Planning Playbook with Jon Owens, CFP®
A New Savings Opportunity, Not a Replacement for Existing Strategies
With the introduction of Trump Accounts, families have another opportunity to help their children build wealth and prepare for their financial futures. But with any new savings or investment account comes an important question: Should parents change how they're already saving for their children?
I believe Trump Accounts should complement existing savings strategies, not replace them.
For years, families have used 529 college savings plans and brokerage accounts to help their children prepare for education expenses, purchase their first vehicle, save for a down payment on a home, or get a financial head start in adulthood.
Trump Accounts introduce another opportunity, particularly when it comes to long-term retirement savings and building generational wealth. However, that doesn't mean families should abandon the other accounts they've been using.
These accounts serve different purposes, offer different tax advantages, and have different rules regarding when and how the money can be accessed.
A brokerage account may provide flexibility for expenses earlier in adulthood. A 529 plan can help families prepare for education costs while offering potential opportunities for future retirement savings. A Trump Account can provide an early foundation for long-term investing, with potential Roth IRA conversion opportunities after the child reaches adulthood.
Rather than asking which account is best, I encourage families to ask a different question:
What financial goals are we trying to accomplish for our children, and which accounts are best suited to help us reach them?
That's where thoughtful financial planning can make a meaningful difference.
Brokerage Accounts: Flexibility for Life's Early Milestones
While retirement savings and education planning are important, parents and grandparents often want to help children prepare for other significant expenses they'll encounter as young adults.
Purchasing a first vehicle, making a down payment on a home, paying for a wedding, or simply establishing financial independence can require substantial savings. These are expenses that may arise long before retirement, making accessibility and flexibility important considerations.
I believe brokerage accounts play an important role in helping children prepare for life's early financial milestones without sacrificing investments intended for retirement.
Unlike 529 plans and Trump Accounts, taxable brokerage accounts generally don't restrict withdrawals to specific qualified expenses or retirement-related purposes. This flexibility allows families to save and invest toward a variety of goals.
Planning for Short- and Intermediate-Term Goals
Some of the most common reasons families establish brokerage accounts for their children include:
First Vehicle: Helping a young adult purchase a reliable vehicle without immediately taking on significant debt.
First Home: Building savings toward a down payment, closing costs, or other homeownership expenses.
Wedding Expenses: Providing financial assistance for an important life milestone without relying on loans or credit cards.
Financial Independence: Creating a financial foundation for other expenses associated with transitioning into adulthood.
The investment strategy should reflect when the money is expected to be needed. Funds intended for a vehicle purchase in two years, for example, generally warrant a different approach than investments earmarked for a home purchase ten years away.
Understanding Account Ownership
Families should also consider how the brokerage account is structured.
A parent-owned brokerage account allows parents to maintain control over the investments and determine when and how the money is used. This may provide additional flexibility when financial goals or family circumstances change.
Alternatively, custodial accounts established under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) allow assets to be held for a child's benefit. However, contributions are generally irrevocable gifts, and the assets legally belong to the child. Control transfers to the child at the applicable age under state law.
Ownership can also affect taxation, financial aid eligibility, and estate planning considerations, making account structure an important part of the decision.
Why Flexibility Matters
One of the biggest advantages of a brokerage account is that families aren't forced to predict exactly how their children's financial needs will develop.
A child who receives a scholarship may need less assistance with education. Another may choose to start a business rather than attend college. Some may purchase a home in their twenties, while others may not need financial assistance until much later.
A properly structured brokerage account can help families adapt to these changing circumstances.
However, brokerage accounts don't generally provide the same tax advantages available through qualified 529 plan withdrawals or retirement accounts. Investment earnings, dividends, and realized capital gains may be subject to taxation.
The goal isn't necessarily to maximize tax advantages with every dollar saved. It's to make sure the money is available when it's needed, without unnecessarily disrupting long-term financial goals.
That's why I believe brokerage accounts should remain an important part of a family's savings strategy, even with the introduction of Trump Accounts.
529 Plans: More Than Just College Savings
For many families, saving for a child's education is one of the first financial planning priorities that comes to mind. With the rising cost of college, trade schools, and other educational opportunities, preparing early can help reduce the financial burden children may face as they enter adulthood.
529 college savings plans have long been one of my preferred tools for helping families accomplish this goal. They offer tax advantages, investment growth potential, and flexibility for a variety of educational expenses.
However, recent changes to 529 plan rules have introduced another potential benefit that I believe makes these accounts even more valuable.
A 529 plan can do more than help pay for education. Under the right circumstances, it can also provide a head start on retirement savings.
The Primary Purpose: Education
A 529 plan is a tax-advantaged investment account designed to help families save for qualified education expenses.
While contributions are made with after-tax dollars for federal income tax purposes, investment earnings can grow tax-deferred, and withdrawals are generally federal income tax-free when used for qualified educational expenses.
Depending on the circumstances and applicable rules, these expenses may include:
College and University Expenses: Tuition, required fees, books, supplies, equipment, and eligible room and board expenses.
Trade and Vocational Schools: Qualified expenses at eligible institutions, including many technical and career-training programs.
Apprenticeship Programs: Certain fees, books, supplies, and equipment associated with registered apprenticeship programs.
K–12 Education: Certain eligible elementary and secondary education expenses, subject to applicable limits and rules.
Student Loan Repayment: Up to $10,000 in lifetime qualified student loan repayments per beneficiary, subject to applicable rules and potential state tax consequences.
For families concerned about the future cost of education, the ability to invest over many years while potentially avoiding taxes on qualified withdrawals can be a significant advantage.
What Happens if Your Child Doesn't Need All the Money?
One concern I've heard from parents over the years is the possibility of saving too much in a 529 plan.
What happens if a child receives a scholarship, attends a less expensive school, chooses a trade instead of college, or simply doesn't use all the money?
Fortunately, 529 plans offer several options.
Depending on the circumstances, families may be able to change the beneficiary to another eligible family member, preserve the account for future educational expenses, or use certain scholarship-related withdrawal provisions.
And now, there's another opportunity worth considering.
Using Unused 529 Funds to Jump-Start Retirement
Under current federal rules, eligible unused 529 plan funds may be rolled over directly into a Roth IRA for the account's beneficiary, subject to several important requirements.
These include:
The 529 account generally must have been maintained for at least 15 years.
Contributions made within the previous five years, along with earnings attributable to those contributions, are not eligible for rollover.
The beneficiary must have sufficient eligible compensation to support the rollover.
Annual rollovers are subject to the applicable IRA contribution limit, reduced by other IRA contributions for that year.
A lifetime limit of $35,000 applies to these 529-to-Roth IRA rollovers for each beneficiary.
Additional IRS guidance may affect how certain requirements are interpreted, and state tax treatment can differ.
This creates an interesting planning opportunity for families who have accumulated more education savings than their children ultimately need.
Rather than withdrawing the remaining funds for nonqualified expenses and potentially incurring taxes and penalties, qualifying families may be able to transfer some of those savings into a Roth IRA.
Once inside the Roth IRA, the money has the potential to continue growing for decades, with qualified distributions generally being tax-free.
Why I Still Believe in 529 Plans
The introduction of Trump Accounts doesn't change the fundamental value of a 529 plan.
Education remains a major financial expense for many families, and having dedicated savings available can help children pursue their goals without accumulating unnecessary student loan debt.
The potential Roth IRA rollover opportunity adds another layer of flexibility.
I believe the ability to help fund education today while potentially creating retirement savings tomorrow makes 529 plans an important part of a comprehensive family savings strategy.
Rather than viewing 529 plans and Trump Accounts as competing options, I believe families should consider how both can work together.
A 529 plan can help prepare children for educational opportunities and potentially provide an additional retirement savings benefit. A Trump Account, on the other hand, introduces an opportunity to begin building long-term retirement assets much earlier in life.
Understanding these differences is essential when deciding how to allocate savings among the available accounts.
Trump Accounts: Building a Retirement Foundation Early
With the introduction of Trump Accounts, families have a new opportunity to begin investing for their children's financial futures, potentially starting at birth.
While much of the discussion surrounding these accounts has focused on the initial government contribution, contribution limits, and potential uses once children reach adulthood, I believe their greatest benefit may be something much more significant.
Trump Accounts provide an opportunity to begin building retirement wealth decades before most Americans even start thinking about retirement.
Rather than viewing these accounts as another source of money for college, a first home, or other expenses in early adulthood, I believe families should consider their potential as a long-term retirement and legacy planning tool.
How Trump Accounts Work
Trump Accounts are a new type of tax-advantaged investment account established for eligible children under age 18.
During the initial growth period, contributions and distributions are subject to special rules designed to encourage long-term investing.
Some important features include:
Federal Pilot Contribution: Eligible children born between January 1, 2025, and December 31, 2028, may qualify for a one-time $1,000 federal contribution, subject to applicable eligibility requirements.
Annual Contributions: Generally, up to $5,000 per year may be contributed from permitted nongovernmental sources during the initial growth period, subject to applicable rules and inflation adjustments after 2027.
Investment Requirements: During the initial period, investments are generally limited to qualifying low-cost index funds or ETFs tracking primarily U.S. equities.
Tax-Deferred Growth: Investment earnings generally accumulate without annual federal income taxation inside the account.
Access at Adulthood: Special childhood restrictions generally end at age 18, after which traditional IRA rules become applicable.
Unlike a brokerage account, a Trump Account isn't designed to provide unrestricted access to savings for everyday expenses.
And unlike a 529 plan, it isn't primarily intended to pay for education.
Instead, I believe its greatest potential lies in what happens when the child becomes an adult.
The Power of Starting Retirement Savings at Birth
Time is one of the most valuable advantages an investor can have.
Most Americans don't begin seriously saving for retirement until they've entered the workforce. Some wait until their thirties or forties, after they've purchased a home, started a family, or established their careers.
Trump Accounts create an opportunity to begin that process much earlier.
Consider a hypothetical example of a child receiving an initial $1,000 contribution at birth, with no additional contributions.
Assuming an average annual return of 7%, that initial investment could potentially grow to approximately:
| Age | Hypothetical Account Value |
|---|---|
| 18 | $3,380 |
| 30 | $7,612 |
| 40 | $14,974 |
| 50 | $29,457 |
| 60 | $57,934 |
| 65 | $81,650 |
Illustration assumes a constant 7% annual return, compounded annually, with no additional contributions, withdrawals, fees, or taxes. Actual returns will vary, and these figures are not guaranteed.
The illustration becomes even more compelling when families make additional contributions during childhood.
But the real opportunity isn't simply accumulating money by age 18.
It's allowing those investments to continue compounding for another 40 or 50 years rather than spending them in early adulthood.
The Roth IRA Conversion Opportunity
One of the planning strategies I find particularly interesting involves the potential to convert Trump Account assets into a Roth IRA once the account becomes subject to traditional IRA rules.
Under applicable rules, a Roth conversion may allow assets to move from a tax-deferred retirement account into a Roth IRA, where future qualified withdrawals can generally be made tax-free.
However, Roth conversions may create taxable income, and the tax treatment depends on the account's contribution sources, basis, and the individual's circumstances.
For young adults, this presents a potential planning opportunity.
Many individuals experience relatively low-income years while attending college, completing vocational training, or beginning their careers.
During these years, their federal income tax brackets may be lower than they will be later in life.
In certain circumstances, a young adult with little or no taxable income may be able to convert some or all of their eligible Trump Account assets into a Roth IRA while taking advantage of available deductions and lower tax brackets.
The standard deduction may help reduce the federal income tax associated with a conversion, although dependent status, other income, and applicable tax rules must be considered.
Once converted, the money can potentially continue growing inside the Roth IRA for decades.
There are also important conversion rules, including potential penalties on certain early distributions of converted amounts, making proper planning essential.
I believe evaluating a Roth conversion during lower-income years could be one of the most valuable long-term planning opportunities associated with Trump Accounts.
Building a Financial Legacy for Future Generations
Trump Accounts also introduce another opportunity for parents and grandparents interested in building generational wealth.
For families who have already established their own retirement savings, emergency reserves, and other financial priorities, contributing toward a child's long-term retirement future may be an attractive option.
Instead of waiting until children enter the workforce to begin investing, families can help establish a foundation that may benefit them throughout their adult lives.
This approach can also create opportunities to teach children about investing, compound growth, financial responsibility, and the importance of saving for the future.
From an estate planning perspective, contributions may form part of a broader lifetime gifting strategy, subject to applicable gift tax rules and contribution restrictions. Families should also understand that Trump Accounts are not estate tax avoidance vehicles by themselves.
I particularly like the idea of combining financial education with long-term investments.
A child who understands the value of an account established at birth may be more motivated to preserve those investments, make additional retirement contributions, and eventually continue the same tradition with their own children.
Why Trump Accounts Should Complement Other Savings Strategies
Although Trump Accounts provide an exciting opportunity, I don't believe they should automatically replace other savings vehicles.
A child may still need financial assistance purchasing a first vehicle, paying for education, or making a down payment on a home.
Those needs don't disappear simply because a new retirement-oriented investment account becomes available.
Instead, I believe families should approach each account with a specific purpose:
Brokerage Accounts: Provide flexibility for short- and intermediate-term financial goals.
529 Plans: Help prepare for education expenses while potentially offering additional retirement savings opportunities.
Trump Accounts: Establish a foundation for long-term retirement accumulation, future Roth conversion planning, and generational wealth building.
The objective isn't to choose one account over the others. It's to use each account intentionally so that short-term financial needs don't unnecessarily compromise long-term wealth accumulation.
When coordinated properly, these three accounts can help families prepare children for the financial challenges of early adulthood while also giving them a meaningful head start toward retirement.
Putting It All Together: A Savings Strategy for Your Child's Future
When it comes to saving for children, I believe families should think beyond individual accounts and focus on the financial opportunities they want to create.
Helping a child graduate without significant student loan debt, purchase their first vehicle, buy a home, or begin retirement with an established investment portfolio are all worthwhile goals.
However, these goals don't necessarily require the same investment strategy.
Consider a family with a young child that wants to contribute $300 per month toward their child's financial future.
Rather than directing every dollar into a single account, they might consider dividing their savings among three different purposes:
$100 per month into a brokerage account: Building flexible savings for a first vehicle, future home down payment, wedding, or other expenses in early adulthood.
$100 per month into a 529 plan: Preparing for future education expenses, with the potential to roll eligible unused funds into a Roth IRA under applicable rules.
$100 per month into a Trump Account: Establishing a long-term retirement foundation that may benefit from decades of compounding and future Roth conversion opportunities.
This is simply an illustrative example, not a recommended allocation for every family. Trump Account contributions are subject to eligibility and annual contribution rules, and the investment strategy within each account should reflect its intended purpose.
Some families may need to prioritize education savings. Others may prefer greater flexibility or have the financial resources to contribute more toward long-term retirement investments.
The right combination will depend on the child's age, the family's financial circumstances, and the goals they're trying to accomplish.
The important decision isn't how much money goes into each account. It's understanding what each account is intended to accomplish.
Final Thoughts: Give Every Dollar a Purpose
The introduction of Trump Accounts creates an exciting opportunity for families interested in helping children establish long-term financial security.
But new investment opportunities don't necessarily make existing strategies obsolete.
Brokerage accounts can provide flexibility for life's early milestones. 529 plans can help families prepare for education while potentially offering additional retirement savings benefits. Trump Accounts can help establish a retirement foundation long before a child enters the workforce.
I believe these accounts are most valuable when they work together as part of a comprehensive financial plan.
By giving each account a specific purpose, families can help children prepare for financial responsibilities in early adulthood without unnecessarily sacrificing opportunities for long-term wealth accumulation.
Building a financial legacy isn't simply about how much money you leave your children. It's about providing the resources, education, and financial foundation to help them make wise decisions throughout their lives.
Continue Learning: Guide to Saving for Kids
If you're interested in learning more about the different ways to save and invest for your children's future, I encourage you to explore my free Guide to Saving for Kids.
This comprehensive educational resource covers several savings and investment strategies, including:
529 college savings plans and education funding strategies
Brokerage accounts and custodial investment accounts
Roth IRAs for children with eligible earned income
Trump Accounts and their potential role in long-term wealth accumulation
Additional strategies for building a financial foundation and leaving a lasting legacy
Whether you're just beginning to save for a newborn or evaluating how to help a teenager prepare for adulthood, understanding the available options can help you make more informed decisions.
Explore the free Guide to Saving for Kids
And if you'd like help coordinating these strategies as part of your family's broader financial plan, you're welcome to schedule an introductory conversation.