Thank you everyone for joining another episode of the Sandwich Bread Podcast. I'm your host, Tom Kaminsky. This podcast is conversations about life and money for the sandwich generation. And today we're going to have a special episode with just me. So you have to suffer through my voice for the next hopefully 15, 15, 18 max minutes. And we're going to dive into Trump accounts. So I'm excited to get into this topic. These accounts are relatively new. They launched, I believe it was July 4th, 2026. And we're going to get into the what it is, the how it works. And then I'm going to close with my take on the accounts. It's uh somewhat nuanced, and I just want to dive into my take on the pros and cons of the account and how you should think about it for your own family. So I'll start with an important disclaimer. The rules and guidance from the IRS are changing and evolving around these accounts as we speak. So the recording of this podcast is September of 2026. Please take a moment to check the rules and regulations if you're listening to this podcast at any point after publish, because they are looking to, in real time, expand the access to these accounts, the ways they can be used. And so it's really important to take a minute, do so your do your own research, contact your tax or legal professional, and make sure that your understanding of how to use the accounts is consistent with the rules at the moment you start to use them. So all right, so let's start with what the account actually is. What is a Trump account and who qualifies? The what? A Trump account is essentially an individual retirement, IRA designed for children. This is an account in section 530A of the IRS code, and it's an IRA option for kids up until the age of 18. So prior to this account being around, essentially you had no options for saving for retirement for a child, save for a regular brokerage, a UTMA account, something along those lines. And so this is really the first account designed and launched with the intention of retirement savings for a newborn child through age 18. And that's the first and foremost intended use for the account. So there are some other distribution options. I'm seeing and reading a lot online about this, and I want to caution folks that really it is not the intended use to be distributing funds for the purchase of a first home up to $10,000. Not really intended for the use of higher education, but the the accounts have been designed in a way where they have some exceptions to allow for distributions with some favorable benefits for those specific purposes. But I want to caution you there are, in my view, better options when you're thinking about those types of things. So really, first and foremost, the intended use is for your child to start saving for retirement from birth through age 18. Now, once they turn age 18, the account essentially transforms into a regular retirement account, an IRA, like an adult version of what we know of as a traditional IRA today. How much can you you contribute to this account? Up to $5,000 per year can be contributed to the account. Now, note this is a combination of all contributions to the account. Meaning if your employer offers up to a $2,500 match, we're starting to see employers do this, then that counts toward the $5,000. Parental contribution counts toward the $5,000. Grandparents, aunts and uncles, anyone putting money into this account for your child in aggregate needs to total $5,000 or less per year. At present, these contributions for the parent and adult contributor are not tax deductible. That is one area that could be changing soon depending on your structure with your employer, but they are considered after tax contributions to the account. And the growth for the child, you know, say they hold the account until retirement, it would be taxed as normal income on the growth portion. I get into this a little bit later, but this is one of the, in my view, shortfalls of the account design. There's some complexity to tracking contributions versus growth. Now, on top of the contribution component, if your child was born between January 1st, 2025 and December 31st, 2028, you are eligible for a $1,000 seed contribution from the government to start the account. Exclusions and exceptions do apply, but basically, if you're an American child born during that time frame, you get a $1,000 contribution to basically seed and start the account. So I see very little reason not to open the account if you have a child born during that window. At least get the $3,000. And then further and additional contributions on top of that, that's room for discussion. Contributions are generally considered to be irrevocable. So meaning you've given it, it's gone. So it is added to the account. There are exceptions that allow for distributions, but basically until age 18, the intention is put the money in, leave the money in, and let it grow until the child turns 18, at which point it turns into a retirement account. Now the child has access to the account at age 18 and can distribute money with taxes and penalties right at that time. So but until that point in time, it's designed to be 18 years of holding on to the account. How do you open the account? Step one, the in my view, the easiest, best way to do this is to download the Trump account official phone apps. And that I believe is the most efficient path to follow. Once you're in the app and you have downloaded it and start the process, you will fill out IRS form 45-47. This form can be completed electronically through the app. And once you've filled out this form, the account is not opened instantly. You'll receive a notification in one to three business days. And that notification will include an activation link, which then will prompt the completion of opening the account. So it's step one, you you download the app in fill out form 4547. Then step two is you wait. And typically one to three business days, you receive that activation email, follow the rest of the process, and you have officially opened the account. Now, once opened, if your child qualifies, the $1,000 will post to the account in about one to three business days. So again, a little bit of a lag there, but once the account's opened and if you qualify, the funding will arrive. But once the account's open, you yourself can start to contribute immediately to the account. Again, I want to flag the importance of keeping track of the contributions and aggregate to the account because it can be a max of $5,000 aggregated for a year. So we've gone through the filing, we've gone through opening the account, we've gone through funding the account. The next step is automatic investing. So the design of the accounts is to invest the money right away. They are intended to be invested automatically, and you can select from a list of US equity index funds the max expense ratio, which is great, as 10 basis points. So they're trying to keep costs low and they want you to invest in US companies. So you should have a growing list of funds in there that meet this threshold and criteria. I believe the default is an SP fund by State Street with extremely low cost. So that should happen automatically. It'll basically push you into that workflow. Okay. So that is the how of opening the account. We discussed the what, now the how. Let's get into the financial planner side of this. Should we consider opening a Trump account? The answer to that is maybe. Everything's nuanced. If you've listened to this podcast, you know I'm not going to say yes or no very often because every financial planning topic is unique and needs to be tailored to the individual family. But here is a simple framework that I start with and will start with for my clients to work from. I guess situation number one is if you qualify for the $1,000 seed credit from the government based on the date of birth, if your child was born in the aforementioned window of January 1st, 2025 through December 31st, 2028, is a no-brainer. Go for it. So open the account, get the thousand bucks. Easy peasy. Uh everyone should do that. Get the get the free money. And the the process is really not too painful. So I think it's worth the effort. Now part two. That's that's the easy yes. Here are the priorities I will take to my clients if they ask me, should we open a Trump account for our child and contribute regularly to it? Uh step one is how is your, the parents' own retirement savings trajectory going? This is critical. This is first and foremost. So I don't direct funds elsewhere in most cases unless the retirement plan trajectory is is secure. So, you know, I I understand the desire and need to support your children and their their own success, but I view this as sort of a competing interest. Saving for your child's retirement to me is is less critical than saving for your own. So with few exceptions, the first thing to do is secure your own retirement with your savings and planning. Part two is the question I will ask is, you know, let's what's the plan for higher education? If saving for your child, your child's higher education is a priority for your family, after securing your own retirement, then we would have a plan in place for your child's higher education. Yes, the Trump account does offer some side doorways to take money out after the child turns 18 to help pay for higher education, but I typically recommend a 529 account for this. It can have state level tax incentives plus the growth inside of a 529 is tax free if the distributions are distributions are used for qualified higher education expenses. So you may have a tax incentive going in, and then the money coming out if used for the right educational, qualified educational expenses is tax-free as well. These both beat the Trump account. So, Trump account, if you use distributions for qualified higher education expenses after the child turns 18, you'll still have to pay taxes on the gains, plus, you know, you basically just forego the extra penalty. So it's like not as bad of a slap on the wrist, but there is a downside to it. To me, there's a growing list of ways to get money out of a 529 plan over time, uh, above and beyond qualified higher education expenses. So my priority is usually leverage that great account and make sure that that is secured before I prioritize a Trump account. So after you have secured your own retirement, after you have put together a college savings plan, then I'll ask, what are your other important family goals? I think there's a very reasonable argument to be made that investing in your home, a place where you'll spend a lot of time with your family, or investing in family trips is a priority over a Trump account. There's a reasonable argument here, so I'll hear people out, but there's always a trade-off with spending versus saving. And you I really stress with my clients the importance of striking a balance there. Save for the future, absolutely, but also invest in the present with your with your kids. So if the difference between a life-changing trip and saving for a Trump account, if that's if that's the decision tree, there's a discussion to be had there. So I I would also say after retirement, after higher education, investing in the present experience for your family is really important. Maybe not a priority over Trump accounts, but there's a discussion to be had there. Once these three categories are secured, only then do we look at your child's own retirement because you are investing in their education. A lot of parents say, I don't want to give my kids everything, but I want to set them up for success. And investing in their child's own retirement may fall a little bit lower on the ranking list. So, you know, run through these scenarios. If you're a listener, run through these scenarios in your head and consider them carefully. Now, I I'll add an important caveat. If your employer is going to match contributions to a Trump account, or if there's a system in place where you may qualify for getting a state level contribution to a Trump account based on your own contributions, things like that. That can skyrocket the use of these accounts way up to the top of the list. You know, if you're getting free money into this account, a free match, something along those lines, to me, it's it's a really powerful thing. Again, there's some nuance to all of this and conversation to be had, but check those boxes off in your head when you're trying to decide how what role this should play. All right, so now let's get into Tom's take on these Trump accounts. There's a long list of pros and cons. So if you if you are not interested in my personal opinion on a lot of this, you you've listened to enough of this episode. So I'll get you by a couple minutes back. But the remaining portions are my list of pros and cons. But if you stick around, there will be some potentially direct, impactful takeaways from these notes. So let's go through the list of pros and cons. First and foremost, I think the accounts are extremely interesting. It's no surprise to folks. You hear a lot of headlines in the news. The social security system is on a trajectory to deplete its reserves around years 2033, according to the latest trustees report. So the program is in a fairly fraught financial state. And I want to be clear, you know, the administration itself is saying that these accounts are not intended to replace the social security system, but it does create a new mechanism for saving for retirement and creates a new pathway for folks to be slightly less dependent on the social security system. So I'm pretty much all for anything that does that. And for that reason, I look at these accounts as is generally a net positive. It's it's a new mechanism, it's a new attempt at helping people save for retirement. And so, and I have more strong views on the state of the social security system that we don't have time for in this podcast. I don't think it's gonna go bankrupt. I do think the reserves are on a trajectory to be depleted. I think there's a lot of good data around that, but the system will need to be modified and modified quickly to sustain itself long term. Okay, another pro. Up until now, generally, individual retirement accounts were not an option for children. So just at a high level, I do like opening that door for children. Another pro that I like is that the account is locked down essentially for 18 years. So it really forces productive conversations around the merit of investing and how compounding works with parents and children. I think it's a good education piece for parents to sit there and watch $1,000 ideally grow and compound over time. It forces you to say, oh wow, compounding is a very real thing. A lot of folks put off investing for the future because they don't see the immediate benefit, but this is going to force 18 years of watching an account grow. I I love the idea of that. It's gonna force conversations with parents and kids about how investing and and compounding works. I think there's an extraordinary opportunity here to help folks that didn't have access before start participating in the growth of investments and understanding it. So I'm very excited about that aspect of this. It's it I think it'll foster really great dialogues. Related to this, I like the idea of buying in. Basically, you're gonna allow for individuals to have direct participation in the success of American companies. And if you look at the performance of the S P 500, for example, over time, it has been extraordinary. Uh, there have been long stretches of ups and downs, but I love the idea of newborns being able to participate in the success of the American economy and the American companies. So positive there. If done well, another positive, I see this program growing and evolving. Now, this is just a starting point for this program. We're already seeing some expansion. We're seeing more wealthy individuals and companies coming up with ways to contribute and add money to these accounts. I think it's an incredible opportunity for wealth redistribution from both wealthy individuals and employers. So we're seeing folks step up, contribute more money. And I think until now, there hasn't been this solid of a mechanism for wealth redistribution to newborns. So it's I I kind of view that as exciting. Next, you know, this is an opportunity for proactive gifting from a parent to a child during your lifetime. So for parents that are concerned about estate taxes over the long haul, this might be a possible opportunity to do some thoughtful gifting during your life. Folks with potential estate tax issues, there's plenty of gifting strategies during your lifetime that you should be discussing with your estate planning attorney. And I would add Trump accounts to this list for a discussion with your qualified attorney for legal guidance. I guess another positive I would add to the list is this has been done fairly well operationally. It's not perfect. It requires coordination with an IRS form that needs to be submitted. So there's there's steps involved. But overall, it it seems like it's reasonably well done. And I think that's a pro. So some of the cons. In my view, 18 years, that's the lockout period. It's a long period of time, but in my view, it's not long enough. So when the child turns 18, they will essentially have full access to the account. It will become their own. And it will be interesting to see if those 18-year-olds immediately distribute the money, pay the taxes, pay the penalty, and take that money and go. Or it'll be interesting to see how many of these children turning into young adults keep the account until it's intended use for your actual retirement timeline. I personally would have preferred a longer required holding period with more restraints or incentives for folks to keep the money in there until their own retirement. I think it'd be fascinating to put a 50 or 60 year lockout on this account and have folks watch the account accumulate and grow without the ability to access it. I think behaviorally that's really interesting. So 18 years is a start and we had plenty of time to see these rules evolve, but I would prefer it actually be intended for retirement, have some constraints on that. Uh cons. A lot of folks are considering this as an alternative to a 529 plan or as a college savings plan. I do not view this as a replacement mechanism for that. It is, in my view, less tax efficient and less useful in that regard. And I worry that folks will consider this a replacement for that. So I see that as a negative. Another negative, as mentioned before, this is, in my view, a lower priority account. Unless you're getting a match or the $3,000, it basically is a distraction from lots of really important financial goals. So I caution folks to you know not prioritize this over other aforementioned priorities. Another negative, it's complex. I mean, having pre- and post-tax commingled contributions inside of these accounts, the post-tax portion are the contributions, the pre-tax portion is the growth. I watch clients grapple with this in their own personal retirement accounts, adults. It's a mess to untangle the proration and the contribution history. And so I hope that Robinhood has built a really, really, really good mechanism for this because this is a complex account when it comes time to actually taking the money out. No one's going to talk about that for 18 years because you don't have to. And then when that time comes, I think we're going to have some really, really messy tax returns. So I'm not a fan of that. I hope it gets simplified over time. I don't love more accounts. We have a really complex tax code as it stands today, adding more retirement accounts, more options, more complexity. It's not always a positive unless it's executed extremely well. Another con $1,000 is to start, right? It's not nothing, but a $1,000 seed contribution from the government is far from being a system that will drive success for most Americans and their families. I would love to see contribution levels grow and systematize over time with the support of employers and wealthy donors and the government. $1,000 is more of a catchy headline to get accounts opened, but doesn't solve for huge systemic issues. So I hope there's some change there long haul. And lastly, you know, if and when a child gets their first job and has some earned income, I actually don't prefer this account. If child has earned income and they're filling out their taxes and they qualify and they're in extremely low bracket, which many youths are, you know, when they get that first job, I think Roth IRAs are a more interesting place to start your research. So all that advice, obviously very customized. And this is not specific tax advice, but these are just ideas and guidelines for you to think about with your own finances. All right. That's all for now, folks. I appreciate you sticking around. I just wanted to offer again some thoughts related to Trump accounts. First of all, what are they and who qualifies? Then if you want to take the step to open the account, I wanted to offer some steps on how it actually works. Then a simple framework for should we open one? What are the things to think about and consider if you're going to take that step to open one? And lastly, I just did really more just my personal diatribe, a little take on the pros and cons of Trump accounts in my humble opinion and um some opportunities or some drawbacks that I see. Thanks so much for listening in. It's just a Tom episode. So I hope you're not sleeping behind the wheel. I hope, I hope you're wide awake. And I hope it was interesting enough to make it to the end here. Thanks again for tuning into the Sandwich Bread podcast. Have a great day.