Trump Accounts, Roth IRAs, and Brokerage Accounts: The Complete Parent’s Playbook
Warren Buffett’s first rule is never lose money, and his second rule is never forget the first. Most people think that’s about picking bad investments. It isn’t only that. You can pick a perfectly good investment, an S&P 500 index fund, and still lose a pile of money over 40 years by holding it in the wrong kind of account. The fund is the same. The tax wrapper around it is where the money quietly leaks or compounds.
Trump accounts are the new shiny wrapper, and the marketing is everywhere. This piece takes the whole question apart, slowly and with real numbers. What these accounts are, how each one is taxed, what the growth actually turns into at 18, at college, at 30, and at retirement, and the one strategy that beats them all if you own a business. No stone unturned.
Every figure below assumes a 9% return on an ordinary stock index fund, a 32% effective income tax rate, and a 15% long-term capital gains rate, unless noted. Change the assumptions and the exact numbers move, but the ranking almost never does.
The Only Two Questions That Matter
Forget the name on any account. Every savings vehicle answers two questions, and those two answers decide everything.
First, do you get a tax deduction when the money goes in. Second, how is the money taxed when it comes out. That’s the entire game.
Line the accounts up by those two questions and the whole landscape gets simple:
Traditional IRA / 401(k): deduction going in, ordinary income on everything coming out.
Roth IRA: no deduction going in, nothing coming out. It’s tax-free.
529 (education): no federal deduction (many states give one), tax-free for qualified school costs.
Taxable brokerage: no deduction going in, capital gains rates coming out, plus a step-up at death.
Trump account: no deduction going in, ordinary income on the earnings coming out.
Read the Trump account line against the others. No break going in, and the growth taxed at the highest rates coming out. Every other account beats it on at least one end. Hold that thought, because the numbers later make it concrete.
Defining the Terms, Properly
Before the math, let’s define what we’re actually comparing. Skip this if you live in the tax code. Read it if you want the numbers later to make sense.
Basis. The money you put in that already got taxed once. When it comes back out, it isn’t taxed again. Only the growth on top of your basis is up for grabs. This one word explains most of the differences below.
Ordinary income vs. capital gains. Ordinary income is your regular tax rate, the one on your wages, and it runs up to 37% federal. Long-term capital gains, the profit on an investment you held more than a year, get their own lower brackets of 0%, 15%, and 20%. Same dollar of profit, very different tax, depending only on which bucket it falls in. Steering profit into the capital gains bucket instead of the ordinary bucket is one of the biggest levers in the whole tax code.
Tax-deferred vs. tax-free. Tax-deferred means you don’t pay tax while it grows, but you pay later when you pull it out. Tax-free means you never pay tax on the growth at all. A traditional IRA and a Trump account are tax-deferred. A Roth and a 529 (for school) are tax-free. Deferral is good. Free is better.
Step-up in basis at death. When you die and pass an investment to your heirs, the tax code resets its basis to the value on the date of death. All the gain that built up during your life vanishes for tax purposes. This applies to a brokerage account. It does not apply to IRA-type accounts, including Trump accounts, where heirs still owe ordinary income tax on the earnings.
Kiddie tax. A rule that stops parents from parking investments in a low-bracket child’s name. For a child who is a dependent (and for full-time students under 24), the child’s unearned income, meaning interest, dividends, and capital gains, gets taxed at the parent’s rate above a small threshold. For 2026, the first $1,350 is covered by the child’s standard deduction, the next $1,350 is taxed at the child’s rate, and anything above $2,700 is taxed at the parent’s rate. The key word is unearned. A child’s wages are earned income and are not touched by the kiddie tax, which is exactly why the hire-your-kids strategy below is so powerful.
Standard deduction. The amount of income you can earn before any federal income tax applies. For 2026 it’s $16,100 for a single filer. A dependent’s standard deduction against earned income can go all the way up to that $16,100, so a child can earn real wages and owe zero federal income tax.
Now the accounts themselves.
Taxable brokerage account. A plain investment account. No deduction going in, no contribution limit, and full access anytime with no penalty. While it grows you owe a little tax each year on dividends (roughly a 1.3% yield on an S&P fund), and when you sell you owe capital gains rates on the profit. Its two hidden superpowers are the step-up at death and the ability to harvest losses against gains. For a kid, this is usually held as a UTMA or UGMA custodial account, which does drag the kiddie tax into the picture on the annual dividends and any sales.
Roth IRA. You contribute after-tax dollars, it grows, and qualified withdrawals after age 59½ are completely tax-free. You can pull your own contributions (not the earnings) back out anytime, tax-free and penalty-free, which makes it far more flexible than people think. The catch that matters here: you can only contribute if you have earned income, and only up to that income or the annual limit, whichever is less. The 2026 limit is $7,500. A minor can have one as a custodial Roth, run by a parent until the child comes of age.
Traditional IRA. The mirror image of a Roth. You often get a deduction going in, it grows tax-deferred, and everything comes out as ordinary income. Also needs earned income to contribute.
529 plan. Built for education. No federal deduction, though many states give you a state income tax deduction or credit. It grows tax-deferred, and withdrawals for qualified education costs are 100% tax-free, earnings and all. Leftover money can now roll into the beneficiary’s Roth IRA, up to a $35,000 lifetime cap, and it can also cover K-12 tuition, apprenticeships, and some student loans. You can open one at any major custodian today.
Trump account. A new account created under the One Big Beautiful Bill Act, in tax code section 530A. Here’s where it needs a full walkthrough, because the details are where the trap hides.
How a Trump Account Actually Works
A Trump account is, at its core, a traditional IRA for a child, with special rules while the child is young. Six things you need to know.
Who can have one. An eligible child who hasn’t turned 18 by the close of the year, has a Social Security number, and for whom an election is filed. The election isn’t optional.
The $1,000 seed. The government makes a one-time $1,000 pilot contribution for an eligible child who is a U.S. citizen born after December 31, 2024 and before January 1, 2029 (so 2025 through 2028), is a qualifying child, has an SSN issued before the election, hasn’t already had a pilot election processed, and has an account open to receive it. You claim it by filing the election (Form 4547 or the online tool). It does not arrive automatically. Miss the filing and you lose the $1,000.
Contributions. No contribution of any kind could be made before July 4, 2026. After that, family can put in up to $5,000 per year per child until the year the child turns 18. The $1,000 seed sits outside that $5,000 cap.
No deduction going in. Your contributions are nondeductible. They become basis, which means they come back out tax-free later.
Taxation coming out. After the growth period the account follows traditional IRA rules. Your private contributions come back tax-free as basis. The earnings, the $1,000 seed, and any employer contributions are taxed as ordinary income when withdrawn. Pull money before age 59½ and there’s an extra 10% tax on the taxable part, unless an exception applies.
The employer angle. An employer can contribute up to $2,500 of the $5,000 cap and exclude it from the employee’s wages. That’s a genuine tax break, and it’s the one place the account offers a deduction-style benefit. Hold that thought too, because there’s a better version of it.
One honest point in the account’s favor, so nobody accuses us of stacking the deck. It can be funded even for a child with no earned income at all, which a Roth cannot. And it defers tax while it grows. So it isn’t worthless. It’s just usually outclassed, and the numbers show by how much.
The Numbers: One Contribution, Four Finish Lines
Here’s the setup for every table below. You put $5,000 a year into an S&P 500 index fund for 18 years. That’s $90,000 of your own contributions. At 9% it grows to about $206,500 by the time the child turns 18. Now watch what the account wrapper does to that same pile at four different moments.
Finish line 1: Your kid taps it at 18
Taxable brokerage (capital gains, fully liquid): about $189,400.
Roth IRA (full cash-out): about $157,600.
Trump account (ordinary income plus a 10% early tax): about $157,600.
The brokerage wins by about $32,000, and it’s fully reachable with no penalty. The Roth ties the Trump account on a full cash-out, but that understates it badly. With a Roth, you can pull the $90,000 of contributions out tax-free and penalty-free and leave the earnings growing tax-free. The Trump account can’t cherry-pick like that; every dollar out is part taxable earnings.
Finish line 2: College
This is where a common myth needs killing. Using a Trump account for college does not make the withdrawal tax-free. It only waives the 10% penalty. The earnings still come out as ordinary income. The 529 is the account that’s actually tax-free for school.
529 plan (100% tax-free for qualified education): about $206,500.
Taxable brokerage (capital gains): about $189,400.
Trump account (penalty waived, earnings still taxed): about $169,200.
The 529 hands you about $37,000 more than the Trump account for identical contributions and growth, purely by not taxing the earnings. For college money, the 529 is the tool and it isn’t close.
Finish line 3: Age 30
Let the same money ride, untouched, to age 30, where the pile has grown to about $580,800.
Taxable brokerage (capital gains, fully liquid): about $505,100.
Trump account (ordinary income plus a 10% early tax): about $374,700.
About $130,000 apart, and the brokerage is reachable without a penalty while the Trump account is not.
Finish line 4: Retirement at 59½
Now let it grow all the way to 59½, the age the early tax finally disappears. The pile is about $7.38 million.
Roth IRA (tax-free): about $7.38 million.
Taxable brokerage (capital gains): about $6.07 million.
Trump account (ordinary income): about $5.05 million.
The Roth beats the Trump account by about $2.33 million on identical dollars, purely because it never taxes the growth. Even the plain brokerage beats the Trump account by roughly a million, at lower rates and with full access the whole way.
Four finish lines, one loser at every one. That’s the case against funding a Trump account with your own dollars.
“But it defers taxes while it grows.” True, and it’s worth almost nothing here. A buy-and-hold index fund already defers nearly everything on its own. The only annual leakage in a brokerage is the tax on a roughly 1.3% dividend, and the price growth compounds untaxed until you sell. That thin deferral edge doesn’t come close to covering the gap between ordinary rates and capital gains rates on the way out.
The One Real Win: Take the Free $1,000
Now the exception, and it’s a good one. The $1,000 seed is the only genuinely free thing in the whole program. You didn’t earn it, you didn’t fund it, and there’s no version of it in a brokerage, a Roth, or a 529.
Left alone at 9% for 60 years, that single free $1,000 grows to about $176,000, and even after ordinary tax on the gain your kid keeps around $120,000. From a dollar you never put in.
So the move is simple. Open the account for every eligible child and file the election to capture the $1,000. Then stop, and put your own money to work somewhere better.
The Best Move If You Own a Business: Hire Your Kids, Fund a Roth
Here’s the strategy that beats everything, and it’s built for exactly the people reading this. You own a business. Your kid is a person. Put the two together.
The idea in one line: pay your child a real wage for real work, the business deducts it, the child owes no tax on it thanks to the standard deduction, and the child funds a Roth IRA that grows and comes out tax-free. You get a deduction on the way in and tax-free growth on the way out. That’s the combination no other account gives you.
Why it works on every level:
The wage is a deductible business expense, so it comes out of pre-tax business dollars. The child’s wages are earned income, so the kiddie tax doesn’t touch them. Up to the 2026 standard deduction of $16,100, the child owes zero federal income tax on those wages. And earned income is exactly what unlocks a Roth contribution, up to $7,500 for 2026. You’ve moved money from your business to your child, deducted it, paid no tax on it, and landed it in the best account in the tax code.
What Works
The work has to be real, age-appropriate, and paid at a reasonable rate. Done right, this is bulletproof. Done sloppily, it’s an audit waiting to happen. The difference is documentation and substance.
Age-appropriate jobs that hold up:
Ages roughly 7 to 12: shredding documents, filing, stuffing envelopes, cleaning and organizing the office, basic inventory work, appearing in the company’s marketing photos.
Ages 13 to 17: data entry, social media management, website updates, customer service, photography, product assembly, bookkeeping help.
Reasonable pay: think $10 to $20 an hour for most of this, benchmarked to what you’d pay a stranger for the same work and to local wages. The test is simple. Would you pay an unrelated person that rate for that task.
The paperwork that makes it real:
A written job description
Timesheets showing hours actually worked
A W-2 issued to the child, like any employee
Payment by check or transfer into the child’s own account, not cash in a pocket
A note on how you set the pay rate (the comparable wages you looked at)
Treat it with the same formality you’d use for an unrelated employee, and it holds.
What Doesn’t Work
Just as important, here’s what gets the deduction thrown out and invites a penalty:
Paying for chores. Taking out the household trash or mowing the family lawn isn’t a business expense. The work has to be for the business.
Inflated wages. Paying a 9-year-old $60 an hour to “consult” is a red flag. Unreasonable pay gets the deduction disallowed and can taint the whole arrangement.
No records. If you can’t show what was done, when, and why the pay was fair, you can’t defend it. No timesheet, no deduction.
The no-show job. Paying a child who did nothing is fraud, plain and simple. The work has to actually happen.
The rule of thumb: if you’d be comfortable showing the arrangement to an auditor exactly as it is, you’re fine. If you’d need to dress it up first, fix it before you run it.
The Entity Catch, and the Workaround
Here’s a wrinkle that matters for most of you, because most of you run S corporations.
If your business is a sole proprietorship or a partnership owned only by the parents, wages paid to your child under 18 are exempt from Social Security and Medicare tax, and exempt from federal unemployment tax until 21. That’s a clean 15.3% savings on the payroll-tax side, on top of everything else.
If your business is an S corporation or a regular corporation, that break disappears. The child’s wages get hit with payroll taxes like any employee’s. The strategy still works, you just lose the FICA exemption.
There’s a well-known workaround. Your spouse sets up a sole proprietorship that acts as a family management company. The S corporation pays that company a management fee (a deductible expense), and the management company employs the children. Because the management company is an unincorporated parent business, the under-18 FICA exemption comes back. It’s a legitimate structure, but only if it has real substance: a genuine business purpose, real services, reasonable fees, and its own paperwork. Set it up as a hollow shell to dodge tax and it won’t survive a challenge. Run it as a real arrangement and it holds. This is one to set up with your CPA, not off a blog post.
The Numbers on Hiring Your Kid
Say you pay your child $7,000 a year for legitimate work from age 11 to 20, ten years, and they put it all into a custodial Roth.
Total wages paid: $70,000.
Your business deduction saves you, at a 32% rate, about $22,400 in tax over those ten years. At 37%, closer to $25,900.
Your child’s income tax on those wages: $0, because each year’s pay sits under the standard deduction.
The Roth at age 21: about $106,000.
The Roth at age 60, untouched, tax-free: about $3.06 million.
Sit with that. You moved $70,000 from your business to your child, wrote it all off, nobody paid income tax on it going in, and it becomes roughly $3 million of tax-free retirement money for your kid. Compare that to routing the same kind of money into a Trump account, where the growth comes out as ordinary income. It’s not a close call.
And notice this beats even the Trump account’s best feature. The employer $2,500 contribution is a real break, but it lands in an account taxed at ordinary rates on the way out. The wages-into-a-Roth path gives you the same deduction on the front end and tax-free money on the back end. Same idea, far better ending.
When the Trump Account Is Actually the Right Tool
To be fair, there are two spots where it genuinely earns its place.
The free $1,000 seed. Always take it. There’s no substitute.
And the years before your child can work. A Roth needs earned income, so you can’t fund one for a newborn. A Trump account has no such requirement. So for the earliest years, the seed and the account are available when nothing better is. Once your child is old enough to do real work, the wages-and-Roth engine takes over.
There’s also a possibility worth watching. There are early signals a Trump account might be convertible to a Roth once the child turns 18. If that holds up when Treasury finishes the rules, converting in a low-income year and letting it grow tax-free would change the calculus. The regulations aren’t final, so treat it as a maybe, not a plan.
The Playbook
Strip it all down and here’s what to do.
Claim the free $1,000 seed for every eligible child. File the election. It’s the one no-brainer.
For college, use a 529. It’s the only account that comes out fully tax-free for school.
For long-term wealth, if you own a business, put your kid on real payroll and fund a custodial Roth. Deduction in, tax-free out, roughly $3 million from a $70,000 investment in the example above.
For flexible, accessible money, or once the Roth is maxed, use a tax-efficient brokerage. Lower capital gains rates, a step-up at death, and full access.
Fund the Trump account with your own dollars only where it’s genuinely the only tool, a young child with no earned income and the seed already sitting there.
The Trump account isn’t a scam, and it isn’t useless. It’s a mediocre wrapper with one great free feature. Take the free feature. Put your real money where the tax code actually rewards you.
Rule No. 1, never lose money. Rule No. 2, never forget Rule No. 1. The fund you pick barely changed across all these tables. The account you put it in changed everything.
I hope this provided some value.
Stay smart,
Jonathan Sussman CPA
This post is for informational and educational purposes only and is not tax, legal, or investment advice. All figures are illustrations assuming a 9% annual return, a 32% effective ordinary rate, and a 15% capital gains rate; your actual results, rates, and situation will differ. Trump account rules are still being finalized by Treasury, and the hire-your-children and family-management-company strategies have specific legal requirements. Talk to your CPA before acting on any of this.
