The Beginner’s Guide to Trump Accounts for Kids

Trump Accounts are set to launch in July, and it's time to start thinking about what your role is in jumpstarting your children's futures! In this episode, we break down what the account is and what it could mean for families with younger kids. We'll talk potential benefits, risks, long-term growth opportunities, and simplify the conversation around investing for kids in a way that’s easy to understand. Whether you’re a parent, grandparent, or just curious about financial planning for the next generation, this guide will help you feel more confident about getting started!

For the video version, show notes, and resources, visit thewealthmindsetshow.com/s2e36

➡️Download Free Resource: 8 Timeless Principles to Investing!

🎧Connect & Listen Here: Website | Instagram | Facebook | Spotify | Apple Podcasts

Transcript

You're listening to the Wealth Mindset Show, where Hixon Zuercher Capital Management's team of finance professionals, portfolio managers, and a life coach come together to tackle complex topics in finance and retirement planning so you don't have to. From investment strategies and wealth management to tax planning, retirement income, and aligning your money with your values and purpose, the Wealth Mindset Show offers the tools to thrive.

Austin Wilson:

All right. Hey, hey, hey, welcome back to The Wealth Mindset Show where the Hixon Zuercher team helps you manage wealth, navigate retirement, and make smart decisions for a secure, meaningful future. I'm Austin Wilson, Chief Investment Officer at Hixon Zuercher Capital Management.

Josh Robb:

I'm Josh Robb, Director of Wealth Management at Hixon Zuercher Capital Management. We're joined today by Chase Rose and Jessica Hinks, two advisors here, and we are going to be discussing the new Trump Accounts.

Chase Rose:

We are.

Josh Robb:

But before we do-

Chase Rose:

Before.

Josh Robb:

... just check-in. How's everybody doing? Any fun stories or any new changes that you have? Austin, you were sharing a little bit before this.

Austin Wilson:

Yeah. So, our 18-month old is starting to talk and she's hilarious and cute. And my wife, Jenna, asked her, "Hey, Aubrey, where's daddy right now?" Because obviously I'm here. And she went, "Erk."

Jessica Hinks:

So, what does-

Austin Wilson:

He's at, "Erk."

Jessica Hinks:

... that mean, though? Oh, work.

Austin Wilson:

Yeah. Minus the W.

Jessica Hinks:

I didn't get it the first time.

Austin Wilson:

He's at Irk. The multiple, a lot of letters in there are too many, so just say, "Erk."

Chase Rose:

Sometimes I feel that way about work, just erk.

Austin Wilson:

Yeah, just erk.

Chase Rose:

Just erk.

Austin Wilson:

But yep. So, daddy's at erk today. What about you, Jess? What's going on?

Jessica Hinks:

You always ask me. I never have anything to say.

Austin Wilson:

Pond stuff, you told me.

Jessica Hinks:

Pond stuff. I'm pulling a lot of weeds in the pond.

Austin Wilson:

Getting ready for pond season.

Jessica Hinks:

New pond owner over here. I did not know how expensive ponds were. I thought it was free. I'm like, this is free water -

Chase Rose:

It's free water. Yeah.

Josh Robb:

- The chlorine or anything, like a pool. But you're right. It is a lot of work for ponds.

Austin Wilson:

Chase?

Chase Rose:

I get to spend a lot more time with Josh Robb outside-

Josh Robb:

That's right.

Chase Rose:

... of the office now. So, now I am umpiring Little League baseball and junior high baseball and youth baseball-

Josh Robb:

You got to get softball in there, is it?

Chase Rose:

Softball too. Yeah. Softball and baseball. So, that's a lot of fun.

Jessica Hinks:

I heard that Josh gets right in the ump's faces all the time.

Josh Robb:

I am-

Chase Rose:

He does.

Josh Robb:

... you know what?

Jessica Hinks:

- he doesn't.

Josh Robb:

You got to be the spokesperson for your team and you got to -

Chase Rose:

We work together and he still calls me Blue on the baseball diamond.

Josh Robb:

I am very respectful for umpires on the field.

Jessica Hinks:

Yes, he is.

Josh Robb:

But I'll be honest with you, that's great because parents can be ridiculous and getting good umpires to stick around is one of the hardest things. And so I see my role as being an encourager, especially the young ones. So, you've seen a couple of them, you've been over there. We've got some high schoolers that do it. There's no point when you have a 10-year-old to get upset about any call that's made in a game. And so if anything, it's like, "Hey, thanks for coming. You did a great job." And walk away.

Chase Rose:

No, honestly, everyone's been great so far.

Josh Robb:

For the most part, yeah.

Chase Rose:

Yeah.

Josh Robb:

Rec especially, I mean, most parents understand. There's no scouts there. It's not amounting to anything for a 10-year-old baseball game.

Austin Wilson:

So, it sounds like Josh's news is family baseball.

Josh Robb:

I live out on ball fields right now. So, softball, baseball, we're involved on that. My oldest daughter though just finished up her debut in theater. So, the school play, middle school, had a lot of fun. She really enjoyed it. So, just something new. She kind of went out of her comfort zone and did something she hadn't done before and she really liked it.

Jessica Hinks:

Well now you got to get all these baseball kids and theater kids and rolled into Trump Accounts -

Josh Robb:

Yes.

[3:19] - One Big Beautiful Bill Act (OBBBA) & Trump Accounts 101

Austin Wilson:

So, that's right. Trump Accounts are the topic we're going to be talking about today. Relatively new, came out in the OBBB Act last year-

Chase Rose:

What's that mean?

Austin Wilson:

One Big Beautiful Bill.

Jessica Hinks:

O-B-A.

Chase Rose:

OBBBA.

Austin Wilson:

The OBBBA.

Josh Robb:

One Big Beautiful Bill Act, which was taxed-

Austin Wilson:

2025.

Josh Robb:

Yes, last year, middle of last year. And this was one of the pieces of that big bill, but it didn't get a lot of attention early on because there was a lot of unknowns but that's just to clarify it-

Austin Wilson:

Yeah, absolutely.

Josh Robb:

We're going to talk a little more in depth about what we think of it, if we think it's a good idea, and kind of how you need to approach it.

Chase Rose:

I know there was originally some opposition about the name of the act and that it was unconstitutional or whatever the term they used-

Josh Robb:

The One Big Beautiful Bill?

Chase Rose:

Apparently they never changed it.

Austin Wilson:

For the Trump Account.

Chase Rose:

No, I'm talking about the One Big Beautiful Bill Act. They said, how could you be descriptive for something that's not fully partisan? You know?

Josh Robb:

They call-

Austin Wilson:

They could say that about everything.

Chase Rose:

... bipartisan.

Austin Wilson:

Yeah.

Josh Robb:

They give every bill a nickname and it had its own actual designation for them.

Austin Wilson:

Yeah, it's a CARE Act.

Josh Robb:

Yeah.

Austin Wilson:

You could say that was the same way-

Josh Robb:

Yeah, the Inflation Reduction Act

Austin Wilson:

Yeah, the Inflation Creation Act. I mean, sorry. All right. So, yes, Trump Accounts. Let's talk a little bit about what they are. It's kind of a quasi new type of account for children. So, Jess, what are the nitty gritties of what a Trump Account is?

Jessica Hinks:

Yeah. I mean, when it comes down to it, if there are children, any child under 18 can go open one. Children born in the next few years, so 2025 to 2028, actually get free seed money from the federal government, $1,000. Parents just go to trump.gov, trumpacount.gov, or there's actually forms you can fill out at the IRS and you enroll your child and then effective July 4th, they'll have an account in their name and it will grow tax deferred until they're 18.

Josh Robb:

And tax deferred means that you will owe tax later on the withdrawal. So, think of it like a regular IRA, traditional IRA. So, a Roth IRA is after tax money, so that's tax-free growth. Tax deferred just means you're postponing tax payments.

Austin Wilson:

So, is this going to be handled through the government or can a traditional custodian open these?

Jessica Hinks:

At this time, I do not believe just traditional custodians can host Trump Accounts.

Josh Robb:

Yep. So, the signing up / registration, is all on a specific government site.

Austin Wilson:

Okay.

Chase Rose:

Yeah. And actually to elaborate a little more about the taxability, so it's actually a bit of a-

Josh Robb:

It's a hybrid.

Chase Rose:

... it's a combination of tax-free and tax deferred. Tax-free isn't really a proper term either because it's money you've already paid tax on-

Josh Robb:

After tax.

Chase Rose:

... and you're just getting those contributions back. So, what that means is if you put a thousand dollars in, you're going to get that thousand dollars back eventually without paying tax out of the account. Because-

Austin Wilson:

Like a Roth -

Chase Rose:

... the contributor, or whoever contributes has already paid tax. So, then the beneficiary will not owe tax on that dollar amount.

Josh Robb:

Correct.

Chase Rose:

But the growth is going to be taxed at ordinary income when that growth comes out.

Josh Robb:

Yep.

Austin Wilson:

So, like you said, it is focused on thinking longer term. It's a lot like an IRA in a lot of ways, focus on long-term investment for children here. And obviously, I think at least one thing we can all agree on is that compounding is a great thing. We've talked about it many, many times and giving new babies and stuff like that, and especially with this thousand dollar seeds, a really decent head start gives more time for compounding.

Jessica Hinks:

And this is not the only seed money actually being added to these Trump Accounts. Like for instance, the Michael Dell Foundation-

Austin Wilson:

Michael Dell. Correct.

Jessica Hinks:

... the Peter family, they are depositing $250 per child for every child in America below the age of 10. So, they're really meant to capture these people who did not get the free Trump seed because it's 2025 and below. They have to be in a zip code that has an average income of below 150,000. So, maybe not some of the big cities again in those specific sectors, but like Findlay, Ohio, for instance, we're below that. My kids are all going to get 250 bucks from Michael Dell.

Josh Robb:

There you go.

Austin Wilson:

I know. That's pretty cool. And I was thinking my youngest just missed the 2025 cutoff. She was born in late '24.

Josh Robb:

Yep. Yep. I have an 11-year-old. I have an 11-year-old. Just missed it.

[7:28] - How They Are Different from Roth IRAs & 529s

Chase Rose:

Yeah. And it is, so you might not know by just reading the name of the account, the Trump Account, but it is a retirement account theoretically. So, it's earmarked for retirement. There are things you can use it for once the child obtains the age of majority, like that you can take your basis or your contributions out for a number of things and not pay tax on that, as we talked about earlier. But the whole goal here is for these dollars to be used for the child's retirement. And I think most of us have a theory that this is to reduce people's reliance on social security because we all know that those carry... Social security has its own problems, but yeah, it is for the child's retirement. And you can open retirement accounts for a minor, but they need to earn income. So, for this account, you actually do not need any earned income.

Jessica Hinks:

And that's the key differentiator between Roth IRAs and these Trump Accounts is that the Trump Accounts do not need earned income in order for someone to contribute. So, truly an infant can add dollars into it.

Josh Robb:

And that's really what helps this account is that the start point becomes so much earlier because you don't have a lot of one-year-olds run around with part-time jobs. And so if you can start saving, you mentioned the compounding is this money goes in and you, in a sense, are giving you an about 18 years head start than what most people would normally have-

Austin Wilson:

Or more. Yeah.

Josh Robb:

Yeah.

Austin Wilson:

Actually, usually more if people wait till after college or whatever to start investing. Earlier is the better, because those early dollars are the heavy duty compounders.

Josh Robb:

That's right.

Chase Rose:

Yeah. And this account, like we just talked about, since you don't need earned income, but you can't contribute after you become an adult. So, it's really just a head start account. It's really what this account is. And as far as who's contributing to the account, because a one-year-old who doesn't have earned income, they're not putting their own money in, right? So, really anyone can contribute, parents, grandparents, there's an annual contribution limit of $5,000. However-

Josh Robb:

That's per beneficiary.

Chase Rose:

... per beneficiary. When governments, so federal, state, or local government or foundations like the Michael Dell Foundation, when they contribute, it does not contribute towards the annual contribution limit. So, if the government's putting $1,000 in for that period of time, babies that are born within that period, there's another 5,000 that could go in for that year. So, that's another aspect of the plan.

Josh Robb:

Good. And then the difference between that, we mentioned IRAs and then 529s. 529s are designed for education, so they're very focused in on that. Whereas this account is designed for retirement. So, while it does give you some ability earlier in your life, 18 to... The early phase of life, to do some withdrawals, it's really not designed for education. It's designed for retirement law.

Chase Rose:

Yeah. This does not replace the need for a 529 account. The 529s are still a lot more flexible and you can oftentimes get the state tax deduction as well.

Josh Robb:

And that is key. And we've mentioned there are no deductions on this contribution-

Austin Wilson:

Because it's after tax.

Josh Robb:

Yeah. All this money is... So, you don't get to say, "Hey, I put $1,000 into my kid's Trump Account, I'm reducing my income." Nope, that is not a deduction on your tax return.

Austin Wilson:

Have you ever thought about how your financial choices reflect what truly matters to you? At Hixon Zuercher Capital Management, we believe that integrating your values and dreams with your financial future is key to achieving peace of mind and confidence. When you engage in deep conversations with us, you'll start to see how your money can support the things that matter to most in your life. Our holistic approach means that your financial plan is more than just numbers. You'll have a dedicated team of professionals tailored to your unique needs, all focused on crafting an investment portfolio designed to help you achieve your specific goals. Plus our on-staff retirement life coach offers guidance to empower you toward a fulfilling retirement that goes beyond just financial security. Ready to transform your relationship with money? Join us at hzcapital.com and let's embark on this journey together. Now, back to the show.

So, the 529, better forward education, like we just talked about. Trump Account's, maybe more of a long-term head start to retirement, a little bit of a shift there. So, the question you might be asking is, This all sounds too good to be true, what's the catch? And we kind of hit on it a little bit, but the tax situation is not a like everyone comes out ahead on this, right?

[11:31] - What's The Catch?

Josh Robb:

No.

Austin Wilson:

Because it's not tax-free and tax-free growth and tax-free all the time. It's not pre-tax. It's not saving you tax now. It's kind of a hybrid. So, there is tax implications. Only your contributions can be withdrawn tax-free, just like a Roth IRA. And then obviously the growth plus any government contribution, that's going to be taxable later. So, there's no free lunch.

Josh Robb:

There's no incentive for the contributor from a tax standpoint to add money into this account versus a traditional IRA, if you're in the income limits, you actually get to deduct that from your income. So, you're doing it to headstart your kids' savings.

Austin Wilson:

Yep.

Josh Robb:

That's the only incentive at that point. And then the taxes on the backend are, you don't know what your kids' tax brackets will be later. So, you may have been better off giving them money in a taxable account, paying capital gains versus a high income. You don't know the future, but that tax deferred growth is nice to have along the way.

Jessica Hinks:

Other than just normal taxes, which is a part of life, I don't really see any gotcha here. This is just a headstart account. I don't think there's any red flags.

Austin Wilson:

No.

[12:42] - Trump Account Rules Worth Mentioning

Josh Robb:

And the other one, which again, isn't a red flag or a bad thing is there are restrictions on the use of this. And if you don't follow the restrictions, there's penalties. Just the same as IRAs, just the same as 529s. If they're going to give you some advantage, they're going to put parameters around it. So, how you withdraw the money before you're at retirement age matters, and there's some penalties associated with that.

Austin Wilson:

So, obviously you would not be able to grow your money if it was sitting in cash very well for an extended period of time. So, this stuff's going to be invested within these accounts, which is great. That's how you can have the ability to compound this over time. They are going to offer things like, very few options, but some low cost index fund options. I think particularly focusing on US stocks is kind of the main focus that they're going to be having there, at least initially. So, that's what you're going to be able to choose in terms of the investment options within the account. So, you're not going to be able to pick some stocks. You're not going to be able to pick crypto, you're not going to be able to speculate and trade options. But once you turn to be an adult, you have options to potentially roll this over and convert it to a Roth IRA where then you'll have all kinds of options at your disposal there.

So, again, it's supposed to be super simple, give you the benefit of compounding without having to think about it over time. And then in the future, you can make better choices with what you want to do with it.

Jessica Hinks:

And I want to emphasize what Austin just said, because he said, once you're 18, you can roll it over to a Roth IRA. That's one of the most exciting potentials of this Trump Account. Because I don't know about you, but when I was 18, I did not have a lot of earned income. My tax bracket was very low. So, all this money gets put in tax deferred or no tax deduction on the front end, but when you're 18, you're in that 12% tax bracket, convert it all then-

Austin Wilson:

Pay the load.

Jessica Hinks:

... and then it gets to grow tax-free for the next 80 years if you want.

Austin Wilson:

Yeah.

Jessica Hinks:

That's a hack.

Josh Robb:

Yeah, that's really where it is. And understanding and communicating that with your kid, because again, once they're an adult, you as a parent have zero control over it. Once it's there, it's in their hands. So, educating, communicating, because once they get that Roth, they could take a withdrawal out of there and create penalties and stuff if it's within the five years of conversion. But in a sense, they could undo all your hard work. And so the one thing you miss here is any kind of control post that 18 point, right? It becomes their account at that point.

Chase Rose:

I also want to emphasize a point that you made earlier, Austin, about what you can invest in in these accounts. So, we talked about they're limited to low cost index style ATFs, so very passive investments, which is, I think, very great for these type of accounts because we've talked about in the past, the investor sometimes can be their own worst enemy. And so you have this opportunity available to get a headstart for these children. The last thing you'd want to do-

Austin Wilson:

Mess it up.

Chase Rose:

... is to start doing some stock trading and-

Josh Robb:

Yeah, playing around.

Chase Rose:

... picking really bad investments.

Jessica Hinks:

Before I learned that this was limited to index funds, I was just picturing a bunch of dads doing meme stocks for their two-year-olds. I was like, Oh, no. So, I was really relieved to see that.

Chase Rose:

Absolutely.

Austin Wilson:

So, Chase, let's talk a little bit about some numbers.

Chase Rose:

Sure.

Austin Wilson:

You're a numbers guy.

Chase Rose:

Absolutely.

Austin Wilson:

We talked about how this could honestly give people a really great head start. And if you don't touch it, it could be a decent component of some big numbers at the end of their life because of compound interest, even with not contributing a lot of money. So, talk a little bit about that.

Chase Rose:

Yeah. So, we ran a case for Billy Bob-

Austin Wilson:

Billy Bob, the child born.

Chase Rose:

... in 2025-

Austin Wilson:

In '25, or '6.

Chase Rose:

Yeah. So, he gets a free $1,000 of seed money from the federal government. And we're going to assume Billy Bob doesn't have any additional contributions into this account. So, he got a $1,000 deposit at birth and he used a passive index S&P 500 investment fund and he kept that invested until he retired. So, it's an 8% on average growth to be conservative. I think it's normally it's eight to 10, but an 8% annual growth at 65, if he has that $1,000 invested, he'd have about 150 grand at age 65. However, when you look at it from a taxable standpoint, $1,000 is tax-free and the other 149,000 will be ordinary income when he takes it out, which is fine. He still grew that income tax deferred, but that's kind of a realistic scenario and that's what you can expect over a 65-year period.

Jessica Hinks:

And it's not our job to conjecture about how that'll supplement social security.

Chase Rose:

Correct.

Jessica Hinks:

Not our job to conjecture.

Chase Rose:

Exactly.

Austin Wilson:

Or if most people will have any dollars left over by the time they get that age anyway.

Chase Rose:

No kidding. But in a basic sense, the government's saying, Hey, we want to do our best to give people a chance to have the head start. And that alone, that $1,000 is a pretty reasonable amount of money now. That's in future dollars, so-

Jessica Hinks:

It's $149,000 you didn't have to earn.

Chase Rose:

Exactly. 100%.

[17:25] - Should You Actually Take Advantage of This?

Austin Wilson:

That's a win. That's a win. So, let's talk about the implications of this. Should you actually use this? Josh, I'm going to give you the floor because I know what you're going to say-

Josh Robb:

Well, it really depends.

Austin Wilson:

Oh, I am shocked.

Josh Robb:

But yeah, the answer is if you're looking for the opportunities to find ways to help kickstart your kids' retirement savings, this new account is probably the most focused in on that goal. And so you just have to then prioritize that goal with what other goals you have. So, you have retirement savings, you have obviously your short-term stuff, emergency funds, anything your goal shorter than that, but then you also have your college if you're hoping to do anything for your kids, where does this fit in priorities? And you got to decide for yourself, where am I at on my other goals to see how that fits in? It may be, "You know what? I can't put the full five in, but I'm least going to sign up the account and get the 3,000." That doesn't affect any of my other goals if you fit that window.

But then from there, it just depends on, "Hey, if this is a top priority for me, I got to make that happen." Or, "You know what? For right now, I need to do this one, two, three goals, and then I'm going to get to that one." So, it really depends on your situation. But if your priority is, "I would like to set my kids up financially for their retirement, this account is probably one of the best designed for that.

Chase Rose:

Yeah.

Jessica Hinks:

No further comments. Yeah.

Josh Robb:

That's all I got.

Austin Wilson:

Any thoughts on that? Yeah. Well, that's a Trump Account for you.

Josh Robb:

There you go.

Austin Wilson:

TBD. Coming to you soon to an account near you in July.

Jessica Hinks:

July 4th. Happy Birthday, America-

Austin Wilson:

Happy Birthday, America.

Jessica Hinks:

... that's when they're live.

Josh Robb:

250.

Austin Wilson:

So, Michael Dell is making $250 contribution on the 250th birthday.

Josh Robb:

I wonder if that... Did he plan on that?

Jessica Hinks:

Okay-

Austin Wilson:

I mean, he had to.

Jessica Hinks:

... I actually never connected those dots.

Josh Robb:

Huh?

Jessica Hinks:

I don't know.

Austin Wilson:

He could have said 300, but that wouldn't have made sense-

Josh Robb:

No, 250.

Austin Wilson:

... because it's 250.

Chase Rose:

There it is.

Josh Robb:

Solved it. We solved it all.

Austin Wilson:

That's right. Happy Birthday, America. Have some money. All right. Well, that's Trump Accounts. There will be more on that, I'm sure, as they start getting implemented here later this year. But if you found any value in our conversation, don't forget to subscribe to The Wealth Mindset Show on whatever platform you're on so you never miss an episode. And visit us at thewealthmindsetshow.com for more resources, show notes and things like that. And if you're interested in what we do at Hixon Zuercher Capital Management, visit hzcapital.com. Check us out there. Also, follow us on social media. We're pretty active on there and we'd love to connect. Otherwise, we'll talk soon. Have a good one.

Josh Robb:

Thank you.

Austin Wilson:

Bye.

Thank you for joining us at the Wealth Mindset Show, where we tackle the complexities of finance and life planning to help you align your wealth with your values. We hope today's conversation provided value and clarity as you navigate your financial journey. Your hosts work for Hixon Zuercher Capital Management, and all opinions expressed by them or any podcast guest are solely their own and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions and the securities discussed in this podcast. There is no guarantee that statements, opinions, or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment, and any investor attempting to mimic index performance would incur fees and expenses that could reduce returns. Securities investing involves risks, including the potential loss of principle, and there is no assurance that any investment plan or strategy will be successful.