How Can Your Child Benefit From A “Trump Account”

Hello and welcome to Money Talks. My name is Ken Wink from Summit Financial Consulting here in Southeastern Michigan. If you'd like to hear more info about our show, our company, our podcast, please give us a call at 586-226-2100 or you can visit us on the web, summitfc.net. I would highly encourage you to check out the podcast page. You can see our past shows and subscribe on Apple Podcasts, Spotify, or Amazon Music. So right out of the gate here, some people love Trump, some people hate Trump. But if you have a child, and not just a newborn child, any child under the age of 18, I think you should listen to this show. This could be the difference between your child retiring with millions of dollars or having to completely save on their own. So before I jump in, let me introduce my co-host, Tony Shore. Tony, I have not started saving for my kids' retirement yet. I have started saving for their college. you know, how am I doing?

Well, in my opinion, since I've been through that, you're about where we were when we were saving for our kids' college. We had five to nine plans and we put money into those. There are other strategies. And if you, I know if the folks that work with you or for our listeners and viewers, if they call you You can look at their situation and what they need as far as saving for college, and there might be better options than 529 plans. We should do a show on that, you know, how to save for college and how to take care of your kids and when to cut that off. When does that stop? But yeah, we saved for college. We did not start retirement plans for our children. That's their job. But I did instill in them that it is important and that with hindsight, had I done that, where I would be, and I did the math for them and they're Two out of the three got it. So that's good. My daughter, when she was 21, started putting money regularly into a Roth IRA. Oh, that's awesome. So that's really good. I like the fact, and this isn't about politics, but the one thing about the... There's a couple of things I liked in the big, beautiful bill and some things I didn't. But one of the things I like is... The idea behind the Trump account, which is to get a savings started when your child is first born, their whole lives let money grow in an account, put a little bit in there now and then. That's even better. But my daughter, if she puts $200 a month into her Roth IRA by the time she's 65 and

She's going to be set even with inflation.

So that's going to be a no brainer right there. Wouldn't you say? I mean, that's the goal here, isn't it?

I think if anyone takes one thing away from the show, it's that it's never too early to to have a discussion about setting money aside for retirement for your kids. Cause even if, you know, your daughter's doing great by getting going at age 21, but if you do start when they're young, even a small amount that, that 20 some years of compounding before most people start saving for retirement can really make a big difference. And we're going to go over that.

It's an extra, like if we had had started a Trump account with a thousand dollars in it, when Alison was born, um, um, that would have been 21 years, and put some money in a little bit, uh, in there now and even just now and then, if not once a month. That's 21 extra years she had. I'm proud of her for starting when she was 21, because I did not. Right, right. So, uh, I think she's way ahead of the game by starting at 21, but imagine adding 21 more years to that. That's huge, right? Yeah, it's, it really can be, uh, a

It can be life-changing getting these kinds of things going at a younger age. So yeah, we're going to talk about all the different options that people have when it comes to taking advantage of these accounts. So the first thing I wanted to start at is let's just say there's two families. So the first family lets their kids get beanie babies and squishies as the latest toy that everyone's crazy about, you know, toys, video games, every single birthday party, every single communion, baptism, everything. They're just letting the kids get toys, toys, toys, Roblox, just junk that never really amounts to anything. So this kid has zero set aside for their first car, for college, for retirement from their family and their parents. Second family, just for conversation sake, let's say starting at age four, they start putting five thousand dollars per year. So between parents, grandparents, aunts, uncles, birthdays, everything, you just cobble together five thousand dollars a year, which is a lot of money. But by the time that child would be 18, they would have one hundred and thirteen thousand dollars. And by age 65, that would be two point seven million dollars. Wow. So that's, you know, that that's wild. And another like interesting thing while I'm diving into the math here real quick. If you started doing that at age four, they have two point seven million dollars. But if you just wait four years until age eight, it drops to one point seven million. So just just waiting those four years drops up from two point seven million to one point seven million.

Yeah. You lose a million dollars by waiting four years because of them. And that's because of this is including the compounding interest is what this is doing. Right.

Absolutely.

Yeah. Yeah. And you're using an average. Right. So I think that that the numbers really should wake people up and go, wow, the power of compounding interest over a long time period is huge. Even that extra four years is huge, isn't it?

Yeah. Yeah. Let me give you the last two age 12. If you wait till age 12 to start it rather than age four, it drops down to 900,000. And then if you wait until age 16, it drops down to 250,000 versus 2.7 million.

So if you start at age four, it's 2.7 million that you'd have by age 65 to retire on. But if you started at age 16 and put 5,000 a year, it would be $250,000. You got it. Wow. So, yeah. And that's just from ages 4 to 18. Right. You're contributing that.

You don't contribute another dollar after the age of 18.

Yeah. That's amazing. So, yeah, it's just like...

That's a mind blower.

Yeah.

Yeah. And, you know, Tony and I didn't discuss this before the show about talking about his daughter getting going at age 21. But like I came prepared to say, like, the younger, the better. It really does make a huge difference.

Yeah. Well, I had heard that these the Trump accounts, they'll put a thousand dollars into an account and it's only for newborns.

Right, that's probably the biggest misconception about these accounts. So the biggest, I guess that's the biggest thing that people are missing out on. The second biggest thing that people are missing out on is that in some ways these are actually better than Roth IRAs. And the reason for that is with a Roth IRA, you have to have earned income. Right. So, you know, when your child is young, it's really hard to convince the IRS to some degree. Yes, they're making good money and I'm putting it into a Roth for them. You know, they're babysitting or they're mowing lawns or something like that. Right. the clients that I have that are contributing.

So a Roth, if it's in, if it's in your child's name, they don't have children don't have earned income. So for the most part. Yeah. So it's paying them sort of, I mean, maybe they're doing some babysitting for the neighbor, but you don't have a 10, you know, you don't have a W2 or a 1099 for babysitting work typically.

So, yeah. Yeah. Yeah, so to your point, so that's one misconception is that a Roth is automatically better. With a Trump account, you don't need to have earned income, and it's arguably maybe a little easier for family and like that to contribute on their behalf. But getting to your point, so the government is going to give people that were born between January 1st of 2025 and December 31st of 2028 a $1,000 seed contribution. But any child that's under the age of 18 years old is eligible to open a Trump account. Children born before 2025, they won't get that seed money, but they still qualify for the account. And there are taxes.

OK, so you can still open this designated account. But the only way to get the free thousand dollars in seed money from the government in the account is if is for people born when?

between so 2025 and December 31st of 2028. So if you happen to have a baby within that window, this thousand dollars. Ah, but if your child is aged 10 or younger, um, the Dell Foundation. So think Dell computers. The Dell family got really enamored with this. So they decided that for people that live in specific zip codes, they can get a free $250 contribution towards their Trump account. If they're again, if they're under age 10 and if they live in specific zip codes. Sure. So there's more money out there to grab.

Yeah. And I just pulled up the actual language. And this is basically what you said. Trump accounts are tax advantaged investment accounts for U.S. citizen children who are under 18 with a Social Security number. And for those children born between January 1st, 25 and December 31st, 28, they will get a one thousand dollar government funded seed contribution.

Mm hmm.

Others under 18 can open accounts but do not receive that $1,000. And that's from the IRS.gov.

Yeah, so you can put in up to $5,000 per year. The money from the Dell Foundation and the money from the government, the $1,000, doesn't count towards the $5,000. Oh, good. Yeah. So but the cool thing is contributions can come from anyone. So this is why I'm I'm going back to, you know, don't let your parents and grandparents and aunts and uncles buy toys. So this money can come from parents. It can come from parents. It can come from aunts and uncles. It can come from family, friends. It can come from employers. There's talk of a lot of employers adding this as a potential benefit and then also a charitable foundation. The charitable foundations want to try to contribute towards towards kids retirement someday.

So it's, it'll mean a lot more because, you know, people ask me, it's like, do I remember gifts that I got for my birthday or Christmas from my grandparents, physical items? No, I don't remember one. Even from my parents, I hardly remember specific, like, toys. I don't remember, right? As a kid, you're just, it's just the latest shiny object. But what you do remember are experiences and things that will help with life when you get older, college, retirement, those types of things, right? Yeah.

Yeah, well, and these accounts aren't just necessarily for retirement. It can be used for a home, too. Ah, okay. If a child wants to not necessarily save all the money for retirement, you could be helping them get a down payment on a house. The housing market's very tight right now. The population is overall getting larger. So in theory, there's going to be less and less home. So the more down payment you have, maybe the more you can afford, maybe the easier it is to buy a home. So again, anything's better than squishies and beanie babies and video games and Robux. You know, if you want the kid to open something on their birthday, maybe do half and half, half towards retirement or college or first home purchase and the other half towards fun.

Wait, Legos and Roblox? Roblox? It's better than a Roblox? I think some kids out there would argue about that. But you're right, obviously. And so contributions, though, just to reiterate, into this account can come from anyone. Like grandparents, friends of the family, anyone can put money into a child's Trump account.

Yeah, yeah. So one of the things you have to do is you have to actually open the account, right?

Right. You have to do some work. It's just not automatically created when your child is born or everybody under 18 automatically has one. You have to create this account with the IRS. Yeah.

Yep, yeah. So you have to complete, so there's two ways to do it. So one is attach IRS Form 4547 to your tax return for last year, so you have until April 15th of 2026 to file for 2025, and when you do that, you want to include IRS Form 4547. The second way to do it is to use the official online portal that is going to open July 5th of 2026. So we got a few months here before that opens up. But yeah, contributions can begin after July 4th of 2026.

Yep. And no withdrawals from the account are allowed until the child turns 18, right?

That's right. Yeah. They want it to sit there and, you know, just potentially grow. So it's going to be invested in low cost index funds. So the costs are going to be very low and And the requirement is that the money stays in there until age 18. So this way, it's going to reinforce that the long term nature of the account. So whether they use it for a down payment on a house or for their own retirement, it's best if it stays there a while.

Yeah. Yeah. Well, I think that's great. It's interesting because the facts are a little weird because it says you mentioned the you can use the online portal, which doesn't open until July 5th. Contributions themselves begin July 4th. It's interesting. So God bless the government.

Yeah, I guess if you get it going on your tax return.

Yeah, that's true. If you file a tax, if you file that form with your tax return. So what else do we need to know about this?

I think an important overlooked detail, you know, I mentioned Roths earlier. Trump accounts do not impact Roth IRA contribution limits. So if you're a parent who just really wants to make sure your child is set up for first time home purchase or retirement, you should put money into a Roth. So especially if they're a teenager and they have a job, they could max out their Roth IRA and then also receive up to the $5,000 per year in a Trump account in the same year. Sure.

So the Trump account doesn't affect your the other rules and limits on other accounts as far as how much can be contributed.

Now that so that creates two, I guess you could describe it as two parallel compounding paths to financial success.

The more the merrier. Right. When it comes to compounding interest accounts and tax advantaged accounts. Right. Right.

Yeah. And, you know, with the Roth, that is that's the Rolls Royce, Tony. That's where you want your money to go if you can get it in there. Right. Earned income.

That's what I said. That's why I told my daughter that, you know, you got to start open. And I told my son, you got to open a Roth and start contributing to it now.

Yeah, because that grows completely tax-free. So no matter how much money that account makes, you never have to pay taxes on it, which is the best. A close second, I guess, from a tax standpoint would be this Trump account because then it's growing and it's growing tax-deferred. You will eventually have to pay taxes on the earnings within the account. So that is not as good as a Roth. But again, with the Roth, you have to justify earned income. So kids are younger, that might be tougher to pull off. So the situation is different. I'm just here to say, don't give your kids a bunch of junk. Give them a future retirement or a down payment on a house or potentially help them save for college. Money spent much better in my professional opinion.

Well, sure. I mean, yeah, money in this account, it is better than Roblox. I take it back. But seriously, it's good to understand there are a lot of misconceptions about this account. People are confused, I think. What does it mean? Is it really worth it? What hoops do I have to jump through? And then I'm going to owe taxes. And, you know, how can I make sure I get the thousand? So it is really good. I'm glad that you said that. And again, what's the it's IRS form 4547. Right.

That's correct. Forty five. Forty seven.

So you have to open that Trump account using that form. It sounds to me like it is worth it to open it. I mean, why would you pass up free money? First of all, if you have if you have a newborn that's born within those dates, get the thousand dollars. Right.

I mean, yes. For sure.

Yeah. And even if you have somebody who's 18 or under, it might be worth opening that account and getting it going. Right. Even if you have a five year old or a four year old or a 12 year old, whatever it is.

Future holds. Right. And a lot of people, we will help them open up 529 college savings accounts for their kids. That's also a great plan because that grows tax-free as long as it's used for college, then it'll be 100% tax-free. If you don't use it for college, you can take it out, but you've got to pay taxes plus an extra 10% penalty. So every family is different. Sometimes college is a priority. One of my good buddies, his son, they took a trip down to the south to look at skilled trade schools. You know, he's going to get paid very soon, good money, uh, for doing a skilled trade. He's actually looking at welding, and, uh, you know, there are a ton of people lining up to be welders, so he's probably gonna make really good money. There was a AI executive this week who said that plumbers will make more than lawyers within the next five years because of changes to AI. So like, wow, that's a pretty bold prediction, and I don't, I don't know if that's going to come true, but I don't doubt it. My plumber already makes a pretty good chunk of change.

I've had the plumber out recently, Ken, and I don't think he's hurting. That's for sure.

Yeah, electricians, plumbers, a lot of these skilled trades.

Yeah, AI can't do plumbing. It can't fix a leak under your sink yet.

Getting out of the sink is one of the worst. My wife actually has me changing. Nicole is having me change two faucets this weekend. Ooh, good luck with that. Yeah, I can handle it. Just my back might be hurting trying to get underneath that.

Oh, yeah. It's always the position you have to get in to get at the pipes and stuff. That's the hardest part. I hate, I honestly, plumbing is one of the things I hate the most. I can, can I do it? Sure. Am I great at it? Not great, but I can do it. Do I want to? Absolutely not. So, yeah. Yeah. The last couple of times I've done sinks, you know, I've changed out faucets and I've put in sinks and, you know, a garbage disposal. But yeah. I think those days are behind me getting under that kitchen sink in that small space and trying to see. Oh, yeah, yeah. I'm not a guy who swears much, but, you know, if you're under there and you're trying to do the wrench and you pinch your finger. My dad never swore, right? Never heard him say a swear word. Good Christian guy. Didn't drink. Never drank in his life. Never smoked. Never swore. Under the car. Pinched under the car, couldn't get a bolt, rusted, you know, broke the wrench, and then I heard, the one time I heard him swear, I was like, I thought the world kind of rumbled a little bit, the skies clouded over. I thought, oh, here we go. God started yelling at him from a burning bush. I mean, it was terrible.

It got serious. It got really serious. This is why you might want to have your kids be mechanics, electricians, plumbers. Right. There's good money. People like us.

Yeah, that's true. And next week you'll see me and I'll probably be an AI. Ken will just program me into an AI and then I'll be out of a job.

There's no replacing you, Tony. Don't worry about it.

No AI could ever replicate this for better or worse. All right, Ken. Well, great show today on the Trump accounts and getting your kids started early for saving for their future is huge. Before we go, once again, let our listeners know if they have questions or want to get a plan in place, how can they get a hold of you and the team at Summit?

We'd love to have a conversation with you about how you can put together the best plan possible for your kids, whether that's college planning, retirement planning, first home purchase. We've got a lot of ideas that we can share with you. Give us a call at 586-226-2100 or visit our website, summitfc.net. We've got seven financial advisors in the office here. So we've got a deep bench. We'd be happy to help you put together a comprehensive plan.

All right. Well, that does it for another episode of Money Talks with Summit Financial Consulting, LLC, and our host, Mr. Ken Wink. Thank you for joining us for Money Talks. Don't head into retirement without a strategy that addresses both income and taxes. For more information, please contact Ken Wink at Summit Financial, working with people you trust. Call 586-226-2100 or visit summitfc.net. Join us again soon for another episode of Money Talks.