May 28 (edited) • GENERAL DISCUSSION
Trump accounts for your kids, the quick version (plus the catch)
Bunch of you have asked about these, so here's the fast breakdown.
What they are: a new IRA for kids under 18 from last year's tax bill. Launches July 4, 2026. You can drop up to $5k a year per kid, and the kid does NOT need a job or any earned income to get one. Kids born 2025 to 2028 also get a free $1k from the government.
Why they're worth it: you don't get a deduction going in, so that money's already been taxed. When the kid later converts it to a Roth, only the growth gets taxed, not your contributions. Do it right and they end up with a Roth that grows tax-free for 40+ years. The compounding on that is wild.
The catch (this is the part that matters for us): everyone online says "just convert it at 0 to 12%." That only works if your kid is out from under the kiddie tax. A Roth conversion counts as unearned income, and the kiddie tax taxes a dependent kid's unearned income at YOUR rate, not theirs. It hits kids under 18, and full-time students under 24 who aren't supporting themselves. So if you convert your 19-year-old's account while you're sitting in a 35% bracket, that growth gets taxed at 35%, not 12%.
The fix: don't rush the conversion. Let it grow, then convert in a year your kid is genuinely out of the kiddie tax (usually 24 or older, or sooner if they're self-supporting), and spread it across a couple of their low-income years to stay in the low brackets. There's no deadline to convert, so it's easy to time right.
For the business owners: the law also lets your business kick in $2,500 of that $5k pre-tax. Looks good, but the rules are still proposed and whether it's actually tax-free for S-corp owners like us isn't nailed down yet. Don't bank on that piece.
Bottom line: opening the account is the easy part. The timing of the conversion is what decides whether this is a home run or a tax bill.
Anyone here already planning this for their kids? What's your timeline looking like?
(Not tax advice, just general info based on IRS Notice 2025-68 and the March 2026 proposed regs. Run your own numbers with your CPA or EA.)
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Trump accounts for your kids, the quick version (plus the catch)
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