Back to School, Children Investment Accounts

It's back to school season and the perfect time to start thinking about how you're investing for your children's future.

With the additional of Trump account's now there are more options to consider and it how compares to other investment options for your child like a 529, or UGMA or UTMA, the contribution limit, pre or post tax dollars contributions, and who can contribute.

If you have questions about saving for your own children, you can book a free intro call here to discuss your specific situation

If you had kid or have a kid between 2025 - 2028, you can open a new account and claim a free $1,000. A parent can contribute after-tax funds into the accounts and these funds will then grow on a tax-deferral basis. Meaning the interest, dividends, and capital gains in the Trump account are not taxed until they’re withdrawn from the account.

It’s important to note that parents must opt-in to open the account and claim the free $1,000. This $1,000 is currently only being offered to children born from 2025-2028. The trump account is being offered in a pilot program and after 2028 the government will have to agree to continue offering the free $1,000 to seed the account for newborns.

here are three ways funds can be contributed to a Trump Account

Direct contribution

Employer contributions

And qualified general contributions

There is a combined $5,000 annual contribution limit for both direct contribution and employer contribution. Also employer can only contribute up to $2,500 each year of the $5,000 limit. Starting in 2028 the contribution limit will be indexed against inflation, meaning the annual amount should rise each year.

Anybody can make a direct contribution to an individual’s Trump account: meaning parents, grandparents, families or friends.

Now there are different options to create investment accounts for a child. The most common is a 529, which funds are to be used for college or graduate school expenses. Also a recent change is that the funds can be used for k-12 or post-secondary credentials.

The 529 also allows for greater flexibility. They allow for the funds to be transferred to other eligible family members, you can rollover up to $35,000 to a tax-free roth ira in the beneficiary’s name, and you can keep the accounts open and growing for future generations

529 don’t have stated contribution limits. Contributions over $19,000 would be counted against the gift limit and would have to be reported. 529 allow for greater contributions to be able to be used against the ever growing higher education costs

529s also allow for greater investment options. 529s provides access to a much wider range of professionally managed investments that are diversified and will become more conservative over time as the beneficiary nears college to maintain the capital available

A trump account is limited to one fund tracking the performance of the U.S. stock market. They accounts are limited and automatically invested.

The other accounts to be aware of as possibilities for a minor child are UGMA and UTMAs. UGMA stands for Uniform Gift for Minors Act and UTMA is Uniform Transfers to Minors Act.

The UGMA and UTMA accounts allow for parents or grandparents to fund a custodial account for a child. These essentially act as brokerage accounts. The main difference is that an UTMA allows a parent to transfer a wide range of assets, like art, real estate, or some other asset type. While an UGMA will hold traditional assets like stocks, etfs, mutual funds, and bonds.

There is no limit on what can be contributed to one of these minor custodial accounts but the standard gift tax limit would apply. Then once the child turns 18, these accounts convert to custodial brokerage accounts in the child’s ownership and the parent no longer has any control over the account

This is similar to a trump account which converts to the child once they turn 18. The difference from the 529 is that the parent can still control the account after the beneficiary turns 18