Rachel Christian at Yahoo Finance wrote a complete guide to Trump Accounts, the new tax-deferred savings program for kids, and quoted me throughout on how they work and where families go wrong.
On the $1,000 federal seed deposit, anyone with a child born in the eligible window should take it regardless. On contributions, the $5,000 annual cap is aggregate across every contributor, not per person.
On investments, what makes the options different is the restriction, not the opportunity. There are no target-date funds, no bond allocation and no advisor discretion, which is a real limitation for a plan that could run 18 years.
On access, I work with a lot of young families who treat this like a savings account. It isn't one. There are no distributions before 18, with standard IRA rules after that. One client asked about tapping it for a family trip. That's not what this is.
On taxes, a family funded entirely by the government seed and an employer match would owe tax on nearly the whole balance at withdrawal, while a family that added the full $5,000 privately every year would owe tax only on the growth. A 529 still wins for education goals because qualified withdrawals are tax-free there. And if you plan to convert to a Roth later, mind the kiddie tax. If the child is still a dependent, unearned income from a conversion above roughly $2,700 can be taxed at the parent's rate, so timing the conversion after age 24 or after the dependency ends matters more than people realize.
Read the full article at Yahoo Finance →
