Okay. I just made up that name “Secret Mega Roth.” What am I talking about? I am referring to the new Trump accounts that people can begin to open on July 4, 2026.
You have to read between the lines with the Trump accounts, but here is their potential “mega” benefit:
A lot of families would love to start Roth IRAs for young children to help give them a head start on retirement. The drawback of Roth IRAs for kids is that you can only contribute if you have “earned income.” Earned income must come from working! So, it’s hard to find earned income for your 5-year-old child (or grandchild if you are a grandparent).
The unique feature of the Trump accounts is that you can contribute to them without the child having any earned income. You can contribute up to $5k per child per year.
When the child turns 18, the Trump account mimics traditional IRA rules (it grows tax deferred until you take it out). Tax savvy investors would be wise to encourage their young adults (18+) to convert these Trump accounts into Roth IRAs when they are youngish (in their 20s) and in lower tax brackets.
For example, if you contributed $1,000 per year for your child for 18 years, the account would be worth approx. $50k at age 18 (assumes 11% growth). If your child (or grandchild) pays the tax (with other outside funds) and converts the entire amount to a Roth IRA, this would be become $6.8M at their age 65 (still assuming 11% returns). Discounted back to 2026 dollars, that’s the equivalent of about $726k (assumes 3.5% long term inflation) that they would have at retirement. So, your contribute a total of $18k (and pay tax when you convert it), and it grows to $726k. That’s one heck of a start towards financial independence!!
Other ideas/thoughts:
- You could pair your contributions with work around the house – i.e. If you mow the grass, I’ll pay you $20 cash and put $20 into your account (the parental “match” program)
- Beware of converting too early. If the child converts the Trump account to a Roth IRA as soon as they turn 18, there could be kiddie tax implications. It may be better to wait until the child is fully independent (no parental support) to convert the account to a Roth IRA.
In a nutshell, these accounts basically allow you to give your kids a head start on compounding their investments in a tax savvy way. This is one of the most simple yet powerful forces in personal finance. If you have questions about if these accounts help your family reach your goals, reach out to your advisor to discuss.