Saving for Kids: The New Trump/530A Accounts
Trump/530A Accounts
A new tax-advantaged account for kids under 18. It sits somewhere between a custodial brokerage account and a traditional IRA. Kids born between 2025 and 2028 get a one-time $1,000 federal seed. Family, friends, and employers can add up to a combined $5,000 a year. Employers can put in up to $2,500 of that tax-free through a cafeteria plan. The money sits in a low-cost broad-market index fund and is generally locked until age 18, at which point the account becomes a traditional IRA in the child’s name. That means they have full legal control, but standard IRA rules limit what they can do with it. Pulling money out before age 59½ typically triggers a 10% penalty and income tax on top.
Our evolving view
At first glance, we thought the only real value here was the free money. Contributions earn no upfront deduction, growth is eventually taxed as ordinary income, and there’s no step-up in basis at death. Take the $1,000 federal seed and any tax-free employer contribution, we figured, and skip the rest. The more we looked, though, the more we came around. Funded early for a young child, the account has 40 to 60 years of runway. Funding these accounts opens the door to a Roth conversion later on that can move decades of growth into a Roth and let it compound tax-free from there.
Roth Conversions and Kiddie-tax
Once the child ages out of the kiddie tax, usually the year they finish school, take a full-time job, or turn 24, conversions get taxed at their own bracket, which can often be 10 or 12% in the early years of their careers. That opens up a stretch of years to convert the balance to a Roth at low rates before the child’s income climbs, and let those dollars compound tax-free for another 30 or 40 years after that.
Even better: the 401(k) split
Once the child has a 401(k) at work, there’s an even cleaner version. A 401(k), by law, can only accept rollovers of pre-tax dollars. That means the pre-tax growth in the Trump account can be rolled into the 401(k), and the remaining basis (equal to the contributions to the Trump account) can be rolled into a Roth IRA tax-free. The growth keeps deferring inside the 401(k), the basis becomes Roth dollars at no cost, and there’s no conversion tax bill in the middle.
529 Education Savings Plans
Contributions grow tax-free, and withdrawals are tax-free when used for qualified expenses such as tuition, room and board, books, and up to $10,000 per year for K–12 tuition. A number of states offer state tax deductions. Anything left over can be rolled to a Roth IRA for the beneficiary (up to $35,000 lifetime, with the account open at least 15 years under the same beneficiary) or shifted to another family member.
Taxable Custodial Accounts
A brokerage account in the child’s name with an adult custodian. No contribution limits and no restrictions on how the money can be used. Long-term gains receive capital-gains treatment (potentially in the 0% bracket), and assets may receive a step-up in basis at death. The main trade-off is control: the child gets full, unrestricted access to the account at the age of majority (18 to 21, depending on state), and kiddie-tax rules apply to unearned income above modest thresholds. Custodial assets can also weigh more heavily than parent-owned assets in needs-based financial aid calculations, worth factoring in if the child may qualify.
Custodial Roth IRA
Once a child has earned income from a job, self-employment, or a family business, a parent can open a custodial Roth IRA. Contributions are capped at the lesser of the child’s earnings or the annual IRA limit. Growth and qualified withdrawals are tax-free, and contributions (not earnings) can be withdrawn at any time without penalty. It’s the earliest way for a child to actually contribute money to a Roth.
In practice, plenty of families will use the new Trump/530A account alongside one or two of the others, each matched to a different goal. The right mix depends on your bracket, whether there’s an employer contribution available, and how the money is likely to be used.
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