Trump Accounts Are Live, But Are They the Best Choice?
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What are Trump Accounts and how do they work for kids?
Trump accounts are live, but are they the best accounts for your kids? You're listening to the Saturday Personal Finance Edition of the Motley Fool Hidden Gems Investing Podcast. One of the best things you could do for the youngsters in your life is to set them on the road to saving. After all, time can be an investor's best ally, and no one has more time ahead of them than kids. If you'd like to help your child, grandchild, or just other young person get started investing, you have a few options when it comes to the type of account to open, including a new option, Trump Accounts. It's been possible to open a Trump account now for a few months, but as of July 4th, they could now also be funded.
Here to join me to discuss the details, pros and cons of Trump accounts is my Foolish colleague, Joel O'Leary, prolific personal finance writer over at Motley Fool Money. Joel, thank you for joining us. Thank you for having me Robert. So let's start by giving just like maybe a 30,000 foot view of Trump accounts. What are the main details that people need to know about them?
Sure. The way I think about Trump accounts is they're basically an IRA, but for kids. So like a retirement account, but for kids. And you normally need earned income before you can contribute to a retirement account. But in this case, parents, grandparents, friends, family, or even your employer or government organizations can contribute to a kid investment account. That's basically what it is. Just like you mentioned, they're brand new. This was originally created as part of the one big, beautiful, wonderful, amazing bill act. And they officially launched on July 4th. So you can open an account, you can fund an account. Like an IRA, it's got some rules. So the maximum you can contribute is $5,000 per kid per year.
And the idea is that that money sits and grows tax-deferred until the kid turns 18. and then it turns into a regular IRA. You're basically kick-starting their retirement. So, yeah, that's basically what the new Trump accounts are.
I'll just add that the idea for these accounts have actually been around for more than 15 years, though the terms have changed. They were originally proposed as baby bonds and then American Opportunity accounts. I was actually part of a couple of discussions on how these should be invested years ago. So I'm happy to see that these accounts are now available nationwide. Though, you know, we'll get into the details. They may not be the best account for your kid, depending on the goal for the money. But let's start with what Trump accounts have going for them. What do you see as the main benefits?
Well, we'll start with the headline feature, which is what I think everyone's anxious to know is, is there any free money out there for me? And so with the launch of these accounts, the government is giving out $1,000 for each baby born that meets a certain criteria. And free money doesn't come all that often in personal finance. So if your kid is eligible, you want to jump on it. So here's the criteria. Your baby must be born between like in the years of 2025, 26, 27, or 2028. Those four years. Your kid has to be a U.S. citizen and they have to have a valid social security number. And that's pretty much it. You've got to fill out a form to get started. You've got to open the account and actually claim the $1,000.
But it's pretty easy. You can download an app. It's Trump Accounts app on your cell phone and you can set the whole thing up from there. So that $3,000 is the main reason a lot of people are jumping on it right now.
So once the money gets in there, what happens? You've talked about it, that it's like an IRA. So you get tax deferred growth, right? But it's not tax deductible, correct?
Correct. So I will say, people say tax advantaged accounts. Sweet. Sounds like I don't have to pay taxes. Well, that's not really true. Like other kiddie investment accounts, the money that you put in isn't tax deductible. So parents, you're not going to get tax deduction if you gift your kid some money.
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Chapters
4 chapters
1
What are Trump Accounts and how do they work for kids?
0:03–12:47
2
Who is eligible for the $1,000 government seed and how do you claim it?
12:47–18:10
3
What are the tax advantages of Trump Accounts compared with other kid accounts?
18:10–23:28
4
Can Trump Accounts be converted to Roth IRAs and when should you consider it?
23:28–26:41