The Optometry Money Podcast Ep. 155: Trump Accounts for Kids – What Optometrists Need to Know

Evon: [00:00:00] Hey everybody. Welcome back to the Optometry Money Podcast where we’re helping ODs all over the country make better and better decisions around their money, their careers, and their practices. I’m your host, Evon Mendrin, Certified Financial Planner(TM) practitioner, and owner of Optometry Wealth Advisors in independent financial planning firm.

Just for optometrists nationwide, and thank you so much. Really appreciate your time and your attention.

And in today’s episodes we’re gonna dive into Trump accounts and Congress just recently created a brand new account for kids called Trump Accounts and. I’ve heard a lot of questions about this from clients and in a lot of the OD online groups I’m a part of.

And so today we’re gonna dive into Trump accounts. We’re gonna dive into what these accounts actually are, how they work, and where they might fit in the financial planning of optometrists.

so with that in mind. Let’s [00:01:00] dive in.

What Are Trump Accounts?

Evon: And so first question, what are Trump accounts? Trump accounts are essentially just traditional IRAs for kids with several twists. It’s basically how we should look at them. They’re just going to be traditional IRAs for kids with certain adjustments, at least up until they’re 18 years old.

And these accounts were created by 2025’s One Big Beautiful Bill Act, and the IRS gave some initial guidance late last year, and we’re expecting more on the way and.

What are they for? they’re designed to jumpstart retirement savings for kids , from birth through adulthood and.

When Are Trump Accounts Going to Be Available? How Do We Open Trump Accounts?

Evon: And when are Trump accounts going to be available? And how do we open them? accounts are supposed to be available to open and contribute starting July 4th, 2026,and they are specifically four minors from birth through the year they turned 17.

And parents can open them using the IRS form 4547, along with their tax [00:02:00] return. So talk to your tax preparer about that for 2025 or at the trumpaccounts.gov website.

Who Can Contribute to Trump Accounts, and When?

Evon: And who can contribute to Trump accounts and when?

Contributions can only be made up until, or I should say, through the year that your kids turn 17 and they can actually be made directly by anyone.

They can be directly made by parents, by grandparents, friends, cousins. People unrelated entirely to you. Really, anybody can contribute to these accounts for the benefit of your kids up into a maximum amount of $5,000 per year. And that $5,000 cap will start to increase with inflation starting in 2028, 2028.

And importantly, the kid does not need to have earned income. Which is different from something like a custodial Roth IRA where the kid would have to have earned income for you, the parent, to contribute to that.

Parent Contributions to Trump Accounts Are After-Tax

Evon: And importantly, [00:03:00] these contributions are made with after tax dollars, meaning you as a parent, if you’re contributing $5,000 for your kid, you’re not going to get a deduction for that contribution, which is an important point.

You don’t benefit from that tax deferral on the front end. I would consider a pretty major benefit of pre-tax retirement accounts is that initial deferral of that taxation. the deposits are after tax, but the growth in the account is pre-tax. So when they’re eventually withdrawn, assuming in the retirement of the kid, when the kid’s in retirement, all of that growth is going to be taxable when it’s withdrawn just like any other pre-tax IRA dollars.

A, and this is essentially the same thing that’s happening when you, make backdoor Roth IRA contributions. So you are making after tax contributions to your traditional IRA and you’re eventually converting those dollars to your Roth IRA. But if you were just to leave ’em in the [00:04:00] Traditional IRA, it would be the same exact thing.

The deposits are after tax and all of the growth would be pre-tax, which means the parents. And then eventually the kids are going to have to track this after tax dollar amounts. also known as basis. They’re gonna have to track this basis in the IRA on your tax return, potentially for the rest of the kids’ life.

So that’s a tough ask for most adults with their own traditional IRAs., I’m assuming a lot of this basis is gonna end up lost over the years. Although the vast majority, in theory, if it’s held through age 65 and beyond, in theory, the vast majority of it would end up growth anyways.

But just something to keep in mind there. So you and literally anyone, it seems anyone else can make direct deposits to these accounts after tax.

Employer Contributions to Employee Trump Accounts

Evon: but employers can also make contributions on their employees’ behalfs and Through a documented Trump account plan in the business, [00:05:00] employers can contribute up to $2,500 of that $5,000 max per employee.

so if one employee has several kids, the company can only contribute $2,500 total a cap to that one employee. But if the employee and their kid were employ, were employed by the business, the business can contribute to the kid on his own behalf and to the parents on, into the kid’s account.

So these employer contributions do count against that $5,000 max. and they’re capped at $2,500.

Employer Contributions to Trump Accounts are Pre-Tax Dollars

Evon: And these contributions are actually pre-tax. So it’s different than what I just talked about because the business is getting a deduction for those contributions and the employee doesn’t have to count it as income.

So these are dollars that are never taxed.

Can Optometry Practice Owners Contribute to their Kids’ Accounts Through the Practice?

Evon: Now what about you practice owners contributing on behalf of your own kids. Can you do that and get the deduction and kickstart your own kids’ retirement funding. [00:06:00] Without the need to hire them, it is very common for a practice owner to hire their kids, to have them do some legitimate amount of work.

So they have earned income, they can contribute to a Roth IRA. Well, the answer is maybe, but I am leaning not entirely. there are two things that I think might hinder that. number one, these plans in your practice. have to have specific limits around discrimination in favor of highly compensated employees.

So you’re likely gonna hit limits in terms of how much you can put into your own kids versus everyone else’s.

And number two, with fringe benefits generally for S corp business owners, which most practices that I’ve come across or work with tend to be taxed as s corporations.

when you’re receiving a fringe benefit, like health insurance through the practice or a cafeteria plan benefit or an HSA contribution, if it’s through the practice, through payroll, you need to add that benefit amount back to [00:07:00] your wages for federal income taxes. You’re not necessarily able to benefit from those fringe benefits in the same way as your employees.

And I’m wondering if this Trump account documented plan is gonna have those same limitations. More to be determined as we get closer. Hopefully we’ll have more guidance from the IRS. Chat with your tax professionals and your financial advisors, but, those are some things I’m thinking about for you practice owners, contributing to your kids’ Trump accounts with these documented plans.

So generally speaking, after tax contributions if made by people up to $5,000, and then employers can make up to $2,500 contributions on behalf of employees, and that does count against that five grand limit.

Pre-tax Contributions to Trump Accounts from Governments and Charitites

Evon: In addition to all of that, federal governments, state, local governments, and 501(c)3 nonprofits can also make contributions to certain broad classes of kids above and beyond that $5,000 limit, so they can make those contributions [00:08:00] and it doesn’t impact that limit.

one example is the $1,000 Pilot program, so this is from the federal government. If your kid was born between 2025 through 2028, they’re eligible to receive a $1,000 deposit from the federal government. Thank you very much, uncle Sam. I guess we’ll take it. which doesn’t impact that $5,000 cap.

I have an almost 10 month old that’s gonna be benefiting from this. So my wife and I, we’re gonna be opening up these accounts. You have to affirmatively do that though, right? They’re not going to open these accounts automatically for you. If you have kids that are born within this window, you have to go affirmatively sign up for these accounts and get these a thousand dollars deposits.

So definitely get your a thousand dollars.

What Investments Can You Use In Trump Accounts?

Evon: what can Trump accounts be invested in? Up until the year your kid turns 18, they can only be invested in inexpensive, broad US stock market index mutual funds or ETFs.

So S&P 500 [00:09:00] is an example. a whole US stock market index fund Another example. not too much flexibility, but. When you consider the options, that’s not the worst thing you could be investing in. So overall, not too bad.

What Happens to Trump Accounts When The Kid Turns 18

Evon: what happens when the child turns 18?

what happens when your child turns 18 to these Trump accounts? in the year that your kid turns 18? the accounts converts basically to a regular traditional IRA in their name, and it’s gonna follow regular traditional IRA rules that includes. Taxes and penalties for withdrawals before 59 and a half.

Outside of very specific exceptions, and the regular rules around contributions kick in, so including a higher amount, a higher maximum amount per year, but there’s an earned income requirement from that point moving forward. Also, the ability to expand your investment,

So very likely from that point, moving forward, you can either do this in the Trump accounts or you can roll it over out of the Trump account into your own traditional IRA, and you’ll have more flexibility of how to invest it.

You Can’t Withdraw from Trump Accounts Before Age 18, Except for ABLE Rollovers for Disabled Kids

Evon: Now generally speaking, you [00:10:00] cannot make withdrawals from this account.

Before the year. Your kid turns 18. They’re basically frozen in time u ntil your child turns 18, with one exception, potentially useful exception in that there is a window of time in the year your kid turns 17 where they can be rolled over into an ABLE accounts, for the benefit of a disabled child.

We don’t know what could come up in our child’s life, after they’re born, if they become disabled. Qualifying for federal or state care is really important. not having assets in the kid’s name, especially once they turn 18 or beyond is very important.

And so that’s an opportunity in the year a kid turns 17. there’s a one year window to roll it outta that Trump account into an ABLE account. So some flexibility there.

How Do Trump Accounts Compare to Other Accounts for Kids?

Evon: So what are the best use cases for these Trump accounts? Now at this point in time, in February of 2026.

I’m not overly excited about Trump accounts. There are already a [00:11:00] ton of options for parents to save and invest for the benefit of your kids. and there just always have been.

for example, there are taxable investment accounts in the name of the parents, and you can invest in unlimited amounts and you have unlimited flexibility. And if you want to give your kids money, you can just gift dollars or you can gift shares to your kids. Now there is a bit of tax drag in these taxable accounts. Yes, things like dividends show up as income on your tax return. If you sell things for capital gain, you have to think about capital gains income.

But you can invest these accounts pretty tax efficiently and limit that tax drag quite a bit. The other option are taxable custodian accounts in your kids’ names, also known as UTMA or UGMA accounts, where you can gift money into these accounts for the benefit your kids.

So it’s a completed gift. It’s their money. It.

And you have control over the accounts. You can invest it however you’d like. And then once your kids turn the age of majority in their states, it becomes their funds. They get to control it.

[00:12:00] And, one important tax feature of these accounts that actually helps These accounts relative to the Trump accounts are Kiddie Tax rules where, when these accounts are kicking off income, like dividends and interest and capital gains, things like that, how are, how is that income treated for tax purposes?

‘ cause your kids aren’t filing their own tax returns necessarily, or at least by default. And so with these Kiddie Tax rules. the first bucket of unearned income, like this investment income up to $1,350 in 2026 is tax free. The second bucket, the next $1,350 in 2026, Is taxed at the child’s marginal tax rate, which could be zero the third bucket of any under income beyond $2,700 is taxed at the child’s parents’ marginal tax rate, or it could be your, as the parents’ marginal tax rate. So that’s not necessarily ideal, but there’s a good amount of [00:13:00] room underneath to benefit from a potentially 0% marginal tax rate.

So it’s possible these custodial accounts are actually the tax favored vehicle when you line them up face-to-face with Trump accounts, especially when both of these accounts are depositing after tax dollars and with these taxable investment accounts.

When you eventually sell it, or when your kid eventually sells it in adulthood, they’re gonna see very likely long-term capital gains tax rates on whatever’s sold, on whatever capital gains are created.

While the IRAs are gonna see the ordinary income tax rates when they withdraw from them. So that’s a second option that’s available.

And there might be some other considerations related to federal student aid for college, for example. because these custodial accounts are going to be seen as the kids’ assets and are going to impact that student aid formula a little bit more.

And the Trump account. Traditional IRAs are probably going to have higher liability or creditor protections, depending on the state.

But these options [00:14:00] exist and are extremely flexible.

529 accounts have the clear advantage if you’re saving specifically for education. And if you do hire your kids in the practice, or if they do have earned income, custodian, Roth IRAs are the clear way to go.

And so there’s all these different options already available for kids. And so I, I’m not sure there’s really much. New being solved here, or much to be excited about.

Best Potential Use Cases for Trump Accounts Optometrists Should Consider

Evon: But here are some use cases for optometrists to consider for these Trump accounts. The very best use case is the $1,000 seed money.

And, and if you have a kid born from, 2025 through 2028, get your $1,000 seed money. And this isn’t nothing. So if you look at some of the math here, if you get A $1,000 deposit at birth, and it grows at an average rate of return of 8% over the next 18 years. That can grow to $3,996, so almost four times the original [00:15:00] amount.

If that same $1,000 grows to age 65, that’s over $148,000 of investment assets. So it’s not necessarily nothing. That definitely can help your kids start in preparing for their own retirement. And if you add on top of that, the $5,000 a year, that’s adding even more.

So, it’s not nothing. It’s very useful dollars for the benefit of your kids. So that’s the very best use case.

The second use case, if you are very intentionally planning for Roth conversions once your kid turns 18. Now this can’t be done before then.

But once your kid turn turns 18, it essentially becomes a regular traditional IRA. And so if you are intentionally planning for consistent Roth conversions to move it from that pre-tax IRA wrapper over to the Roth IRA tax free wrapper, you can do that potentially at your kids’ pretty low tax rates in those early years of adulthood.

So if you’re doing that really intentionally, that’s potentially one way to go about this. And [00:16:00] a couple things can hinder this. for example, the Kiddie Tax rules we just mentioned earlier, they might work against this plan. So if your kids are, 18 years old through college and they’re still dependents on your tax return, after the first $2,700 of conversions or unearned income, They’re paying tax on those conversions at your or the parents’ tax rates. That’s not necessarily ideal.

So this really only works well, or I should say like optimal, once your kids have their own income and are no longer dependents on your tax return.

So that’s the first issue is those Kiddie Tax rules working against it.

Second issue are the actual taxes that they need to pay when they do the conversions, and they have to actually have the money to pay those taxes or to be gifted that money by parents or grandparents or someone else.

But all of that in mind, this is another sort of optimal way to think about it, is being really intentional about Roth conversions. And outside of that. I [00:17:00] think the biggest positive out of these Trump accounts is that even though there have always been ways for parents to invest for kids, there’s a plentiful arsenal of accounts ready to go.

I think there’s going to be a renewed focus on getting retirement savings started for kids as early as possible.

Where maybe that wasn’t the case before. And overall, I think bringing attention to that is a positive. I think early investing is a, is in general a positive. And so I think that’s gonna be one of the biggest positives out of this is just a renewed focus on preparing earlier for our kids’ future.

and in general, there’s nothing really negative about them. I just don’t think they’re going to fully replace anything that’s already out there. I don’t know that they’re really solving any new problems.

In a lot of ways, they’re just layering on new retirement and tax laws where we just don’t need them. We can clean up the rules with the current retirement accounts, and I think that would go a lot farther. Just remove their earned income requirement. Would’ve done just the same, but all of that being said, this can definitely be another option in the [00:18:00] bunch alongside all the other ways that you’re investing in the future of your kids.

So those are the Trump accounts. Stay tuned. July 4th, 2026. If you have any questions on any of this, please let me know. You can reach out at podcast@optometrywealth.com and if you listen recently, we had our first listener Q&A show. If you’d like your questions answered on our next Listener Q&A episode, you can head on over to www.optometrywealth.com/podcastquestion and you can submit your questions there and I’ll also have a link to that page in the show notes as well.

With that, really appreciate your time. We’ll catch you on the next episode. In the meantime, take care. [00:19:00]