New Opportunities to Build Wealth Early

Many millennial parents have reached the point in their lives and careers where they have a child or children, and they have begun to plan for their kids’ financial futures. While you can always earmark funds held in your own account that you plan to gift to your children later, it is often the case that there are better options available, depending on the specific goal of those savings. Once you have “checked the boxes” for your own financial goals like retirement, an emergency fund, etc. you can begin to assess the best way to set something aside for your children’s future. This article presents some of the different account types that might be good solutions to help your kids get a head-start.

Consider if educational savings is not a priority or is already covered, and if you have a younger child who is not employed and for whom you want to give a head-start on retirement savings.

Consider if educational savings is not a priority or is already covered, and if you have a child who has earned income and for whom you want to give a head-start on retirement savings.

Consider if educational savings is a priority, and you have enough time to benefit from the tax-free growth prior to the funds being needed for education.

Trump Account

The Trump Account was created with new legislation included in the One Big Beautiful Bill Act in 2025. These accounts can only be opened for an individual who is under the age of 18, and in order to qualify for the $1,000 seed money from the U.S. government, the child must have been born on or after January 1, 2025, but before January 1, 2029. Even if you have a child who was born outside of these years, but is still under the age of 18 as of the calendar year-end that the account is established, the account may still be beneficial even without the $1,000 incentive from the government.

Parents or family members may contribute a maximum of $5,000 per-year. While they do not receive a tax deduction for these contributions, the account balance does grow tax-deferred. Even though distributions are taxable when removed, the benefit of avoiding that annual tax drag can be meaningful. Employers may also make contributions which are not taxable to the employee; however, those contributions, assuming they are qualified, are limited to $2,500. (Cumulative contributions between employers and family members are still limited to $5,000/year, although this is anticipated to be indexed to inflation at a later date.) Distributions are not allowed prior to the child attaining the age of 18, so if there is a possibility that the funds will need to be accessed prior to the age of 18, it may be better to save within a UTMA (if the expenses are for general support of the child) or a 529 College Savings Plan (if the expenses are for education).

Once the child attains the age of 18 years old, two things happen: 1.) the child gains control of the account (much like a UTMA and different from a 529) and 2.) the account shifts to a traditional individual retirement account (IRA). At this point (age 18) the child could take distributions, but they would be taxed and penalized until age 59 ½ (although there may be qualified exceptions such as a first time home purchase or educational expenses, which will be subject to IRS rules).

These factors reiterate that the real purpose of the account is to provide a nest egg for retirement. While it may be possible to use the money penalty-free for education, that does not seem to be the best use of the account. A 529 account would undoubtedly be a more appropriate solution for education spending. Additionally, it appears as though the investment options will be limited to passive funds or ETFs that will be similar in composition to the S&P 500. While it seems likely that once the Trump account is converted to an IRA the child would have more options, the assumption is that up until age 18, the underlying investments would be all or mostly stocks. Conversely, a 529 typically scales down stock exposure as the child approaches college age in order to shift the focus from growth to perseveration, ensuring that the funds are available when tuition payments are due. If there is a severe market downturn in the same year the child turns 18, it may not be the best time to liquidate investments for college expenses, which again, reiterates that the real purpose of the Trump account is retirement.

The government provides projections for illustrative purposes, which are based on historical S&P returns, to show that an annual contribution of $250 per-year from birth to age 55 would result in a future value of $878,000. If you were able to contribute the maximum of $5,000 per-year over the same time period, they project a balance at age 55 of $13 million. (Source: https://trumpaccounts.gov/) This is where the real value of the Trump account comes into play. A Roth IRA is a fantastic tool for a young person to save for retirement, as all of the growth is tax-free if withdrawals are taken after age 59 ½ and the IRA has been opened for at least five years; however, you cannot begin funding an IRA for a child until they have earned income. If the child does not start working until age 16 or age 18, you have missed out on 16-18 years of both contributions, as well as growth on those contributions.

We all know that, due to the “magic” of compounding growth, the earlier you start, the better. These 16-18 years of compounding are what makes the Trump accounts appealing, over and above an IRA. Most 18-22 year olds are in a fairly low tax bracket, so once the Trump account shift to a traditional IRA at the age of 18, it may be prudent to begin annual Roth conversions, to shift some or all of those pre-tax dollars into a Roth account, where the earnings will now be growing tax-free until retirement.

Roth Individual Retirement Account (IRA)

Perhaps you are considering a Trump account, but your child is a little older and already working. As you assess your options, it may be more beneficial to consider a Roth IRA instead of a Trump account in this scenario. As mentioned above, one of, if not the most, beneficial aspects of the Trump account, is that you can save and invest for a child who does not yet have earned income. However, all of the growth in the Trump account will be taxable at ordinary income rates as it is distributed in retirement. Conversely, all of the growth on a Roth IRA (assuming distributions are made after 59 ½ and the IRA has been opened for at least 5 years) are tax-free.

If your child is employed and making at least $7,500 per-year (but not making so much that they hit any of the phase-out limitations) they could contribute up to $7,500 (2026) to the Roth IRA. Due to the fact that it is likely the case that they are in a lower tax bracket now and will be in a higher tax bracket in the future, the Roth IRA is very likely a better option in this scenario than a Trump account. Roth IRAs will also have similar exceptions to the Trump accounts as it relates to early withdrawals (i.e. first-time home purchase, qualified education expense, etc.). Additionally, if you carefully track your contributions over the years, contributions can be withdrawn from the Roth IRA at any time – tax and penalty free. Although that should not be the goal, it is helpful to know if an emergency arises.

529 College Savings Plans

If funding your child’s education is a priority, then the 529 account is almost undoubtedly the best solution. Even if a distribution from a Trump account for education qualifies for the penalty exclusion, it will still have tax implications. A 529 distribution, on the other hand, is tax-free for qualified educational expenses. Additionally, whereas 529 plans allow for distributions prior to age 18 for K-12 educational costs (with limitations), the Trump account does not allow for any distributions prior to age 18. Also, even if the beneficiary turns 18 and intends to take a distribution for higher education expenses, the investments may be too aggressive at that moment in time, which could result in a poor market timing liquidation of the funds.

You can also contribute much more to a 529 plan. Most commonly, family members will try to keep contributions within the annual gift tax exclusion limits of $19,000 (single), $38,000 (married) (2026), or they will take advantage of 5 years’ worth of exclusions by front-loading the account with $190,000 (married) and then not making any additional contributions for the next four years (superfunding).

The risk with 529 plans has always been the lack of flexibility: if you have unused funds after the child is finished with their education, it may be taxed and penalized if distributed for non-qualified expenses. While you could always roll those 529 dollars down to another family to be used for educational expenses, there may not always be another family member pursuing education. Addressing that, recent legislation has created opportunities that create somewhat of a backstop against this risk, which is the ability to roll some or all of the remaining 529 dollars into a Roth IRA for the same beneficiary.

This can be an effective way to give your child a head-start on retirement, but it comes with a list of restrictions: (1) the 529 must have been maintained for at least 15 years, (2) the dollars converted must have been contributed to the 529 at least 5 years prior to the conversion, (3) each annual conversion is limited to the Roth IRA contribution limit ($7,500 in 2026 if you are under 50), and (4) there is a lifetime conversion limitation of $35,000. Also, much like standard Roth contributions, the beneficiary must also have earned income, so if the child is not yet employed, you may not be able to start rolling money over yet. The 529 account also ensures that you maintain control of the funds. Whereas the Trump account will fall within the control of the child when they attain the age of 18, the 529 remains in control of the parent (or grandparent) who opened it.

Other Options

The objective of this review was to compare some of the commonly used account types that are often established for minors. The three account types listed above, however, are not representative of all of the different methods that could be employed to provide financial assistance to a child. If flexibility on spending and long-term control of the money is important, it may be beneficial to set up a trust for the benefit of the child. This will likely carry with it the drawbacks of higher expenses (filing tax returns) and higher taxes, but it provides long-term control and spending flexibility. Conversely, if the complexity of a trust is not fitting, it may be worth considering the simplicity of a Uniform Transfers to Minors Account (UTMA). Much like the trust, the UTMA offers quite a bit of flexibility as to what the money is spent on (as long as it is for the benefit of the child) and yet you revert back to a loss of control (funds become property of the child when they attain age 18 or 21, depending on the state of residence). If you have a child with disabilities, you may consider an ABLE account (Achieving a Better Life Experience). In a world of options, it is important to think about what goal(s) you are trying to accomplish and pursue the option that best fits that need. It is also important to ensure that you are looking at your financial circumstance through a broad lens that considers your own retirement, savings goals, risk exposure, taxes, and estate plan. Always consult with a qualified financial advisor, attorney, and CPA before making any financial, legal, or tax decisions.