investment risk, and long-term planning.
If you have young children, or you’re expecting one soon, it’s worth exploring whether a Trump Account fits into your overall financial plan.
At Paragon Wealth Management, we help families evaluate strategies designed to build long-term wealth across generations.
If you’d like to learn more about how a Trump Account could fit into your family’s financial plan, we’d be happy to walk you through your options.
ABOUT JEREMY
Jeremy Kerr joined Paragon Wealth with nearly a decade of experience in the financial services industry. A graduate of Temple University’s Fox School of Business, Jeremy has always had a deep interest in personal finance and helping others make confident financial decisions.
He began his career in the mortgage industry, where he developed a strong foundation in lending and client service, before transitioning to a financial advisor role in 2023. At Paragon, Jeremy combines his technical knowledge with a genuine passion for building long-term relationships and guiding clients through all stages of their financial journey.
Outside the office, Jeremy enjoys spending time with family and friends, weightlifting, and playing basketball. You can find Jeremy here on LinkedIn.
*This is a hypothetical example and is not representative of any specific situation. Your results will vary. The hypothetical rates of return used do not reflect the deduction of fees and charges inherent to investing.
Trump Accounts offer tax deferred growth on earnings. Family contributions are made with after tax dollars, and eligible employer contributions may be excluded from the employee’s taxable income. A one time $1,000 federal contribution may be available for eligible children born between 2025 and 2028. Distributions are generally prohibited during the child’s growth period and, once permitted, are taxable as ordinary income and may be subject to a 10% IRS early distribution penalty if taken before age 59½. Contribution limits and other restrictions apply, and some rules remain subject to future Treasury and IRS guidance. Consult a qualified tax advisor or financial professional before making decisions.
Advisors associated with Paragon Wealth Management may be either (1) registered representatives with, and securities offered through LPL Financial, Member FINRA/SIPC, and investment advisor representatives of Great Valley Advisor Group, or (2) solely investment advisor representatives of Great Valley Advisor Group, and not affiliated with LPL Financial.
Investment advice offered through Great Valley Advisor Group, a registered investment advisor. Great Valley Advisor Group and Paragon Wealth Management are separate entities from LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.