Your Child’s Trump Account Could Become an $8 Million Roth IRA

On the 4th of July comes one of the most powerful wealth-building moves a parent or grandparent can make for a child. And right now is the time to start taking advantage of it. Trump accounts officially launch for deposits and the distribution of federal seed money on the 4th of July. Now, this is for all children under age 18, but for those born between 2025 and 2028, the federal government will deposit an extra one-time $1,000 into this account. But again, we want to be thinking about this for any person we love under the age of 18. Now, some people, when they hear about the Trump account, may think, why would I ever want to put money into an account that gives me no tax deduction? And my child, when they turn 18, have to pay taxes on any of the gains? Well, I'll tell you, there's some tricks to this you've got to know about. Because here's the twist. If this account is handled properly, it can become a launchpad into a Roth IRA. Also, contributions could be used for college. There's a lot of options here, and I'm here to explain it to you. Now, my name is Mark J. Kohler, CPA, attorney, bestselling author, father, and grandfather. And in this video, I'm going to walk you through 6 easy steps to use a Trump account as a potential stepping stone into a multimillion-dollar account. And this all starts on the 4th of July. Now, first, what is the Trump account? Let's break down the facts so that you have that baseline knowledge. Now, Trump account is a custodial-style investment account created for young adults under age 18. Now, think of it like an IRA even, because we're going to be talking about that. Account converting to an IRA at some point. Now, this account is established in the child's name. The child does not need earned income to have it funded. Parents and grandparents can contribute to the account and their income doesn't matter either for the benefit of this child. Even the child themself can put the money into this account. It also helps to understand where these Trump accounts even came from. Trump accounts were created under the Working Families Tax Cuts legislation, which added Section 530 to the Internal Revenue Code and formally established these child investment accounts. Now, the idea was to give families a new starter account that could be open to help the young start saving early and a little seed money for kids born during those 3 years. In other words, this was designed to get kids into the investing game sooner, not later, which I'm totally behind. Us as Americans are not the greatest savers. So if we can institute this a little earlier in the lives of children, better yet. Now, it might help to also compare this to other types of accounts. In a Roth IRA or traditional IRA, the person that created the account has to have earned income in in order to put money into it. Sometimes a challenge for a young adult under age 18. The Trump account does not. Now, a Coverdell account is like an education IRA, can be created for children, and the child doesn't need earned income, but you can only put $2,000 into the account, and the income of the parents can play a factor. So we gotta be careful there. There's some workarounds, but now in a Coverdell account or IRA, that money will grow tax-free, but it can only come out for valid college expenses. Without penalty or tax. Now you also have the 529 for young people. Parents, grandparents can, at any income level, can put big money into these accounts, but you can't self-direct it or choose the investment. They just go into these larger accounts managed by the states generally. And this 529 account again has to be used for college. And I guess you could just compare it to a regular bank account. You could put money into a bank account for a child. That's great. But you're going to pay tax on its earnings while it grows until they pull it out someday in the future. So this Trump account is kind of in this weird little lane that does solve some problems with these other types of accounts. And with the July 4th, 2026 launch, this is not just some policy concept floating around in Washington anymore. It's for real. It has become a real account option families can actually use. And that is why understanding the strategy now matters. But as I alluded to, there's some problems. There's no real upfront tax deduction to put the money in. And even though it grows tax-free, the growth in there will come out and be taxable. So by itself, this is not automatically better than a Roth IRA because we love Roth IRAs, right? Tax-free growth, tax-free withdrawals. That is where most people stop analyzing the Trump account. That's where they miss the bigger opportunity. Because if you follow these steps I'm going to walk you through correctly, you are not just opening another kids account. You're potentially turning a small early contribution strategy into a 6-figure or 7-figure tax-free Roth IRA asset for your child in later life. So let's talk about how to make the most of these Trump accounts. Step 1, open the account early and start the clock. The first step is simple. As soon as it is allowed at a lot of these financial institutions, and you're going to see them out there, get the account established while the child is young. The earlier the better. And it'll be a typical financial institution account, and they may have some mutual fund or ETF options, but that's fine. Don't stress about what it's invested in right now. Let's get the money in there and have it start growing because time is the real asset here. Compounding is doing the heavy lifting, not the contribution amount by itself. And now we have real numbers to work with. Starting July 4th, 2026, the Trump accounts can receive up to $5,000 per year in total contributions. That total, as I said before, can come from family members or even the child themselves. In fact, employers can contribute under an approved program, and that employer piece can be up to $2,500 per year., but it still counts towards the same $5,000 annual cap. That separate $1,000 federal seed contribution for eligible children born between 2025 and 2028 does not count against that annual limit. So if you have a child born this year or already did last year in 2025, you can put in the $5,000 this year and also the federal government's going to kick in that extra $1,000. So you'd have a $6,000 starting point. Now, if a family wanted to go all in, they could target that full $5,000 annual contribution limit each each year through age 17. Once they turn 18, you can't put any more money in. So with a brand new baby, that's up to $90,000 of private contributions over 18 years. Adding the $1,000 for the federal seed money, we're up to $91,000. Now, I don't know how many people are going to hit that target exactly, but that's the potential. Now, starting the account early and contributing as soon as you can, even the bare minimum, is the same principle I teach all the time with Roth IRAs, health savings accounts, and self-directed investing. Starting early always beats starting later, even if it's a big contribution. That small snowball at the top of the hill becomes a very different snowball by the time it reaches the bottom. Most families wait too long because they think they need thousands of dollars to start. You do not. You just need consistency. You need a plan. And again, everything in that account is going to grow tax-free. So just throw in what you can. If you're able to do that, $400 a month, you're going to be real close to that $5,000 by the end of the year. And that brings me to step 2, which I do want to emphasize as a separate step. Fund it consistently without overcomplicating it. The goal here is not to be fancy, it's to be disciplined. And so let's say you're able to do 13 years worth, your kid's 5 years old or whatever, and you can get in maybe $60,000 in that child's first 18 years. That may sound like a big number in one sentence, but over 18 years, that's $278 a month. In 13 years, again, it's around $400 a month. And again, this could be in your mindset, something to be used for college. And if you need to use it for college later, fine. But it could be a bigger play here. And I want to emphasize, we're not talking about a trust fund baby with unlimited money. We're talking about college, maybe starting a small business, buying their first home. These little things add up because that $60,000 invested grows over time. For example, if you contribute for that 13 years, starting at age 5, and you put in that $5,000 a year based on a 9% return. And think of an above average ETF or mutual fund. Your child at age 18 will have approximately $110,000 sitting in that account. Wow. At $278 a month or $400 a month ends up being $110,000 when they turn 18. And again, this could be used for anything like a business or tuition or a home. The list goes on and on. Now, step 3, and this is something not a lot of their accountants or tax advisors are talking about. If possible, wouldn't it be nice to get a write-off for depositing the $5,000 into a Trump account every year? Now, accountants are like, uh, that's not in the code, that's not the law, but here's the workaround. Remember I said your kids can even put the money into the account. Theoretically, you could gift your kids the money and they put it in, or you put it in, or grandparents put it in. Remember, the whole goal is just to get $5,000 in the account. Let's say you have a small business, say you have a rental property, and you start paying that child under age 18, for helping in the business. And many of you that have watched my videos on paying children in a business know that it is completely legal, valid, and common for a business owner to pay their kids helping in the business and not having to withhold SUTA, FUTA, FICA, workers' comp, any of that. There's special lines to put it on when you're paying your kids, and it's not normal payroll, and you do not 1099 them. So if you're paying your kid in your business for helping validly with job duties, they could take that payment and put it into their own Trump account. Now, if you set up that proper plan to pay them $2,500 as undercompensation and they put that in, plus you pay them other money for $2,500 and get it up to $5,000, I do not care. The point is you're going to pay that child, if valid work is done, up to $5,000. You get a tax write-off. They don't pay income tax because of the standard deduction for earned income. And they put it into their own Trump account. You've just manufactured a tax write-off. That's a big deal. Now, for those of you that don't have a small business, maybe the time comes in a few years where you've got that side hustle that you could validly employ your children to help out in. Then you've already got the Trump account going. Now you're paying them, getting a tax write-off, and they're putting the money in. You can add that feature at any point, but I'm just telling you, that's pretty cool strategy here with this Trump account. It's got a write-off on the way in. And when you start to do the math on that, on the future value with the tax deduction on the front end, oof, it gets pretty cool. Now let's talk about step 4, converting this account into an IRA, a Roth IRA. So when the child turns 18, they have some choices. You could start pulling out the money to go to college. And remember, any contributions you don't pay tax on, it's just the growth that the child would pay taxes on, on their tax return. And that's a fine strategy. Many families are going to need that money for college or continuing education, a trade school. Starting a business again, getting married, any of those things, that's fine. So if we had that $110,000 account, remember, they're going to pay tax on the $50,000 that was growth, but the original $60,000 and change of contributions that comes out tax-free, penalty-free, that's fine. But let's get strategic. What if they convert that to a Roth IRA? Now, here's the strategy. The day they turn age 18, they can convert it to a traditional IRA. And then to a Roth. When they convert it to a Roth, they're going to pay tax on the growth amount, not the contributions again. And the beauty of this is they only pay tax at their tax rate. And I don't know a lot of 18-year-olds in a big tax bracket. So this is beautiful. Your tax bracket doesn't matter when they turn age 18 and they can still be a dependent on your tax return. They would choose the amount they want to convert and pay the tax. And they'll never pay tax on that account again. It will now move to a Roth IRA. Now they only pay tax on that $50,000 in that example. If they convert it all at once, they pay tax on $50,000. If they were to do it in two chunks, whatever they convert, the account value is proportionally allocated to basis based on the gain. So if you converted half the account, you would pay tax on $25,000. You couldn't say, well, I'll convert the contributions first to a Roth IRA and then the growth. Now they go over at the same time proportionally. I hope that makes sense. So when they convert the account, they have to convert contributions and growth at the same time. And on the growth, they would pay tax. But again, at their low tax bracket, never to pay again. So what happens? They have a Roth account with $110,000 sitting in it. Didn't use it for college. Maybe you've got other accounts to cover the $529,000. Maybe they already had a Roth IRA that you were funding. While they were working for the business separate from this. That's fine too. But now we have a nest egg of $110,000 to work with in a separate Roth account that all started with the Trump account. And please do not stress about this. Some people think of a Roth conversion, pay taxes, and it just seems like this is a really bad decision. Oh my gosh, this could be one of the best decisions you make with your child in the history of their financial lives, because when they're single, and hardly making any money, if any at all, their tax bracket is going to be 12%. So in our example, that conversion would equate to about $6,000 in taxes. Heck, you could gift them the money to pay those taxes or they go get a part-time job, but they'll pay $6,000 in taxes on $110,000. And we're off to the races. Now, step 5 is self-directing the money. Now, what that means is investing it into what you know best to get the highest rate of return. And these numbers are going to blow your mind. You're going to want to probably throw this into AI after, because when you self-direct, your child could now say, well, I believe in cryptocurrency, or I believe in gold, silver. I want to invest in a small business. I want to— not their own business, but an alternative asset, some other business that they believe in. They can invest in stocks, bonds, mutual funds, ETFs, oil and gas, anything, just like you can. It's called self-directing. Many of you that follow me know I'm a huge proponent of this, and it doesn't mean Wall Street's bad. They can do a plain old mutual fund or ETF. But here's the numbers. I want them to get at least a 10% return because check this out. If they put that $110,000 in that Roth IRA and get a 10% return and never put in another dollar and just leave it alone for 45 years, they will have over $8 million. That's the snowball effect. $110 grand, 10% return, 45 periods. Go do the math. It's crazy. $8 million. Oh, and did I say tax-free? That's the beauty of this, because once it's in the Roth vehicle and you invest it in what you know best, holy crap, they might be able to get even a 15% return. In fact, I was just talking to my son-in-law last night. We were barbecuing. He had bought some new stock in SpaceX and he was so excited and he's kind of a day trader type. He really doesn't invest in crypto at all. They have one real estate project that's fairly small, but he loves investing in Wall Street products, which is great. He has averaged over 40% just doing his little research. And these 20 to 30-year-olds in my life, these kids are smart and they just gamify it and are having the best time. I think every one of my sons, stepsons, son-in-laws, all of them are playing with either crypto or the market and getting 20+ percent rates of return. And you can do that in a self-directed Roth IRA. Now, I just say that because I want you to get excited and to be able to have these conversations with maybe some of your teenagers or even your— reevaluate your own portfolio. But the step 5 is critical because if I— I'll just do the math here while we're talking. If I was to get a 15% return, this is going to— I don't even know what the answer is, and this is going to freak me out too, but $110 grand. 15% return on average. Might get above that, might get below that, whatever. On average over 45 years, $60 million. Oh my gosh, I can't even, this is crazy. That's the power of compounding interest and investing. $60 million, cut it in half, $30 million. How would that be looking down the barrel of your own Roth IRA right now, knowing that at age 65, you're gonna have $30 $1.5 million tax-free. And that's half of this estimate. And it all started with the Trump account. This is crazy. That's step 5. Self-direct, invest what you know, get the best rate of return you can. And step 6, leave it alone. Leave it alone. I almost don't even want you to tell your kids they have this account, but they're going to be the owner of this Roth IRA. And heaven forbid they were to drain it. As a tax lawyer, I've had meetings with clients and their children where the parents are doing some funding into some accounts. And I get to be the bearer of bad news. And the parents are like, hey, we're going to put money in this account. You go pull that out early because kids don't care about the penalty or the taxes. They just want the money. Sometimes they go, you pull that money out early, I'm not making a deposit next year. And these are not terribly wealthy families. Again, I'm talking about $400 a month trying to save for your kids' future, save for your own future. It's crazy, right? So number 6, leave the account alone from now to age 18. Just put it on auto deposit. You really can. And then once they turn 18, we have a big meeting with them, teach them about Roth IRAs, investing, let them day trade the hell out of it. You help them invest it. It could be a partner in your LLCs on real estate deals, a partner in private equity deals or business deals you're doing. Your kids' Roth IRA can invest with you. So let me just give you the takeaways in plain English. The Trump account by itself may not impress me, may not impress you, but a Trump account used as an early stage launch pad towards that $100,000 Roth IRA at age 18 could ultimately be over an $8 million tax-free retirement. Now, when I say it, I'm even listening because when you connect early contributions, strategic timing, a low tax bracket, conversion, long-term Roth, All of a sudden, it's magic. And you know what? I don't even know if that's the best part. The best part is that this strategy can change the trajectory of an entire family because you're teaching financial literacy. You're teaching about wealth building. And when it's repeated from one generation to the next, that's legacy. Now, before I close out, I want to just hit some big mistakes to avoid. Mistake number 1, not liking Trump or President Trump and saying, I don't want to be a part of this because his name's on it. Do not get hung up on that. It's a tax strategy and I love a good tax strategy no matter what president passed it. Mistake number 2, assuming automatically this is better than any other account. No, it's not. I'd like to use a combination of multiple accounts when I'm helping save for a kid's future college or life, period. Mistake number 3 is having a little anxiety or concern about the complexity or apparent complexity of this conversion to a Roth and this whole process. You don't have to understand all of it now. Of course, mistake number 4 is just that, waiting. Don't wait. Do whatever you can and get the process started. Mistake number 5, leaving money that's uninvested. You may think, well, I want to have access to it to put it in a bank account, and if there's an emergency, you can always pull out contributions. Penalty and tax-free is the growth that would have a tax or a problem. So get the money in there, let it start working, and then work hard to leave it there and forget about it, frankly. This strategy should fit into an overall wealth planning strategy of estate planning, tax planning, investment planning, education planning. I want you talking about this in your next family board meeting. Something I love to talk about. In summary, why does this matter for the Main Street business owner family? I love strategies like this because they prove that wealth building is not a get-rich-quick scheme, and it's also not for the ultra-rich. And that is exactly why this matters so much to me. I love the get-rich-slow strategy. I love middle-class families with discipline and long-term mindset, using the tax code and investment accounts the same way wealthy people do, with just fewer zeros. That's okay. It adds up. So start early, use the right bucket, control taxes, and let time do the work. That's the formula. Most people think wealth comes from some secret investment, or I've got to be super rich to get rich. You don't. And this Trump account to Roth strategy, if implemented correctly, could become one of the most excellent tools in the toolbox. Not because it's flashy, because it's strategic, because it's starting early, because Roth money held for decades can be unbelievably powerful. Now, if you want to set up your own self-directed retirement strategy for an old 401 or an old IRA, and you're kind of burned out on what Wall Street is offering, please check out directedira.com. The link's down below. You can set up an account for yourself and start doing your own regular saving and investing and get a financial calculator out and start looking at 10 years from now, 20 years from now, 30 years from now, what that money would be worth. Our team helps investors and families create the vehicle. We don't tell you what to invest in. That's why it's self-directed. You get to choose what you invest in. We don't make a commission selling you some investment. That's not why we're here. We just want to sell you the vehicle. You get to put in the trunk what you want. And do you have junk in your trunk? I was so excited. I worked that in here to this video. Let's not get junk in your trunk. Let's get really some powerful investments in that trunk that you believe in. That's what self-directing is. So check out our podcast, get a new account open today, and there's a link down below. And in that link below, you can book a free call and get started. Just ask more questions. And if this helped you think differently about building wealth for the next generation, make sure you give it a like, subscribe, turn on your notifications so you don't miss future videos. I'm Mark J. Kohler. Thanks for being here, and I'll see you in the next one.