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Beginning last month, any U.S. citizen under the age of 18 is eligible to have a Trump Account. You know I am always in favor of starting early to save for retirement, but I don’t think every parent or grandparent should open one of these accounts for a young child.

When You Should Consider a Trump Account

  • You are a parent/grandparent of a child born in 2025, 2026, 2027 or 2028. A child born in these years, who is a U.S. citizen and who has a Trump Account opened on their behalf, will get an automatic $1,000 deposited in the account from the federal government. That’s free money no one should pass up.
  • Your employer will make a contribution. Companies are allowed to contribute $2,500 a year per employee (not per child) to Trump Accounts. This does not require the employee to contribute. Again, you should never turn down free money.

When Contributing to a Trump Account Is Not the Right Move

The law allows up to $5,000 a year to be contributed to a Trump Account. This includes any employer contribution. And this is where a Trump Account gets a bit tricky.

I say tricky because I get how fantastic it seems: there is nothing more you want than to give your child an amazing jumpstart on building a retirement nest egg. I get the allure. But I don’t want any parent or grandparent adding to an account (beyond any free contributions from the government or their employer) if they have any of these challenges:

  • Your emergency savings fund isn’t large enough to cover at least eight months of living expenses.
  • You have credit card debt.
  • You have student loan debt.
  • You have car loans.
  • Your own retirement savings is not on track.

In other words: until your financial life is in great shape, I don’t want you to contribute to a Trump Account for a child. Period. You owe your child the security of knowing they will not need to step in and support you 20, 30, 40 years from now.

And if you have a teenager who is earning some income, I think the better move, if you can afford it, is to help them fund a Roth IRA. I want to be clear: if you get an employer match on a Trump Account, that still is a great deal not to pass up. But I wouldn’t necessarily add contributions to that account; this is where helping a working teenager by helping them save in a Roth can be a better option.

A Roth IRA requires that your teen have earned income, so it only is an option for a child who has a paying job. But in that case, the tax treatment of a Roth IRA—no tax owed on contributions withdrawn, and no tax on earnings withdrawn in retirement—is better than the Trump Account. Contributions to a Trump Account are made with after-tax money, so they will not be taxed again when withdrawn, but 100% of earnings withdrawn will be taxed as ordinary income. (I shared why a Roth IRA is so great for young people here.)

 

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