Stephen Ahern
|
Trump Accounts are a new option families can consider when saving for a child. The best approach is to start with the goal—college, young-adult “launch” support, or a long-term retirement head start—and add Trump Accounts to the mix where their rules and timing align with your plan. |
When families tell us they’re “saving for the kids,” they usually mean one (or more) of these three life goals:
- Education (college, trade school, grad school)
- Young-adult launch support (first apartment, car, emergency fund, wedding, first home down payment help, business seed capital, bridge-years support)
- A retirement head start (because time is the biggest advantage your child will ever have)
Our approach is simple: name the goal first, then choose the account that gives you the most tax-advantaged growth while still matching how (and when) you’ll use the money.
If you’ve been hearing about a Trump Account for kids, here’s how we’re thinking about where it can fit. Trump Accounts are a new tool. They can be helpful in the right spot. But in most plans, they’re an addition, not a replacement for the basics.
Goal #1: Saving for college or education
Key message: The funds in a Trump Account are available at age 18, so they can line up with college timing—but if college funding is the goal, a 529 plan growing tax-free is still the primary vehicle.
A Trump Account for kids is designed more like an IRA than an education savings account, and it grows differently than a 529. That matters if your main intention is to turn savings into “tuition dollars.”
How do Trump Accounts get factored into financial aid (FAFSA / Student Aid Index)?
This part is still developing. Trump Accounts are new, and we haven’t seen the Department of Education explicitly spell out “Trump Accounts” by name in FAFSA instructions yet. For now, we treat this as a planning watch item, not something to build an entire strategy around.
Our working assumption is that because Trump Accounts are structured like IRA-designated accounts, they may be treated like retirement accounts for FAFSA purposes (which typically aren’t counted as assets in the Student Aid Index calculation). If that ends up being clearly confirmed, that’s helpful—just not something we want families relying on until it’s explicit.
Planning takeaway: If education is the goal, we’d still build the education runway with a 529 first for tax free growth if used for education costs. If Trump Accounts end up being FAFSA-friendly in a clear, confirmed way, that can be a bonus—but not the foundation.
Goal #2: Helping with young-adult “launch” goals
Many parents hope to provide their children with launch support for a first apartment, a car, a wedding, an emergency fund, a first home down payment, business seed capital, or “bridge years” support during transitions.
Key message: A Trump Account for kids can be a viable option for this goal, but we often prefer keeping launch money in the parents’ names so you can decide (control) what goals to fund, and in what dollar amounts. There is also lower financial aid impact in the parents' names than in kid’s names.
When is a Trump Account the right choice for “launch” goals?
Choose a Trump Account for kids for launch goals if you want the money to be your child’s at adulthood and you’re comfortable with the lack of control that comes with that.
When your adult child takes money out of their Trump Account, the taxable portion is generally taxed to your child as ordinary income, while any tracked basis comes out tax-free. Importantly, income tax treatment is generally the same regardless of what the money is used for.
Goal #3: Giving your child a retirement head start
Key message: Retirement is a genuinely interesting goal for a Trump Account for kids because it can let you start earlier than a custodial Roth IRA typically allows.
A custodial Roth IRA is an amazing tool, but it has one big gate: your child needs earned income. Trump Accounts may allow you to seed investing before those working years begin.
We consider this path when you’re already doing what you want to do with a 529 for education, you’re not shortchanging your own retirement or other priorities, and you still have extra dollars you want to invest for your child’s long-term future.
A quick case study: Kylie and the power of starting earlyLet’s make the “time value of money” real. Kylie is 4 years old. Her parents contribute $5,000 per year to a Trump Account beginning when the accounts are available. They make 14 contributions (from age 4 through age 17). After that, the account can’t receive additional contributions because the growth period ends. Assuming a 6% return each year:
|
Closing thought
If you’ve ever felt like you’re “supposed” to be saving for education, launch support, and retirement (and retirement for the kids!?) all at once, please know this: you’re not behind. You’re planning.
If you’d like, we can help you decide what goal matters most in your family, map out what you’re already doing well, and then figure out whether adding a Trump Account for kids improves the plan or just adds complexity.
About the Author
Stephen Ahern, CPA/PFS, CFP®, AEP®, MST, is President of Sachetta. He holds a Master’s Degree in Taxation from Bentley University and for over thirty-five years, has provided individual financial, investment, estate, and tax planning, as well as small business consulting, to a diverse base of clients. His clients have included key top-level executives, high-net-worth individuals, business owners, venture capitalists, and entrepreneurs. As an established personal financial planner, Stephen has delivered numerous presentations on financial, investment, retirement, and tax planning to corporations and professional groups. He has also written articles on investments, education, and estate planning. Before joining Sachetta, he co-founded and served as President of Wealth Management Advisors, LLC.
