Latest / The Happiness in Retirement® Hour / The Trump Account Roth Conversion Strategy: The Greatest Gift You Can Give a Child Isn't Money—It's Time
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- # Swell AI Transcript: riverside_magic_episode 01_hir_podcast studio.wav SPEAKER_00: Welcome to the Happiness in Retirement podcast, where we help you turn your retirement dreams into reality. Each week, we'll dive into smart financial strategies, lifestyle tips, and expert insights to help you build a fulfilling and secure retirement. Whether you're planning ahead or already enjoying retirement, this is your go-to place for inspiration and practical advice. So sit back, relax, and let's make your golden years the best years. The information provided is for educational and informational purposes only and does not constitute investment advice, and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status, or investment horizon. You should consult your financial professional, attorney, or tax advisor. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such. SPEAKER_01: Hello, and welcome to another episode of the Happiness in Retirement podcast, where we believe retirement planning goes beyond money because money is simply a tool. The real goal is creating a life filled with purpose, meaningful relationships, good health experiences, and the freedom to spend your time the way you choose. Today, we're gonna talk about something that isn't really about retirement at all, or at least it doesn't seem that way at first. We're going to talk about children and grandchildren. More specifically, we're going to talk about one of the greatest financial gifts you can give a child or a grandchild. And guess what? It isn't a trust fund. It isn't paying for college. It isn't leaving a large inheritance. It's giving them something no amount of money can ever buy later in life. And that is time. So why does time matter more than money. We could have so many podcast episodes about this, but think about your own financial journey. Most people spend their twenties trying to establish themselves. Remember what that was like just out of college or joining the workforce right out of high school, maybe busy trying to earn a living thirties. The thirties are about raising families. Typically it's about raising families and trying to grow in your career. The forties often become the highest earning years. And then by the time you're 40, you have to spend your fifties and sixties trying to catch up for retirement. It's a familiar story. Now, imagine if someone had started investing for you the day you were born, not because they knew what the market would do, not because they picked the perfect investment, simply because they gave your money 60 years to grow. That is a game changer, folks. That changes everything. You know, Albert Einstein is often credited with saying that compound interest is the eighth wonder of the world. Whether he actually said it or not, the principle is absolutely true. Compounding rewards patience more than brilliance. And an added bonus is what the kids learn along the way about investing. One of the core ideas we talk about is that retirement planning isn't just about accumulating wealth. It's about creating options. Financial independence creates choices, choices create freedom, and freedom creates opportunities to spend more time with the people you love, pursue meaningful work, travel, volunteer, or simply enjoy life without constant financial stress. When we think about helping our children or grandchildren, we're really helping them create those same choices much earlier in life. So there is a new planning opportunity. You may have heard of it. We did a seminar on this a while back. Recently, new legislation created what are commonly known as Trump accounts. Now, while the rules are still relatively new and may evolve over time, the concept has sparked an important planning conversation. And you see, the real opportunity isn't the potential for a government contribution for a newborn child, or even the account itself. It's what can happen if a child begins investing very early in life, and when appropriate, later converts those assets to a Roth IRA during lower income years. You see, the strategy isn't about chasing a tax loophole. It's about maximizing one asset that can never be replaced. And that is, of course, time. What's the bigger lesson here? Well, whether these specific rules remain unchanged for decades isn't the most important point. The bigger lesson is this, and it certainly sparked the conversation. Start early, invest consistently, stay disciplined, and avoid unnecessary taxes whenever possible. That's it. Pretty simple, huh? These principles have created successful investors for generations. The account may change, the legislation may change, The principles do not change. So here's a simple illustration. Let's imagine parents or grandparents contribute regularly throughout a child's early years. And those investments grow through childhood and adolescence. As the child becomes a young adult, perhaps while attending college or beginning a career, they may have relatively low taxable income. And depending on their circumstances and then current tax law, those years may provide a window of opportunity to convert some or all of the Trump account to a Roth IRA. From there, every additional decade becomes incredibly valuable. The child isn't just receiving money, they're receiving decades of tax advantage compounding. Okay, so how does this work? Well, the first thing is you have to fund a Trump account for an eligible child. Secondly, you invest in one of the allowable diversified stock or equity, as it's known, Indices. One or more, preferably all stock. Consider Roth conversions during the low-income years of the child. That's from about age 18 to 24, let's say, and allow then decades of tax-free growth. Decades. Now, here are some assumptions. Assume a $1,000 seed contribution by the government, if eligible, and then The parents or grandparents contribute $5,000 annually for 18 years. Now at the child's age of 18, that amounts to a $221,000 pot of money if the account grows at a hypothetical 10%. Now I'm using a 10% rate of return, assuming it's all equity. Again, it's a hypothetical number. Could be higher, could be lower. Now, if that $221,000 is converted to Roth IRA money and you pay tax on the earnings, right, when you do this conversion, if the conversion tax is paid with outside money, then the parents and or the grandparents help the child just a bit more by paying this conversion tax. That $221,000 could be worth a tax-free Ready for this? $12,103,000 again at a 10% average annual rate of return. Not a prediction, just a hypothetical. This is at the child's age 60. Now, we have to account for inflation. And if inflation averages 3% over that period of time, the real pot of money, what is that money actually worth? That $12,003,468 in today's dollars. In other words, that $12,000,000 buys what $3,468,000 buys today. $12,000,000 in the future currently would be worth $3,468,000. That's still a lot of money. It's a lot of money. And guess what? Not a lot of contributions. $5,000 for 18 years and a thousand bucks. That's it. What does that equate to? That equates to $91,000 in contributions. Can you imagine that? $91,000 growing to be $3,468,000 in tax-free money. Incredible. Just incredibly powerful. Now, just imagine if someone did that for you. Possibly the child never has to save again. Now, I'm not suggesting that, but here's another thing to throw into the mix. Let's assume that A minor Roth IRA is also funded when the child is old enough and the child actually earns any earnings from work to fund this minor Roth IRA in addition to this Trump account being funded for 18 years. Super powerful. Then the child goes to work. and has a 401k maybe with a profit sharing contribution that the company pays or they just save enough to get the match at work. They will be in all likelihood set forever. Incredible, incredible growth. Now. If the family can afford $5,000 a year in contributions, you know, whatever, whatever you can afford, that time value of money is just incredible. You see, legacy isn't just an inheritance. When most people hear the word legacy, they think about what happens after they're gone. And I think that's incomplete. You see, legacy is also about the opportunities. we create while we're still here. Teaching children about how investing works. Wow, with these Trump accounts. Just imagine, you know, your eight year old child sitting down with your financial advisor to have a review, to learn about stocks and capitalism and how that works. Man, what's the value of that? Helping them also to understand delayed gratification. Incredibly powerful. Have you ever heard of the marshmallow test? The marshmallow test, they took a group of children And they set marshmallows down on a table and left the room. And they told the children, if you don't touch the marshmallows while we're gone, then you're going to get, you know, some, some gifts or whatever it was when we come back. And the children that actually couldn't wait and ate the marshmallows, they tracked these kids for years. And later in life, they were not anywhere near as successful as the kids who didn't touch the marshmallows. Interesting, delayed gratification, powerful. How about showing kids that wealth is built patiently, not quickly? Leaving financial wisdom instead of just financial assets. Sometimes the greatest inheritance isn't money, it's also confidence. Wow. If you're a parent or a grandparent, here are a few questions worth discussing. What financial essence do you wish someone had taught you earlier? How could starting sooner have changed your own retirement? What values do you hope your family carries forward? What opportunities do you want to create for future generations? Those conversations may ultimately be more valuable than an investment account. Now, what does this mean for retirees? You see, you may be thinking this doesn't really apply to me. I'm already retired. Well, actually it might. Many retirees eventually ask a different question. How do I make a meaningful difference in my children's and grandchildren's life? Sometimes the answer isn't writing a bigger check later. Sometimes it's creating a smarter plan today. Helping a grandchild start investing early may have a greater long-term impact than leaving a larger inheritance decades from now. Think about that one. So let's bring this all back to happiness. You see, everything we discuss in this podcast comes back to one simple belief. Money isn't the destination, it's a vehicle. The real destination is a life filled with purpose, relationships, experiences, generosity, and peace of mind. Helping the next generation achieve financial independence isn't just a financial strategy. It's an act of love. It's an investment in possibility. It's another way to help the people you care about live happier, more meaningful lives. So, thank you for joining me for another episode of the Happiness in Retirement podcast. If today's discussion made you think about your children, grandchildren, or your family's long-term legacy, we'd love to help you explore whether this type of planning fits into your overall financial plan. Always, always remember, retirement planning goes beyond money, because money is a tool, life is the goal. Until next time, I'm Bill Del Setti, wishing you happiness in retirement. SPEAKER_00: Del Ceti Capital Management, LLC. Del Ceti is a registered investment advisor. Advisory services are only offered to clients or prospective clients where Del Ceti and its representatives are properly licensed or exempt from licensure. For additional information, please visit our website at www.happinessinretirement.com. That's it for today's episode of the Happiness in Retirement Program podcast. We hope you found some valuable insights to help you create the retirement you deserve. If you enjoyed this episode, be sure to subscribe, leave a review, and share it with someone who's planning for their future. For more tips and resources, visit happinessinretirement.com or the Del Ceti Capital Management Facebook page. Until next time, here's to a happy, healthy, and financially secure retirement.