Everyone's talking about the new Trump Account because of the $1,000 the federal government will contribute for eligible children. That's nice, but it's not what gets me excited. What gets me excited is the strategy behind it. Used the right way, a Trump Account can become the first step toward building a significant Roth IRA for your child, potentially creating decades of tax-free growth.
The Trump Account officially became available beginning July 4, 2026, as part of the Working Families Tax Cuts legislation. It's a custodial-style investment account designed for children under age 18.
Unlike a Roth IRA, a child doesn't need earned income to have a Trump Account funded. Parents, grandparents, relatives, and even employers through qualified programs can contribute up to the annual contribution limit. For children born between 2025 and 2028, the federal government also provides a one-time $1,000 seed contribution.
At first glance, some people look at the account and immediately dismiss it because there's no tax deduction for contributions. While the investments grow without annual taxation, the earnings become taxable when they're eventually withdrawn. Compared to a Roth IRA, that doesn't sound especially exciting. That's where people lose interest. I don't. Because I don't look at the Trump Account as the destination. I look at it as the starting point.
You already know I love what I call the "get-rich-slow" strategy. Building real wealth is about consistently putting money into the right accounts over a long period of time and letting compound growth do the work. Which is exactly why I like the Trump Account.
Starting July 4, 2026, families can contribute up to $5,000 per year into the account until the child turns 18. If you have a newborn and consistently maximize those contributions, you could invest up to $90,000 over eighteen years. For eligible children born between 2025 and 2028, the government's $1,000 contribution is just icing on the cake.
Now, I realize not every family can contribute the maximum every year. That's okay. Don't let the perfect become the enemy of the good. Whether you're contributing $100 a month, $250 a month, or the full amount, starting early matters far more than waiting until you feel financially comfortable.
Think about it this way. Contributing $5,000 per year for thirteen years starting when your child is five years old is roughly $400 per month. Assuming a reasonable long-term return, that account could grow to approximately $110,000 by the time they turn eighteen. That's not because you found some magical investment. That's because time is one of the greatest wealth-building tools you'll ever have.
Parents assume they simply have to write a personal check to fund the account. That's just one option. But if you own a business, there's another strategy worth considering.
If your child legitimately works in your business, you may be able to pay them reasonable compensation for real work they perform. Depending on your business structure and the child's age, that compensation can create significant tax advantages for your family while giving your child earned income. Imagine what happens next.
Instead of just giving your child money to contribute, they're contributing money they've legitimately earned. You're teaching them about work, responsibility, saving, and investing all at the same time. I love strategies that accomplish multiple goals with the same dollar. You're helping your business. You're helping your child. And you're building wealth for the next generation.
As always, make sure you're following the rules regarding paying children in your business and documenting legitimate job responsibilities.
When your child turns eighteen, they have options. They can use the account to help pay for college, start a business, buy their first home, get married, or pursue any number of financial goals. Remember, the original contributions come back tax free because they were made with after-tax dollars. It's only the investment growth that's generally taxable.
But here's the strategy I really like. Instead of spending the money, they may be able to convert the account into a Roth IRA. Let's go back to our earlier example. Suppose the account has grown to approximately $110,000 by age eighteen, with about $60,000 representing contributions and roughly $50,000 representing investment gains. If they convert the account, they're generally paying tax on the growth, not the original contributions.
Don't let the idea of paying tax on a Roth conversion scare you. This could be one of the best financial decisions your child ever makes. Think about who's paying that tax. It's an eighteen-year-old who's likely in one of the lowest tax brackets they'll ever be in. I'd much rather see them pay tax on those gains at a low tax rate than decades later after they've become a successful business owner or professional.
Once that money is inside a Roth IRA, you've completely changed the game. Future qualified growth and qualified withdrawals can be tax free, and now that account has decades to continue compounding. That's why I don't look at the Trump Account as the finish line. I look at it as the launchpad that gets your child into one of the most powerful wealth-building accounts available.
Once the money is inside a Roth IRA, you've got another important decision to make: how are you going to invest it? This is where self-directing can become incredibly powerful. Your child can invest in stocks, bonds, mutual funds, ETFs, real estate, cryptocurrency, precious metals, private businesses, oil and gas, and many other investments allowed under the law. They have the freedom to invest in what they know best.
I'm a huge believer in self-directing because I want people investing in what they understand. It doesn't mean Wall Street is bad. A simple mutual fund or ETF may be exactly the right choice for one person. Someone else may have years of experience in real estate or another type of investment and want to build their portfolio around that knowledge. The goal is to get the best rate of return you can by making informed investment decisions, not simply following whatever everyone else is doing.
Let's go back to our example. If that $110,000 Roth IRA earns an average annual return of 10% and your child never contributes another dollar, after forty-five years the account could grow to more than $8 million. That's the power of compounding. Could the returns be higher? Absolutely. Could they be lower? Of course. The point is understanding what can happen when you start early, invest in what you know, and give your money decades to grow inside a tax-free Roth IRA.
As exciting as this strategy is, I don't want families making avoidable mistakes.
The Trump Account by itself may not be revolutionary, but when you combine early contributions, disciplined investing, a well-timed Roth conversion, and decades of tax-free growth, it becomes something much more powerful.
If you'd like to learn more about self-directed retirement accounts and the strategies that can help you build long-term tax-free wealth, my team at Directed IRA can help. Whether you're planning for yourself or the next generation, book a free 15-minute call and we'll help you understand which retirement vehicles fit your goals and how to put them to work.
I love helping families build wealth slowly and intentionally. That's how lasting wealth is created. It isn't built overnight. It's built one smart decision at a time.