New Trump accounts are now open for enrollment, and the question we’re hearing from clients isn’t whether they’re worth considering. It’s how they stack up against the accounts families have already been using for years, 529 plans, UTMA and UGMA custodial accounts, brokerage accounts, and Roth or traditional IRAs for kids. This episode is the follow-up to our first Trump accounts conversation, and it’s the one to listen to if you’re trying to figure out which account, or which combination of accounts, actually fits your family’s goals.

Taylor Wolverton, our Director of Financial Planning and Tax Strategy, joins Murs Tariq again to walk through each option side by side. They cover contribution limits, tax treatment, distribution restrictions, and the one detail about Roth IRAs that most social media advice leaves out entirely. There’s no single best account here, and that’s the point. The right strategy usually combines two or three of these tools, and this episode gives you the framework to figure out which ones belong in yours.

In this episode, find out:

• Why Trump accounts don’t require your child to have earned income, and how that changes the math compared to a Roth IRA
• How the Trump-account-to-Roth conversion works once your child turns 18, and why timing it right could mean decades of tax-free growth
• What’s changed about 529 plans that makes them far more flexible than the version most parents remember, including the new Roth rollover option
• The real trade-off behind UTMA and UGMA custodial accounts, and why control matters more than most families realize until it’s gone
• The one requirement missing from nearly every “open your kid a Roth IRA” post you see online, and what to do about it if your kids aren’t earning yet

Tweetable Quotes:

“There’s not one that’s just like, quote unquote, best. It really depends on what your goal is with these accounts and what you’re trying to accomplish.” — Taylor Wolverton

“The Trump account kind of helps you navigate building that wealth without having to worry as much about earned income.” — Murs Tariq

Resources:

If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement! To access the course, simply visit POMWealth.net/podcast.

Here’s the full transcript:

We’re really glad to have you back here today to talk about the Trump accounts. Thanks for joining 

me. Yeah, of course. So, for everyone listening, if you haven’t listened to the last episode that we 

did, it came out last week and it was all around the idea of the Trump accounts that are. 

They’ve been talking about it for a while now, but you can actually open the accounts. So myself, 

Taylor, and Raiden, we did a podcast episode kind of explaining what it is, who’s eligible, 

why you may want to consider this, and some of the nitty-gritty of what we know so far on how the 

accounts operate. Also, there’s a website called trumpaccounts.gov that’s got plenty of 

information there. That’s how you pretty much learn about the process of opening the accounts as well. 

But how we ended the last episode was that we were going to do a follow-up episode, which is this 

one today, kind of comparing, because one of the questions that we’ve been getting is, 

well, the Trump account sounds pretty interesting, but I kind of need some help deciding around all 

these other different types of accounts that are out there when it comes to setting up accounts for 

my kids or grandkids, whether it’s for college planning or just future wealth. future wealth 

building, you know. So, help us kind of compare all these. So, we said that’s a great, great topic. 

And so, the goal of today is to walk you through a handful of different accounts. We’re going to do 

a nice little recap on the Trump accounts if you didn’t get a chance to listen to the last episode, 

just so you know the general about how they operate. But again, I encourage you to go listen to the 

last episode after this one, if you haven’t, just get some more details there. We’ll talk about 

the 529s. That is more of a college funding type of account. There’s these other brokerage style 

accounts for… for kids that are under certain ages called UTMAs and UGMA accounts. 

And then also just simple brokerage accounts and Roth IRAs and traditional IRAs. So, we’ve got a lot 

to get through. Thank you all for joining us. And Taylor, let’s just dive right in. So, if you don’t 

mind, let’s kind of talk through a bit of a recap of what a Trump account is. 

Yeah, okay. And I will say too, as we were talking about these accounts, there’s not one that’s 

just like, quote unquote, best. Overall, it really depends on what your goal is with these accounts 

and what you’re trying to accomplish. And it may be that for your situation, you utilize multiple 

accounts instead of just choosing one of this list. So, no going in that they can all be used in 

tandem as well. But starting out with Trump accounts, yes. The goal with these accounts, 

why they were created in the first place is to start retirement savings for children. 

like right away. So, these accounts can be open to anyone below the age of 18. 

And the contributions right now, that annual limit is $5,000. 

That can come from anyone, parents, grandparents, friends, neighbors, 

whoever wants to make those contributions. All of those people combined can only contribute $5 

,000. The thing that is unique about Trump accounts compared to other retirement accounts that you 

can open is that it does not require the child that the account is for to have earned income. 

And just the way that contributions can come from really any source. So that’s definitely a benefit 

to the Trump account is the whole idea of not requiring earned income. 

There is not any sort of tax benefit for those making contributions, 

and the earnings inside of the account are tax deferred. 

So, when the child starts taking distributions, which they cannot take any distributions until they 

are 18 or older, then the distributions will be taxable, 

or at least the earnings that accrue in that account will be taxable to them upon distribution. 

And let’s see what else. Anything else that we mentioned there? Oh, distribution rules, 

too. I wanted to say there are strict limitations as far as what distributions can be used for. 

They are actually the same things that distributions can be taken from traditional IRAs. 

So, we can kind of compare those. But things like education, a first-time home purchase. 

disability if that applies things like that you can take distributions for but otherwise it is 

meant and intended for long-term retirement accumulation meaning the other chance you get to take 

distributions are after 59 and a half so okay, so the trump accounts are it’s one of these 

things that are a longer-term type of growth vehicle, although there’s special ways that you can 

take money out, but it’s also not a completely tax-free magical type of thing either. 

There are taxes associated with the distributions, right? Yeah. One other thing too, 

we kind of mentioned this in the first or the original episode we did about Trump accounts 

specifically, which yeah, we just went into more detail on that anyway. So go back and listen if 

you have not yet. But kind of towards the end of that, we did touch on the, at least from 

everything that I’ve read, it does sound like when the child that the account is open for turns 18, 

there is the opportunity to convert that account to Roth. So, at that point, 

when they turn 18, it’s essentially treated the same as a traditional IRA. And there is no age 

restrictions on Roth conversions. There is no… amount restrictions or limitations on conversions 

as well. So, I do think that is a viable strategy, according to everything that I’ve read about 

these accounts, that when they do turn 18, if you wanted to take that account, Trump account, and 

convert it to a Roth IRA, you would pay taxes on the earnings that have accrued in that account. 

But hopefully that child is at their lowest tax bracket of their lifetime and you pay minimal taxes 

on that. That could be even better to get it to a Roth to continue accumulating tax-free. 

Yeah, that’s what I think the realization I had in the previous podcast we recorded was these can 

be tremendous wealth-building tools if you’re in that mindset of, 

I want to help my kid kind of start off in the right direction. Because just think about it for a 

second. If you’re putting in $5,000 a year or the combination of you and other family members are 

putting in $5,000 a year, while you’re getting no tax benefit from them, Like in an IRA, 

when you put in 5,000, usually there’s a tax deduction or when you put money into your own 401k, 

there’s a tax deduction. But in this case, there’s no tax benefit to you. You’re really helping 

someone else builds wealth. But if you just do math 5,000 a year. and you do that every 

single year for 18 years, then that’s $90,000. You’re also invested in this account. 

You’re invested in U.S. equity. So, you know, historically, you could assume somewhere in that 6% 

to, right now it’s a little rich, somewhere in that 6% to 10% rate of return. And so, the math 

just really starts to work out to when that child turns 18, you know, you could have a few hundred 

thousand dollars in an investment account for them. And then the biggest piece of this is how I 

would use this for my own child. would be to try to do that Roth conversion, right? So, you get the 

two, $300,000 converted over time as it makes sense for their tax picture. Hopefully it’s a 

cheaper conversion than say someone that’s already making a couple hundred thousand dollars a year 

of income. And then now that money is converted and we teach them properly to just kind of pretend 

like this account does not exist and just let it sit there and grow until they retire. 

That’s where the power of real, true compounding growth. You could be in the millions down the 

road, which is, I think, just a cool concept that, you know, I don’t think there’s other vehicles 

that works as well as what it sounds like this one will. But like you said, Taylor, 

there are. combinations here or other strategies here that could be used in tandem with the Trump 

account. So I fully agree with you that this is not the one-all be-all. I tell people all the 

time in meetings that I don’t think there’s any perfect investments out there, 

no matter how well someone talks to you about it and says, this is the one, you got to do this. I 

don’t think there’s any perfect investment out there. There are only trade-offs. Now, what I do 

believe is that you can get pretty close to having a perfect investment strategy by coupling 

together a handful of different strategies that all are going to have their own trade-offs. 

But when you put them all together, it could work really, really nicely depending on what your 

goals are. 

So, let’s talk about the next account. Which is the 529. 

That’s the college funding plan that people have heard about. There are some tax advantages to it, 

although there’s also some cautionary tales as well with the 529s. And so, let’s talk about that. 

Full disclosure, I’m funding one for my son. I think it’s a great tool, but you have to understand 

how it works. And you may not want to overly fund this type of account, 

but let’s talk through this one, Taylor. Yeah, 529s are known as a college savings account. 

That’s because in comparison to like Trump account or other retirement accounts, 

distributions from 529s are tax-free only when used for education expenses. 

So if your goal is to save for your kid or grandchild’s college or future education, 

then 529 may benefit you. 529s are managed at a state level, 

so every state has their own 529 program. And there’s not really a contribution limit per 529s. 

It’s more so just the annual gift tax limit, which right now is $19,000 a person. 

Like Trump accounts, earned income is also not required for 529s, so that doesn’t really matter at 

all. 529s can also be invested. The investment options are, 

again, controlled at the state level, so it depends on what plan you open for what’s available to 

you. But more broadly than Trump accounts that we’ve talked about, you can invest beyond just U.S. 

equities. The earnings in a 529 are tax-deferred. 

When you take distributions, if it’s for education, then the distributions are tax free. 

Depending on the state that you live in, there may be a tax benefit to you as a contributor to a 

529. But I know in North Carolina, for sure, there is no. Tax deduction, 

no tax credit, no tax benefit at all. For those that are making contributions, really the tax 

benefit to opening this type of account is for the beneficiary who uses it to pay for their college 

and get the tax-free distributions at that point. So that’s what 529s kind of look like. 

The parent or whoever administers the account controls it indefinitely. no point that the child’s 

beneficiary like takes it over or anything like that so yeah really college specific on 529s yeah 

and I will say in my research on 529s when I was thinking about this for my son um you know years 

and years ago, the 529 was rather limited in how you could use it for that tax-free benefit um but 

I think they kind of you could say, woke up a little bit to that a lot of people were not funding 

them. And college planning in general is a big issue in our country. And so, they woke up to this 

idea of, hey, we got to make these a little bit more flexible than where they were. So, a couple of 

big things have happened over the last… I don’t know when the change was, but let’s just say over 

the last decade of the 529s where they’ve opened up. It’s not just for college planning, 

but it can also be used for K through 12, depending on what type of school someone is in. So 

they’ve opened up the usability of it, which is huge. And then also one of the hindrances with this 

type of account is, well, what if my kid doesn’t go to college and I’ve just funded $50,000 or 

$100,000 into this bucket, and now you’re telling me that? The only way to get this money out is 

to pay taxes on it and pay penalties as well. And that still is true. But one thing that they have 

changed, which makes it better, is that the dollars can eventually, 

there’s nuances here but can eventually be rolled into a Roth IRA for that child beneficiary. 

So, they’ve kind of taken away some of the, well, what if he doesn’t go to school, he or she doesn’t 

go to school, or what if I need it sooner than college? So, I think they have made it more flexible 

and more attractive than what it used to be, which is kind of what tipped my scale in saying it 

could make sense to fund a portion of his college education, maybe not try to fund all of it this 

way. And now when you take that and you couple it with the Trump account, now you could have a 

tremendous tool for college funding for the child, but then also… got assets, 

they’ve got wealth that’s being built when they are coming out of college too with the Trump 

account. So I think they worked well together. Let’s talk about, Taylor, the custodial accounts 

known as UTMAs and UGMAs. These are finicky types of accounts that we don’t see all that often. 

And I’m sure you’ll kind of explain a little bit as to why, but give us the highlights here. Yeah, 

so UTMAs or UGMAs stands for Uniform Transfer to Minors Account or Uniform Gift to Minors Account. 

When you, as a parent, you open this account for your child as the beneficiary, 

when you make… contributions to this account the contributions are irrevocable so once you put 

money in the account you as a parent are not going to get it back it could be contributions from 

other sources besides the parents as well grandparents friends family same thing there with the 

trump accounts anyone could really contribute to this account and again there is no tax benefit to 

you as a contributor for adding to this account it really works similarly to any other brokerage 

account it can be invested broadly across the whole stock market us international bonds whatever 

you want to do there is available to you um you don’t have to have earned income to contribute to 

this account and the earnings the investment earnings in the account are taxable. 

So that’s how it’s similar to a brokerage account as it’s earning interest, dividends, capital 

gains. That is taxable to the child or the beneficiary that this account is for. 

So, they are responsible for filing a tax return to report any income that comes from this account. 

And then once the child reaches the age of majority, which I believe in North Carolina is age 18. 

the child beneficiary 18-year-old takes over this account and they can use it for whatever they 

want to use it for. There is no restriction on distributions. There’s nothing specific that they 

have to use it for. They have complete control over it and whatever’s there, 

they own it. They’re in control of that. So, I think that’s kind of the hesitation sometimes with 

this account is as the parents making contributions. Whatever the account value is, they have to trust 

their 18-year-old to be responsible with the assets and use it in the way that the parent would 

like to. But the parent actually has no say in how that goes. Yeah. So, and I agree. 

I think that’s why, you know, with so just going back to everything has tradeoffs with these 

custodial types of accounts. The tradeoff is, is that, well, at age 18 or age of majority. 

you have no say that’s kind of gone right so the savings that you did along the way uh all of a 

sudden is in the hands of uh what could be an immature 18-year-old or a very mature 18 year 

old and you just don’t know which one you’re going to have right when you start these accounts so 

it’s a bit of a risk sometimes in people’s minds with the 529 again it’s or educational 

purposes so the risk there is they don’t they don’t go to college or they don’t you know education 

is not a priority and so you’ve got to think about how do you use this money or get it out of the 

529. With the Trump account, it’s really a long-term type of investment strategy to build long 

-term wealth. And there’s restrictions on your ability to use it, just like an IRA with a 59 and a 

half type of penalty. So, everything’s got trade-offs, right? So then let’s talk about then just a 

standard brokerage account. How does this work and how is it different than a custodial account 

that you just described? Yeah, so in comparison to a Pasolio account, anyone can also open a 

brokerage account if they want to. There is no connection to your child as a beneficiary, 

really. I mean, if you wanted to list them as a beneficiary, you could. But you can remain in 

complete control of this account. You as the owner and contributor will pay taxes on the earnings 

inside of this account. Again, there’s no benefit. tax benefit to you of contributing to this 

account there’s no restriction on distributions you could take out every single dollar of this 

account at any time that you wanted to um and yeah if you wanted to open this account to use it to 

accumulate assets to eventually give to your child then you can it’s the probably the most flexible 

account that we’re talking about of the options today just because there really are no restrictions 

on the distribution so yeah, it’s not really like any certain intention for the child but you could 

open the account and just yourself have that in mind as your intention to give it to them when 

they’re whatever age you want so yep and then I guess the trade-off here would be that 

it’s taxed at your tax status not the child which could be a disadvantage but if you want to 

maintain flexibility and control and say, I have control, that also usually means that I’m going to 

take on the tax burden of the account. Correct. All right. Good deal. And then the last one that is 

a common question of ours is around Roth IRAs and traditional IRAs. And how do you set those up for 

kids and the pros and cons there? Yeah. So, if you wanted to, yes, you can open a Roth IRA and or a 

traditional IRA for your child. the purpose of these accounts just like for anyone else the 

intention should be long-term retirement accumulation unlike the other accounts that we have 

talked about these accounts Roth IRAs and traditional IRAs do require earned income in order to 

make contributions so if you open this Roth IRA as a custodial account with your child as the kind 

of owner. You as a parent are administering this account while they are a minor, but the child has 

to have earned income. So, if you’re opening this for a five-year-old, they probably don’t have 

earned income unless they’re a model or something. I don’t know, you have them as part of your 

business yourself, but when they get older, they’re 16, 17, whatever, they have a part-time job, 

then that’s when they can make. contributions limited to their earned income. 

There are also annual contribution limits on these accounts to pay attention to that the IRS 

publishes every year. So that’s definitely more of a restriction on these accounts. 

They do require the earned income, but earnings in a Roth IRA, 

investment earnings grow tax-free. In a traditional IRA, investment earnings grow tax deferred. 

The other benefit to a traditional IRA is that usually you are allowed a tax deduction on the 

contribution, which means when you take distributions later on, you will pay taxes. In comparison, 

the Roth IRA, there is no tax benefit to you on making the contribution. But when you take 

distributions later on, you do not pay taxes at all. So, for a young person, 

kind of like how we talked about the Trump account and the intention to convert that to Roth, 

opening a Roth IRA as soon as it is possible is great because the earnings will grow tax-free over 

the rest of their lifetime, which can be very powerful compounding growth. But yeah, 

they do have to have earned income to make that possible. Yeah. And I feel like the amount of ads 

I’ve seen on social media around and they’re phrased something like this. Do you want to build 

generational wealth for your child? Then open them a Roth IRA. Right. You hear that all the time 

and you’re like, well, yeah, that makes perfect sense. And they tend to neglect that one key detail 

where the kid has to have earned income. And so, like you said, unless they’re like a Gerber baby 

that’s earned some income or you’ve got yourself employed and you have the ability within your 

business to pay them a salary, which not everyone has, it’s really difficult to open up that Roth 

IRA for the child and build that really cool generational wealth that all these social media ads 

are talking about, which is why my kind of aha moment. 

was, well, the Trump account kind of helps you navigate building that wealth without having to 

worry as much about earned income. It is tax deferred, but then also the ability to convert it to 

Roth at some point is enticing down the road in the Trump account type of scenario. 

Another thing that I just thought of, Taylor, and I know we don’t have all these answers, but. You 

know, as listeners, I would just kind of give you some caution as well as you’re thinking about 

these accounts and you should talk with your advisor. And if you don’t have an advisor, we’d be 

happy to have a conversation with you. But a lot of times we are concerned about how much how much 

asset. are in a child’s name and how that’s going to affect their college planning in the sense of 

their ability to get loans and their ability to get financial aid through this thing called a FAFSA 

form. And so you do want to take that into account as well. Certain accounts are not going to 

penalize you. Certain accounts will absolutely penalize you. And it makes it look like the child 

has a lot of money. So, if that’s a concern of yours or a consideration. That’s where some more 

research or conversations need to be had when it comes to true college planning there. Taylor, 

anything else that you’ve got to add to the conversation today? 

I don’t think so. That’s everything that I had on my mind. Yeah, some great options depending on 

what you want to do and what you see as the future of what your child or whoever you want to open 

this account for would benefit the most from. Or maybe multiple is something that you could put 

together. Yeah, a lot of options to think through. Yeah, I would tend to agree. And so, this is not 

a advertisement for any account in particular. Like I said earlier, you know, how we operate is 

everything kind of comes back to the financial plan and the goals of what you’re trying to 

accomplish and what tools do we need to put in place to make sure that is being done as efficiently 

as possible. So, with that, Taylor, thanks a lot for hopping on today. And if anyone has any 

questions, you know, the easiest way to get those questions answered or to understand the process. 

as to how to get those questions answered is to hop over to our website, pomwealth.net. 

And from there, you’ll have the ability to schedule a call. Our calendar pops right up. And for any 

of the things that you’ve heard on the podcast, but today in particular around these types of 

accounts, we’re happy to help you navigate that. But Taylor, thanks again for hopping on. And 

everyone else, we will talk to you next Monday