Overview of DIY Money Jr — What are Trump Accounts
This episode answers a 10-year-old listener (Piper) asking whether she should use a new “Trump account” or open a custodial Roth IRA / custodial investment account for money she earns on the family farm. Hosts explain what is currently known about the proposed Trump accounts, compare them to custodial Roths and regular custodial brokerage accounts, discuss practical investing steps for a kid, and offer a speculative tax/conversion strategy — while stressing that the rules are still incomplete and could change.
Key takeaways
- Right now the IRS and regulators have not released full technical rules for the proposed “Trump accounts.” Many details remain uncertain.
- The proposed accounts (as described publicly) would seed qualifying children born Jan 1, 2025–Dec 31, 2028 with $1,000, allow parent/family contributions (reports mention up to $5,000), and are expected to convert to an IRA at age 18.
- Unlike a custodial Roth IRA, the Trump accounts reportedly would not require the child to have earned income to receive contributions — a major difference.
- For a working kid like Piper, the hosts recommend a custodial Roth IRA if she has documented earned income (W-2/1099) — otherwise a custodial brokerage account is the most flexible and practical place for farm earnings.
- Practical investing advice: put half into a broad index fund (boring, low-cost) and use the other half to buy a few individual companies the child knows and cares about (learning tool).
- A speculative strategy: fund the Trump account when possible, and later convert amounts to a Roth during low-income years. This could be powerful but is legally uncertain and could trigger kiddie tax or IRS pushback.
What the episode explains about “Trump accounts”
- Eligibility seed: children born between Jan 1, 2025 and end of 2028 (per public description) may get a $1,000 government seed deposit — parents must follow tax-return/form procedures to register.
- Contribution rules: public info suggests family can contribute (hosts referenced $5,000 figure), and contributions may not require the child to have earned income.
- Conversion/timing: accounts are expected to become IRAs at age 18. The hosts noted some language suggesting withdrawals at 18 for things like education or a first home could be allowed, but details are unclear.
- Uncertainty: the IRS has not issued formal guidance; final rules, tax treatments, distribution limitations, and how conversions/interactions with Roth/529s will be handled are still unknown.
Practical advice given to Piper (and parents)
- Custodial Roth IRA (if eligible)
- Requirements: the child must have documented earned income (W-2 or 1099). Allowance without documentation does not count.
- Benefit: tax-free growth and withdrawals (Roth), excellent for long-term savings if eligible.
- Custodial brokerage account (recommended if no documented earnings)
- Flexible: you can buy stocks, ETFs, bonds, and money stays accessible (subject to custodial rules).
- Educational: great way to learn investing by owning a few stocks and an index fund.
- How to invest (simple rule of thumb the hosts recommend)
- Put ~50% into a low-cost broad index fund (e.g., total stock market or S&P 500 ETF/fund).
- Use the other ~50% to buy a small number of individual companies the child recognizes and follows — teaching how businesses work.
- Recordkeeping: parents should document any farm wages they legitimately pay (issue a W-2 or 1099 as appropriate) if they want to enable Roth eligibility.
- Keep some spending money: spend some of the earnings on fun stuff — balance saving and living.
Speculative conversion strategy (opportunity + risks)
- Idea: subsidize a child’s Trump account contributions early (no earned income required), let them convert to a traditional IRA at 18, then perform annual/periodic Roth conversions during low-income years to build a Roth balance tax-efficiently.
- Potential upside: getting large sums into Roth while tax rate is low = decades of tax-free growth.
- Risks/unknowns:
- IRS rules could block or tax such conversions (kiddie tax, other anti-abuse rules).
- Final legislation/regulation may alter contribution limits or conversion mechanics.
- This is speculative — consult a tax advisor before trying.
Action items / Next steps
- If you have a child born in the eligible window (2025–2028): watch for and follow the required tax forms/instructions in your 2025 returns to register for the seed deposit.
- For working kids now:
- If earnings are documented: consider opening a custodial Roth IRA and funding up to the child’s earned income (limits apply).
- If earnings are not documented or you want flexibility: open a custodial brokerage account and follow the 50% index / 50% individual-stock approach to teach investing.
- Educate and involve the child: let them pick a few companies they like and follow those investments.
- Monitor official guidance: check trumpaccounts.gov and IRS releases, and consult a tax professional before implementing speculative strategies.
Notable quotes and soundbites
- “The secret to wealth is pretty simple: Live on less than you make. Invest the rest and do so for a very long time.”
- “Take half of it, buy a boring index fund.” (practical investing rule for kids)
- Hosts call the upcoming run for Boston a “revenge race” — illustrating persistence and long-term goals (parallels for investing).
Caveats & legal/technical uncertainties
- Much of what’s discussed is based on initial public descriptions; technical rules, IRS guidance, and legislative text are not finalized.
- Contribution limits, withdrawal rules, tax treatment, conversion allowances, and interactions with existing vehicles (Roth, 529s) may change.
- Always consult a tax professional or financial advisor before making tax-sensitive moves (especially strategies around conversions and kiddie tax implications).
Resources mentioned
- Official site referenced: trumpaccounts.gov (monitor for updates).
- DIY Money contact: podcast@diymoney.org (send questions; listener questions may get a $25 Amazon gift card).
Keep saving, teaching, and investing — and treat new policies as promising opportunities that require careful watching before committing funds or tax strategies.