A CPA Explains the Best Strategy for Tax-Free Savings
Creating a tax-free retirement account for your child has never been more accessible—but understanding the best strategy can make a significant difference in long-term savings.
In the past, if parents wanted to set up a custodial Roth IRA for their child, the child needed to have earned income—whether from W-2 wages, commissions, or self-employment. This made the strategy most feasible for parents who owned a business, allowing them to pay their child while also creating tax advantages and building their child’s financial future.
But what about parents who don’t own a business?
For those who didn’t want to navigate the complexities of putting their child on payroll but still wanted to build tax-advantaged savings, a 529 plan was often the go-to option. While effective, this strategy comes with limitations—it is dependent on the child attending a qualified higher education institution and using the funds for eligible education expenses.
So what happens if your child decides not to go to college?
In those cases, funds from a 529 plan can eventually be rolled into a Roth IRA once the child turns 18. However, there are limitations on how much can be transferred tax-free, which can restrict the long-term flexibility of this approach.
Introducing Trump Accounts
Enter the new Trump Accounts—a recently introduced option designed to give parents more flexibility when saving for their child’s future.
For the first time, parents can open a Trump Account for their child and contribute up to $5,000 per year. This can occur without needing to establish earned income or structure payroll arrangements.
This removes a major barrier that previously limited access to Roth-style tax strategies for many families.
How Trump Accounts Work
Trump Accounts function similarly to a Roth IRA in several key ways:
- Contributions are made with after-tax dollars
- Funds grow tax-free over time
- Withdrawals in retirement can be tax-free
One of the biggest advantages is flexibility. When your child turns 18, the funds can be rolled into a Roth IRA tax-free, allowing for continued long-term growth.
Eligibility & Government Incentives
You may be wondering:
Does my child need to be born between 2025 and 2028 to qualify?
The answer is no—any eligible child can have a Trump Account.
However, if you want to take advantage of the $1,000 federal seed contribution, your child must be born between 2025 and 2028.
How to Open a Trump Account
Trump Accounts are designed for parents who want to give their children a financial head start with long-term, tax-free growth.
There are two primary ways to get started:
- For children born in 2025: File Form 4547 with your personal tax return to receive the $1,000 federal seed contribution.
- For children under 18: Apply directly through TrumpAccounts.gov.
These accounts are expected to become active starting July 5, 2026.
How Trump Accounts Increase Flexibility
For years, building tax-free retirement savings for children required planning around earned income or limiting funds to education-specific accounts.
Trump Accounts introduce a new level of accessibility and flexibility, making it easier than ever for parents to start early.
As with any financial strategy, it’s important to evaluate how this fits into your overall tax plan and long-term goals.
The Biggest Mistake We See? Waiting Until Tax Season To Think About Strategy
Whether you’re planning for your child’s future or optimizing your own finances, the right structure can make a significant difference over time. Many business owners unknowingly overpay in taxes simply because they’re not implementing proactive strategies throughout the year.
If you’re not sure whether your current setup is working as efficiently as it could be, it’s worth taking a closer look.
🔗 Learn more or schedule a consultation:https://hojjaticpa.com/
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