Want To Invest In a Trump Account for Your Kid? Suze Orman Would Rather See You Do This
Written by
Marc Guberti
Edited by
Jenna Klaverweiden
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President Donald Trump’s One Big Beautiful Bill set the stage for Trump accounts for kids. Every qualifying child born after Dec. 31, 2024, and before Jan. 1, 2029, is eligible for a free $1,000 Trump account.
Parents have the option to contribute up to $5,000 per year into the account. Employers can also contribute $2,500 per year to a Trump account without it impacting the employee’s taxable income.
However, Suze Orman isn’t convinced that these accounts are a great deal for parents. In a recent podcast episode, she explained that while you should definitely take the $1,000 that the government gives you, there are also some nuances to consider.
Taxation Questions
Orman explained that she doesn’t think these accounts are as good of a deal as she initially thought. “One of the reasons I think that is because I can’t get agreement as to how that money will be taxed when it’s withdrawn,” she said.
She explained she has heard Trump accounts will turn into traditional IRAs when the child turns 18. As Morningstar explained, once the child turns 18, normal IRA distribution rules go into effect.
That would result in taxes on all withdrawals, including what the parents put in the Trump account. If that’s the tax structure for a Trump account, then her concern makes a lot of sense. So what should be done instead?
Alternative Accounts
“In the long run, really, I’d rather see you do a Roth IRA for your child and where you could fund it, but to do that obviously your child has to be working,” she said.
When you are younger and have a lower annual income, it likely makes more sense to contribute to a Roth retirement account than a traditional retirement account. That way, withdrawals aren’t taxed. Sure, you have a higher tax bill in the present, but it’s a pretty low tax rate if you aren’t earning a high income.
Orman also suggested that parents open an investment account with the mentality that the money is for their child. While this approach doesn’t offer tax advantages, children can access the money right away instead of having to wait until they turn 59 1/2 years old.
Orman isn’t the only one who thinks some alternatives may provide better options. For example, CNBC Make It explained that if the goal is to invest money for the long term, brokerage accounts and Roth IRAs may have more flexibility and more favorable tax treatment as opposed to Trump accounts.
Wait for the Tax Rules To Be Clearer
Orman isn’t completely against Trump accounts, but she wants clarity on the tax structure before suggesting it as a viable option for parents. However, she noted that it’s still okay to take advantage of the $1,000 contribution.
“With that said, if you’re going to have a kid that’s going to be born and automatically get that $1,000, OK, there you go. But that doesn’t mean you have to put any more money into it,” Orman said.
It’s an extra account parents can utilize on top of brokerage accounts and regular retirement accounts. However, it’s likely good to consider other options before contributing any additional money.
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