What Families and Investors Need to Know
In this episode, Victor and Carolyn break down the latest developments around the Trump accounts program, discussing how it works, who is eligible, and the potential benefits for young investors. They explore how this initiative could shape future savings and investment habits for families.
Key Topics:
- The purpose and eligibility criteria for Trump accounts, including the $1,000 seed contribution for children born after 2025
- How the Trump accounts function similarly to custodial IRAs and potential investment options like mutual funds and ETFs
- Contribution limits of $5,000 per year and who can contribute (parents, grandparents, others)
- Tax considerations, including how contributions and withdrawals may be taxed and special exceptions for education or first-time homebuyers
- The process to open an account via trumpaccounts.gov and important timing around July 4th, 2026
- The role of philanthropic contributions and corporate involvement in expanding the program
Full Transcript of the Episode
Victor Gaxiola
Welcome back everybody to the Resilient Investors Podcast and today we're going to be talking about Trump accounts. Carolyn, as you know, I've been doing a whole series of investment reviews and this actually did come up with a number of clients who were very curious in gathering information about Trump accounts. So we thought, hey, let's record a real quick podcast that talks a little bit about what we know about Trump accounts and I think it's very important to underscore here, so if we're putting an asterisk on it, is that it is a program that's still being developed.
There are still a lot of question marks on a few of the items, but why don't we share what we know today and how people can get started because I know you have a little one, two little ones at home, and you're going to be getting a Trump account for Nellie. So let's talk about it. So what's so exciting about the Trump accounts?
Carolyn Rowland
Sure. Yeah. So I think the biggest thing that stands out to a lot of people is this thousand dollar pilot program. And so maybe before we get into like the features and benefits, but just kind of like, OK, well, what is it? Right. So we know that it's this Trump account. It's going to be for a child that's under the age of 18 and has a Social Security number. So.
You know, you're under the age of 18, you have a social security number, you're eligible. It's going to be similar, I think, to a traditional IRA. We're going to call it a custodial style IRA because yes, it's technically the child's, but the parent is kind of overseeing it, right, until that child turns 18 years old. So I'm kind of, you know, getting some traditional IRA nuances, Roth nuances. And again, we'll get into like the different contribution types, but...Interesting. I think it'll be an interesting compliment. Do you like that I'm using the word interesting? Because I don't know if it's good or bad yet. Because it's not here, right? And I want to see something in action before I decide how I feel about it. But I think it's great. We were talking about this before the show started that it's a great way to get individuals started early with investing and saving. Because there are some awesome things that we could potentially do with this.
Victor Gaxiola
Well, you know, often when we meet with younger investors and we're talking about whether it's our own kids or let's say the kids of our clients that are just starting in their investment life, oftentimes they either had a UTMA account or some sort of custodial account that they were saving on and it is maybe their first entree into investment life. And I always say the best thing that a young person have going for them is time because, know, with the compounding interest, and be able to look at the track record of the financial markets, the stock markets over time. And it's like going up a mountain slowly, you know? And so when you look at the market in any one year clip, you'll see a lot of volatility, ups and downs, maybe at the end of the year. But as you kind of stretch that out and just see it over 10 years, 20 years, 30 years, 40 years, you can really see that there's a lot of growth. So what I found exciting, even though my kids no longer qualify, was the fact that it is encouraging families and in this case individuals and giving them an exposure at a very young age to be able to participate in the financial markets and the seed money. $1,000 is no joke. mean, the fact that most young children, anyone born I think after 2025 is going to be eligible to get that seed money of $1,000. It's a nice little kickstart. I am excited because I think that it's going to create a lot of questions. I can imagine that Nellie at some point, when she gets to be seven or eight and she's at an age where she might be able to understand, at that point, after six, seven years of contributions, her account could be of a good size or at least a decent size. And for her to know that it exists and have that curiosity about the financial markets, by the time she reaches 18, she could have a pretty good balance. And then she's at least had the exposure to start making her own decisions as an adult, recognizing the value of investing in the financial markets- that's what I like. It encourages a conversation between parents and their kids to teach them about investments, about the markets, about volatility, about all these different things that they'll experience in their adult life.
Carolyn Rowland
And then I'm like physically show them like, this is your money, watch it grow, what it's done, this is what you can use it for. And I did a simple, like such a simple time value of money calculation, where if you like fun fact about me, if you give me the opportunity to take out my financial calculator, I will. So if you just do a one-time contribution when your child is born, let's say $5,000.
Victor Gaxiola
Great yeah, she's not afraid to use the calculator
Carolyn Rowland
you invest it in something that's moderately aggressive. I just use a 8.5 % interest rate. 18 years at age 18, the value of that account is, let's just call it $23,000 rounding up. That was based on a $5,000 contribution. Now, I think that's amazing. I think that just shows the time value of money that's not even showing ongoing contributions. So just show how impactful that can be. Yeah. And then it's like, well, maybe when you turn 18, if you don't need it, you can maybe convert it to a traditional IRA, right? And then it's for retirement and then it just keeps compounding even more. So yeah. All right.
Victor Gaxiola
Yes, I think so as far as we know again $1,000 seed money for those born after 2025 the one thing that I didn't even know and we were talking about it before is is As long as the child is under 18 they can qualify, know to do it So they may not get the seed money or they won't get the seed money, but they can still participate
Carolyn Rowland
Absolutely.Yeah. Yep. And there are some other pilot programs too. So I knew about the thousand dollar seed contribution. So in my mind, I was like, I'm only going to do this for Nellie because she was born in 2025. Mara was born in 2022. So sorry, But there's also some companies and philanthropists that are also offering their own pilot program. So, you know, based on a company you work at, like, go see if they have some sort of pilot program. It might be worth, you know, seeing if there's some like free money on the table, in my opinion. Yeah, but to your point, like you just have to be under the age of 18 and have a social security number and you're eligible.
Victor Gaxiola
Yeah. One of the other things too is that the contributions can be made by not just the parents. I mean, it can be grandparents, could be any other adults. So, I mean, how many of us at home and perhaps with older kids that once you reach the six, seven, eight years old, right, they can only have so many toys, know, so many Lego sets. So we used to encourage our parents, you know, to help contribute to our 529 plan for college education savings. In this particular case, there'll be an additional way for people to be able to contribute to young people through the Trump accounts, which is their earmark for more retirement or long-term savings. So I thought that was great, is opening it up to others to be able to contribute.
Carolyn Rowland
Absolutely. Yeah. Like you said, grandparents, employers. I thought the employer one was pretty cool. yeah, there we also, the annual contribution limit is I think around $5,000. So again, I think it'll be a nice compliment to 529 plans, but you're right. Like my kid does not need any more toys. Gift them money instead and watch it grow.
Victor Gaxiola
Yeah, that's good. That's good. So one of the other things is I know that there are some tax considerations when it comes to the tax benefits of the contribution. So it's usually after tax money, right? That's actually being contributed to it. But what happens at the point where someone wants to take money out? Can they take money out before they're 18? And what happens after they're 18? There's still some unknowns, right?
Carolyn Rowland
Yeah, there are. And so this is where I called it that custodial style, like IRA. has some traditional IRA tendencies, Roth tendencies. You'll be able to take the contributions out tax free, but growth in that account is going to be tax deferred, right? So any distribution that is considered growth is going to be taxable. Now there's going to be some nuances based on the age of the, I want to say kid, like, if you're 18 and take the distributions, you got to be careful because it's like, well, our kiddie tax rule is going to come into play. What's your income tax rate? So again, some nuances that we don't really know, but we do know that at 18, it kind of then becomes more of a traditional IRA vehicle. So you really need to be careful of what you're using distributions for. But there will be some exceptions where it's like, OK, higher education, maybe first time home down payment where you would be excluded from that 10%. So I think the biggest takeaway too is over the next 18 years, if you had a newborn today and you were contributing, you really want to track those contributions because that's going to impact the taxability of the account down the line. I would hate for somebody to be taxed on the entire distribution when there were non-taxable contributions made, right? That you shouldn't need to pay income tax on. So lots to consider.
Victor Gaxiola
So I think it's $5,000 a year. It can be a combination of parents and grandparents and other adults, uncles and aunts that are contributing, but it does max out at $5,000 a year.
Carolyn Rowlan
Yep. Yeah, and that's where I think it's nice compliment to the 529 plan, especially because you don't need to have earned income to contribute to this, right? Like it's a gift if it's coming from a grandparent, or guess even technically a parent, but where like a traditional IRA or a Roth IRA, you need those earned income dollars to be able to contribute.
Victor Gaxiola
And then what about, I was looking at as far as the investment options, what can people invest in? Because as you know, a $5,000 contribution a year is a pretty good size contribution, but is it individual stocks? Is it exchange traded funds? Is it mutual? How can that money be invested?
Carolyn Rowland
Right now, it sounds like it's gonna be mostly mutual funds or ETF options. I could see it being just mostly like index funds. I think they're really trying to simplify this, optimize the growth. I think, again, there's a lot we don't know yet. It sounds like the account is gonna be opened through the treasury and then you would likely be able to roll it over to a different institution. And I think there's gonna be some parameters. Again, I don't know that we know unless you've heard, I think everything is just kind of speculation at this point until July 4th comes around.
Victor Gaxiola
Yeah, think it's likely to be something like a very simplistic menu of investment options. We don't know what they're going to be. We can only speculate that it's likely to be a mutual fund that's probably tracked to like say the S &P 500 or perhaps an exchange traded fund that does the same thing. But I do know what they're going to try to do is ensure that whatever the investment vehicle is, is they're going to try to keep the cost down. So, you know, a low cost investment. There are going to be restrictions as to how much the individual will be paying in order to own that specific investment.
Carolyn Rowland
Yeah. And I think another thing, you while we're kind of on the topic of things we really don't know, like we don't know what, you know, gift tax exclusions or how this would impact like estate planning and things like that. So I'll be really interested to see how much more information we get out of like after that July 4th deadline, not deadline. Like that's essentially when these accounts are meant to be opened is July.
Victor Gaxiola
Yeah, so they timed it right for July 4th, 2026, snakes on the 250th anniversary of America will be able to contribute to young people of America and help them get started in their investment life. So, Caroline, I know you went through the process, but what is the process in order for people to set up the account?
Carolyn Rowland
Uh, yeah. So about two different ways to go about this. So you file a form 4547 that technically could have been filed with your 2025 tax return or passed that filing deadline, unless you have, you know, did an extension. You can technically file it as a standalone form. I think the simplest way is just go to trumpaccounts.gov and you just put in your information, uh, you know, your kid's name, birthday, and then you submit it. And then essentially when your account is ready to be opened,they'll notify you. I submitted mine personally for Nellie. I'm anticipating an email right around July 4th that the account is ready to be opened, at which point we'll get more information on how to make those additional contributions, where the account is even gonna be. Although I do anticipate it's gonna be, the treasury is gonna hold it for the-
Victor Gaxiola
Yeah. Well, given that it's a $5,000 contribution per child per year, I can see where if a person has a small family, two, three, four kids, let's say, that could add up. So I think it's really important, obviously, before you go about funding something like this, that you work with your CPA or work with your financial advisor like us. And even though we ourselves can't open these accounts for now, I we don't know what's going to happen in the next couple of years or so.
It is important, we'd love to know about them. So if you are currently working with Resilient Wealth Planning and you are looking at wanting to establish the Trump accounts for yourself or your grandchildren, it's good to know that you're starting your next generation or perhaps two generations below with their investment life and that they're actually going to be participating in this program.
Carolyn Rowland
Absolutely. But I love this whole idea of getting them started young and just, I can't wait to see how it kind of shakes out.
Victor Gaxiola
Yeah. Well, like we said, it's a work in progress. We'll see how it shakes up. We will include in the show notes a link to some additional information and perhaps some of the areas that we discussed today so that you can take a look at it on your own. And obviously open to discuss this should it come up. But we thought we'd just do a quick podcast to talk about what we know about the Trump accounts just to address some of the questions that were coming up and some of the investment reviews. Kim, sorry, Carolyn, when you went through the tax planning and tax season with people as they were coming up and opening those accounts. Plus your own firsthand knowledge for your own family would be really interesting to see what comes out of it. And I'm sure we'll be talking about this throughout the year as more and more people start participating. But I do want to send out a massive shout out to the individuals that created these accounts that actually convinced Congress to move forward with this initiative. think it's an outstanding initiative for our country and also to the Dell family for their contribution and the philanthropic contribution to really kickstart some of those initial contributions for people. I think that there's more to come in this space from the standpoint that if this program is well received, which I hope it's gonna be the case, but if people really do start participating in it, that it could be the first of other philanthropic effort from individuals like the Dells or perhaps even companies that have deep pockets that are going to see this as an opportunity to really help the next generation of investors. And I, for one, am really excited about it.
Carolyn Rowland
Great. Great point.
Victor Gaxiola
So once again, thank you for joining us on the Resilient Investors Podcast. If you have any questions, feel free to send me an email at victor at resilientplanning.com or you can also just reach out to us through our website. thank you so much for joining us and hopefully you learned something new but we'll add some additional resources to the show notes should you have any questions. And with that, we hope to see you at the next time.
Carolyn Rowland
Always a pleasure. Take care.
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