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NEW Children’s Savings Accounts: What Parents & Grandparents Need to Know in 2026 · The Wealth Cafe

• 0:15
  SPEAKER_00: Welcome back to the Wealth Cafe.
• 0:16
  SPEAKER_00: I'm Caroline Tannis, lead financial advisor and founder of Tannis Financial Group.
• 0:21
  SPEAKER_00: If you have children or grandchildren in your life, I need you to pay close attention to this episode.
• 0:28
  SPEAKER_00: Because in July of this year, 2026, a brand new tax advantage savings vehicle for children became available for the first time in United States history.
• 0:38
  SPEAKER_00: And while you may have heard something about it, I want to make sure you understand exactly what it is, how it works, and what it compares to, and most importantly, whether this is something that belongs in your family's financial plan.
• 0:52
  SPEAKER_00: This is a new type of account, and I'm going to call it the Children's Savings Accounts throughout this episode because that's exactly what it is.
• 0:59
  SPEAKER_00: It was created under the One Big Beautiful Bill Act, signed into law on July 4th, 2025.
• 1:05
  SPEAKER_00: Contributions opened though on July 4th, 2026.
• 1:09
  SPEAKER_00: These accounts are new, they're real, and they are available right now for any child under the age of 18 with a social security number.
• 1:17
  SPEAKER_00: But here's the thing that makes it genuinely interesting for the women in this audience and their families.
• 1:22
  SPEAKER_00: You are not the typical target audience of this program.
• 1:26
  SPEAKER_00: These accounts were broadly designed to help families at all income levels to begin building wealth for that next generation.
• 1:34
  SPEAKER_00: But the mechanics of the account have real planning implications at your wealth level, particularly if you are thinking about generational wealth transfer and about the best vehicle to fund your grandchildren's futures.
• 1:47
  SPEAKER_00: And how is this going to compare to what you may already have in place?
• 1:52
  SPEAKER_00: So today we are going to walk through everything you need to know clearly, completely, and without all of the political noise that tends to surround anything with a politically charged name.
• 2:02
  SPEAKER_00: Now, regardless of your political affiliation and feelings, I want to make sure that everyone is educated.
• 2:09
  SPEAKER_00: Let me give you the mechanics simply and clearly here.
• 2:12
  SPEAKER_00: A children's savings account is a new type of tax-advantaged account that functions similar to a traditional IRA, but for children who typically have no earned income and therefore previously they couldn't contribute to one.
• 2:25
  SPEAKER_00: It was created under section 530A of the IRS code as part of the one big beautiful bill.
• 2:32
  SPEAKER_00: So who can open one?
• 2:33
  SPEAKER_00: This is any child under the age of 18 with a social security number.
• 2:37
  SPEAKER_00: This could be a parent, legal guardian, adult sibling, or grandparent can open the account on behalf of the child, filing the IRS form 5447, available online at trumpaccounts.gov through the dedicated app or as an attachment to the federal tax return.
• 2:55
  SPEAKER_00: So who can contribute?
• 2:56
  SPEAKER_00: The short answer is anyone, parents, grandparents, other relatives, friends, even employers.
• 3:01
  SPEAKER_00: And there is no income requirement to contribute.
• 3:04
  SPEAKER_00: The key rule, though, is the annual limit.
• 3:07
  SPEAKER_00: The annual contribution limit is$5,000 per child per year for 2026 and 27, indexed for inflation in$100 increments after that.
• 3:16
  SPEAKER_00: Now, this is a combined limit.
• 3:18
  SPEAKER_00: If a parent is going to contribute$3,000, a grandparent contributes$2,000, the child's account is now at the$5,000 maximum for the year.
• 3:26
  SPEAKER_00: No single contributor can cause the account to exceed that$5,000.
• 3:31
  SPEAKER_00: Employer contributions are capped at$2,500 per year per employee and count towards that combined$5,000 limit.
• 3:40
  SPEAKER_00: The government seed for children who were born between January 1st, 2025 and December 31st, 2028, who are U.S.
• 3:48
  SPEAKER_00: citizens with a social security number are eligible for a one-time, yeah, you heard that right, one-time$1,000 federal contribution, which will be deposited into the account.
• 3:58
  SPEAKER_00: This seed money, however, doesn't count towards that$5,000 annual contribution limit.
• 4:03
  SPEAKER_00: And if you have a grandchild born in that window who doesn't yet have an account claiming this$1,000, it's a straightforward, no downside action.
• 4:12
  SPEAKER_00: So how does the money actually grow?
• 4:15
  SPEAKER_00: Contributions are made with after tax dollars.
• 4:18
  SPEAKER_00: There is no deduction, but the money is going to grow tax deferred inside of the account, which allows it to compound without triggering annual taxes on the dividends, interest, or growth.
• 4:30
  SPEAKER_00: Investments during the child's growth period from account opening through December 31st of the year before they turn 18 must be in a low-fee, diversified US stock index funds.
• 4:42
  SPEAKER_00: Fees are capped at 0.1%.
• 4:45
  SPEAKER_00: And at age 18, the account is going to convert into a standard traditional IRA.
• 4:50
  SPEAKER_00: The child then takes full control.
• 4:52
  SPEAKER_00: Withdrawals at any point after that are allowed for any reason, not limited to education and are taxes ordinary income, just like an IRA distribution would be.
• 5:02
  SPEAKER_00: The child can also choose to roll it into a Roth IRA and convert the balance, paying tax at their rate at that time.
• 5:10
  SPEAKER_00: Here's a piece of guidance that the Treasury issued in June 2026 that is particularly relevant for the women and their families in this audience.
• 5:18
  SPEAKER_00: The IRS actually confirmed that contributions to a child's account during the growth period are treated as qualifying gifts of present interest.
• 5:27
  SPEAKER_00: What does that actually mean?
• 5:28
  SPEAKER_00: Contributions qualify for the annual gift tax exclusion, which is$19,000 per donor per recipient in 2026 and the generation skipping transfer tax exemption for gifts from grandparents.
• 5:41
  SPEAKER_00: What does that actually mean here in practice?
• 5:44
  SPEAKER_00: Let's say a grandmother is contributing$5,000 to a grandchild's account and is making a complete present interest gift.
• 5:52
  SPEAKER_00: It's then qualifying for the manual exclusion.
• 5:55
  SPEAKER_00: It uses no lifetime exemption and it's sheltered from that GST tax.
• 5:59
  SPEAKER_00: And for women in the audience who are thinking about generational wealth transfer, moving money out of their estates effectively and efficiently, the children's savings accounts adds another vehicle to the toolkit.
• 6:12
  SPEAKER_00: The$5,000 annual limit is modest relative to the other gifting strategies, but coordinated with a 529 contributions, direct giving, and trust structures, it can be a meaningful addition, particularly for families with multiple grandchildren.
• 6:29
  SPEAKER_00: The most common question I have gotten since these account launched is is this better than a 529?
• 6:34
  SPEAKER_00: And the honest answer is it depends on what you are trying to accomplish here.
• 6:40
  SPEAKER_00: This is where the children saving account wins.
• 6:42
  SPEAKER_00: It has flexibility.
• 6:43
  SPEAKER_00: Distributions after age 18 can be used for anything: a home purchase, starting a business, a car, travel, or simply investing further into the future.
• 6:52
  SPEAKER_00: There's no penalty for non-education use, unlike a 529, which imposes a 10% penalty plus taxes on earnings if the funds are used for non-qualified expenses.
• 7:03
  SPEAKER_00: If your child or grandchild decides not to go to college or gets a full scholarship, the child's account has no problem in this example.
• 7:13
  SPEAKER_00: Here's where the 529 wins: the tax deductions.
• 7:16
  SPEAKER_00: Many states offer an income tax deduction for contributions to a 529 plan.
• 7:22
  SPEAKER_00: A children's account offers no deductions at the time of the contribution to the contributor.
• 7:28
  SPEAKER_00: Additionally, 529 plans have much higher contribution limits.
• 7:33
  SPEAKER_00: And some of them also allows you to do a lump sum annual gift or a five-year lump sum superfunding up to$100,000 per beneficiary.
• 7:44
  SPEAKER_00: The$5,000 annual limit on children's accounts is significantly more restrictive in this case.
• 7:51
  SPEAKER_00: What happens to financial aid?
• 7:53
  SPEAKER_00: Because the account is held in the child's name, not the parents, it is assessed at the student's rate for FAFSA purposes, which is 20% of the account value per year.
• 8:04
  SPEAKER_00: However, a$529 owned by a parent is assessed at only 5.64%.
• 8:09
  SPEAKER_00: For families concerned about financial aid eligibility, this is a distinction that matters.
• 8:14
  SPEAKER_00: At your wealth level, financial aid probably is not the primary consideration, but it is worth understanding.
• 8:21
  SPEAKER_00: And it might be something that your grandkids or your kids, the parents of your grandkids, are considering.
• 8:27
  SPEAKER_00: So here's the verdict.
• 8:29
  SPEAKER_00: The child savings account, it's not a replacement for a 529.
• 8:33
  SPEAKER_00: For families focused on education, funding a 529 with a state deduction and with higher limits remains a primary vehicle.
• 8:40
  SPEAKER_00: However, the children's account is an additive.
• 8:43
  SPEAKER_00: It's a second layer of generational savings with a maximum flexibility for whatever the child's life actually looks like at 18.
• 8:51
  SPEAKER_00: The two are complementary, not competitive.
• 8:55
  SPEAKER_00: Three actions you can take away from this episode.
• 8:57
  SPEAKER_00: Action one, if you have a grandchild or child born between January 1st, 2025 and December 31st, 2028, file IRS form 5447 this week.
• 9:07
  SPEAKER_00: This is the form that claims that$1,000 federal seed contribution.
• 9:11
  SPEAKER_00: It can be filed electronically through that Trump.gov accounts website or through the official app or as an attachment to the federal tax return.
• 9:19
  SPEAKER_00: The thousand dollars does not require you to contribute anything additional.
• 9:23
  SPEAKER_00: It is free money for an eligible child.
• 9:25
  SPEAKER_00: There is no reason to wait on this one.
• 9:27
  SPEAKER_00: Grandparents can open the account.
• 9:29
  SPEAKER_00: You don't have to be the parent in this situation.
• 9:32
  SPEAKER_00: Action number two is I want you to talk to your financial advisor about whether a children's savings account belongs in your generational gifting strategy.
• 9:41
  SPEAKER_00: And the specific question here is: given my current 529 contributions, my annual gifting, and my trust structures, does adding a children's savings account for each grandchild make sense?
• 9:52
  SPEAKER_00: And how does the$5,000 limit interact with my other gifting happening right now?
• 9:58
  SPEAKER_00: This is not a replace your$529 conversation.
• 10:01
  SPEAKER_00: It is an additive conversation about whether a flexible child-owned savings account vehicle adds value to what you already have in place.
• 10:10
  SPEAKER_00: Action number three, if you are a business owner, ask whether employer contributions to children's savings accounts make sense as an employee benefit.
• 10:19
  SPEAKER_00: Employers can contribute up to$2,500 per year per employee, tax-free to the employee, towards these children's savings accounts.
• 10:30
  SPEAKER_00: Now, this counts towards that$5,000 combined limit, but for employees with young children, it represents a meaningful addition of compensation.
• 10:39
  SPEAKER_00: If you run a business and if you want to think about how to attract and retain employees, especially those with young families, this is a new tool that could be worth understanding and adding to your benefits package.
• 10:51
  SPEAKER_00: The children's savings account, it is not a revolution in wealth planning for the women in this audience, as I've mentioned, but it is a real new flexible tool that belongs in the conversation, particularly for those of you who are active grandparents, thinking about what you want to leave behind and how you want to structure generational wealth.
• 11:11
  SPEAKER_00: And for anyone with a grandchild born since 2025, claiming the$1,000 federal seed is a no-brainer, something to do this week.
• 11:20
  SPEAKER_00: We are deep into season three now, and the conversations are only going to get more specific from here.
• 11:25
  SPEAKER_00: So make sure you are followed and subscribed so you never miss an episode.
• 11:29
  SPEAKER_00: And I hope that you will share this with any woman in your life who has a grandchild or young children.
• 11:35
  SPEAKER_00: The$1,000 seed is a time-restricted event and is something that she needs to know about to help take care of her family.
• 11:42
  SPEAKER_00: And if you want to walk through how a children's savings account fits into your financial plan specific to generational gifting and the wealth transfer strategy, head over to tannisfingroup.com/slash contact to book a complimentary intro call because these are exactly the kinds of conversations we love to have here.
• 12:01
  SPEAKER_00: Thank you for tuning into this episode of the Wealth Cafe, and I look forward to seeing you again next week.