By Ashlea Ebeling
The Trump accounts coming this summer let parents jump-start tax-advantaged retirement savings for a child at birth.
By the time the kids retire, they could end up with giant retirement accounts. The real power play is for parents to contribute $5,000 a year for 18 years, then help them convert the account to a Roth IRA so that it can ultimately be accessed tax- and penalty-free.
"This is the biggest win that people can have if they want to set their kids up for retirement," said Ryan Greiser, a certified financial planner with Opulus in Doylestown, Pa. He's planning to open accounts for his three children, ages 3, 5 and 7.
The strategy likely only makes sense after setting aside funds in other accounts for nearer-term expenses, such as college, and funding the parents' retirement. Add it all up and a married couple with two kids might commit upward of $100,000 annually into other tax-advantaged accounts, such as 401(k)s and 529s, before even thinking about adding to Trump accounts for their kids' retirement.
Parents can sign up children for the accounts now and contribute in July. Employers and charities can contribute, too. Children born from 2025 through 2028 are eligible for a $1,000 contribution from the federal government. Greiser's kids are too old for the $1,000, but they should qualify for the $250 per-child donation pledged by billionaire Michael Dell for children under 10 in certain zip codes.
Exactly how much ends up in any child's account depends on variables including contributions, rate of return, inflation and taxes. But let's make some assumptions to see how it could work.
Take a child born this year who gets the $1,000 seed money. There are no other contributions to the account, and a 7% annual rate of return. The accounts have to be invested in an index fund of U.S. stocks until age 18.
At age 18, when the child first has the option to empty out the account, the balance would be $3,380. An account holder who decides to, say, blow it on a trip to Cancún could owe $406 in federal income taxes and a $338 penalty on the withdrawal.
"There's always a risk they could say, 'This is found money,'" said Tim Steffen, a CPA and director of advanced planning at Baird. "It's not just about putting money into the account, but it's about providing the education and background as to why you did this."
In the year the child turns 18, the account starts following tax rules for individual retirement accounts. Withdrawals for accounts with no contributions beyond the $1,000 seed money would be fully taxable. We're assuming a 12% tax rate for an 18-year-old who is independent and has a job.
Most withdrawals before age 59 1/2 would be subject to a 10% penalty. Penalty-free withdrawals are allowed in some cases, including for higher-education expenses or up to $10,000 toward a first-home purchase.
There may also be state income taxes and state early-withdrawal penalties.
If the 18-year-old instead kept the money invested for retirement, it could grow tax-deferred for decades. At age 59 1/2 , the account balance could be $56,019. Withdrawals would be taxed as ordinary income. Required minimum distributions would start at age 75.
Now, what if the 18-year-old converted the Trump account to a Roth IRA? It might be better to wait until age 24, when the account balance would be $5,072. "We're cautioning people: 'Don't convert it right away. This could be Kiddie Tax dollars,'" said Steffen.
The Kiddie Tax can apply to unearned income for certain children under 24, making it partly taxed at the parents' rate. Timing the Roth conversion to low-income, non-Kiddie-Tax years is key. The sooner you can get it in the Roth the better, and it might make sense to do the conversion over multiple years.
The child would owe the tax on the Roth conversion, but parents or grandparents could pay it as an additional gift. We assume the tax is paid with non-IRA dollars, instead of from money being converted. The account would grow to $56,019 by age 59 1/2 , withdrawals would be tax-free, and there are no required minimum distributions.
Now let's take that strategy and turbocharge it the way a wealthy person might. The child gets the $1,000 seed money, plus has parents or grandparents who contribute $5,000 a year (in after-tax money) for 18 years. Again, assume a 7% annual rate of return.
Their plan from the start is to help their child convert the account to a Roth IRA when the timing is right, based on the child's and the parents' earnings.
The account balance is a mix of the $1,000 seed money and earnings, which are taxable, and the $90,000 parent after-tax contributions, so withdrawals are partly taxable. Assuming a median-income young worker, with wages and federal tax brackets adjusted for inflation, Greiser figures the tax due on a 24-year-old's conversion of a $278,047 balance would be $43,550, paid for by the parents or grandparents.
That would lead to a tax-free Roth of just over $3 million at 59 1/2 .
We're not accounting for the fact that the $5,000 limit will be adjusted for inflation starting in 2028, but upping contributions would only juice the future value.
As of mid-March, parents and guardians had signed up roughly four million children for the accounts, with more than 800,000 of them eligible for the $1,000 seed money, according to the Treasury Department.
"You're giving a child a head start on tax-advantaged compounding. That's the real power here," said Greiser.
Write to Ashlea Ebeling at ashlea.ebeling@wsj.com
(END) Dow Jones Newswires
March 23, 2026 12:00 ET (16:00 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
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