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The Federal Government May Owe Your Child $1,000 | Financial Advisor Explains · Well Advised Wealth

• 0:00
  SPEAKER_01: Have you had a child since 2025?
• 0:02
  SPEAKER_01: The federal government may already owe that child a thousand dollars.
• 0:06
  SPEAKER_01: What am I trying to accomplish and what tool is going to help me get there?
• 0:09
  SPEAKER_01: It's a great way to get a free head start for a child.
• 0:12
  SPEAKER_01: It's not a Roth for kids, and that matters more than most people realize.
• 0:16
  SPEAKER_01: There is not a good or a bad tool at all.
• 0:19
  SPEAKER_01: What we have to be confident in, are we using the right tool for the right problem?
• 0:25
  SPEAKER_01: Have you had a child since 2025?
• 0:28
  SPEAKER_01: Now, if you don't know that, then I don't think this episode can help you.
• 0:32
  SPEAKER_01: You've got bigger problems to fend off.
• 0:34
  SPEAKER_01: But if you're a parent, grandparent, aunt, uncle, employer, or anybody who is looking to contribute money towards a child's future, the federal government may already owe that child$1,000.
• 0:46
  SPEAKER_01: It's called a Trump account.
• 0:47
  SPEAKER_01: Now, I know that sounds like a weird Netflix special, but today I want to give you the good, the bad, and the ugly so you know exactly what the Trump account is before you even touch it.
• 0:57
  SPEAKER_01: I am Justin Chastain.
• 0:59
  SPEAKER_01: I'm a certified financial planner and I am the host of Well Advised Wealth.
• 1:03
  SPEAKER_01: This is a show where I help successful business owners and families turn their hard work into true wealth.
• 1:11
  SPEAKER_01: You've worked hard.
• 1:12
  SPEAKER_01: Now it's time to enjoy it.
• 1:13
  SPEAKER_01: And this is the show that's going to help you to continue to build wealth and live well.
• 1:19
  SPEAKER_01: Now, I've had a lot of clients that are in the accumulation phase or maybe they're in the distribution phase and they're looking to give money to their grandchildren.
• 1:28
  SPEAKER_01: This seems to be a recurring theme that is coming up in all of my conversations.
• 1:34
  SPEAKER_01: Justin, what about the Trump accounts?
• 1:37
  SPEAKER_01: Well, in today's episode, what we're going to talk about is what is honestly good about Trump accounts where it falls shorts and a couple of things that could actually catch you off guard if you're not asking the right questions.
• 1:51
  SPEAKER_01: Let's get into today's episode.
• 1:52
  SPEAKER_01: Let's strip away the branding, right?
• 1:55
  SPEAKER_01: Now, listen, not going down either road, but when you label something under your name, you must have a real belief in it.
• 2:02
  SPEAKER_01: And guess what?
• 2:03
  SPEAKER_01: The Trump account, when you take away the titling, it's a traditional IRA that we are opening in the child's name.
• 2:10
  SPEAKER_01: The child owns it.
• 2:11
  SPEAKER_01: A parent, a guardian, an employer can contribute to it, but the parent or guardian is going to manage it until that child turns the age of majority.
• 2:19
  SPEAKER_01: In most cases, that's going to be 18.
• 2:21
  SPEAKER_01: And when that child turns 18, at that point, it simply becomes a regular traditional IRA in their name.
• 2:30
  SPEAKER_01: This was created in 2025.
• 2:32
  SPEAKER_01: It was a part of the One Big Beautiful Bill Act.
• 2:35
  SPEAKER_01: And that changed the estate tax exemptions and added some senior deductions that we're going to talk a lot more about as we get into red zone retirement planning.
• 2:45
  SPEAKER_01: But in this situation, any child under 18 with an accurate Social Security number, it can't be a fake one, can open a Trump account.
• 2:53
  SPEAKER_01: And if that child was born between January 1st, 2025 and December 31st of 2028, the federal government deposits a$1,000 seed contribution into it.
• 3:05
  SPEAKER_01: No strings attached, no cost to the family.
• 3:08
  SPEAKER_01: We've not really gotten into the time value of money, but as I've always said, your biggest value, your biggest asset to your wealth is time, the ability to allow things to grow.
• 3:17
  SPEAKER_01: Well, in investments, the longer we allow something to grow, the more opportunity we have for compounding.
• 3:23
  SPEAKER_01: What did Einstein say?
• 3:24
  SPEAKER_01: Well, he said a lot of things, but he said that compounding was the eighth wonder of the world.
• 3:29
  SPEAKER_01: If we have more time for this money to grow, the better off that we'll be.
• 3:33
  SPEAKER_01: So let's get into the good.
• 3:35
  SPEAKER_01: Number one, it is genuinely free money.
• 3:38
  SPEAKER_01: Now, for you economists out there, or maybe you're my father listening to this, yes, I understand there's no such thing as a free lunch.
• 3:46
  SPEAKER_01: The federal government has taken this money, got this money in a lump sum, and they're saying, hey, since we have taken this money, it's a way to distribute some money back out.
• 3:56
  SPEAKER_01: Now, I know there's a lot of people out here and clients assured.
• 4:01
  SPEAKER_01: They ask me this in just about every meeting.
• 4:03
  SPEAKER_01: Justin, what do you think about Social Security?
• 4:05
  SPEAKER_01: Will it be there for me?
• 4:06
  SPEAKER_01: And the answer to that is, yes, I think Social Security is going to continue to be there for you.
• 4:11
  SPEAKER_01: And I also think that every politician on either side, it does not matter what party they are in, they're very similar.
• 4:18
  SPEAKER_01: They have different viewpoints and how they're going to get things approved, but they are not going to want Social Security to dry up on their watch.
• 4:25
  SPEAKER_01: That's not going to be a very good look for their autobiography or biographies when they come out or they're on TMZ for something.
• 4:31
  SPEAKER_01: Okay.
• 4:32
  SPEAKER_01: They want to have themselves look good, either side.
• 4:36
  SPEAKER_01: But as I move off of that, this is a way for you to take advantage of getting$1,000 to your child or maybe somebody that you're a guardian of.
• 4:46
  SPEAKER_01: That is it.
• 4:47
  SPEAKER_01: You're giving that child a head start of$1,000.
• 4:50
  SPEAKER_01: Number two, no earned income required.
• 4:53
  SPEAKER_01: If you were to start a custodial Roth IRA for your child who is under the age of majority, and again, most states, that's going to be 18.
• 5:02
  SPEAKER_01: And it is a good tax strategy, business strategy is we do tax planning for business owners to hire a child in a lot of cases.
• 5:09
  SPEAKER_01: You give them an income under the standard deduction, and you can use that money for what?
• 5:14
  SPEAKER_01: A Roth IRA.
• 5:15
  SPEAKER_01: Now we're going to talk more about Roth IRAs on future episodes, but right now let's just stay focused where we are.
• 5:21
  SPEAKER_01: If this money doesn't have to be earned income, well, now guess what?
• 5:26
  SPEAKER_01: That money is growing tax deferred for 18 years.
• 5:31
  SPEAKER_01: I know I sound like Kanye West.
• 5:32
  SPEAKER_01: I'm about to bust out.
• 5:33
  SPEAKER_01: She's got 18 years.
• 5:34
  SPEAKER_01: But the reality of it is that's a long time for somebody to grow money that doesn't have to be earned income.
• 5:41
  SPEAKER_01: Major plus.
• 5:42
  SPEAKER_01: And the third point I want to make is multiple people can contribute.
• 5:46
  SPEAKER_01: Grandparents, parents, other relatives.
• 5:49
  SPEAKER_01: Anyone can put up to$5,000 total per year across all contributors.
• 5:54
  SPEAKER_01: An employer can actually contribute up to$2,500 tax-free as a benefit.
• 6:00
  SPEAKER_01: So for a family that wants grandparents involved in a child's financial future, this gives everyone an easy way to participate on the same account.
• 6:08
  SPEAKER_01: There is a legal path to turn it into a Roth later.
• 6:13
  SPEAKER_01: Now, for those of you that might not know the benefit of a Roth, Roths grow tax free and you pull the money out tax-free.
• 6:19
  SPEAKER_01: You're just paying tax in that current year and there is no tax deductibility.
• 6:24
  SPEAKER_01: But why do we like it?
• 6:25
  SPEAKER_01: Well, we believe that tax brackets are going to increase in the future.
• 6:29
  SPEAKER_01: And if that is the case, we'd rather pay the tax now than waiting later down the road.
• 6:34
  SPEAKER_01: It also does not affect Roth, does not affect your RMDs.
• 6:38
  SPEAKER_01: They don't have RMD required minimum distributions.
• 6:41
  SPEAKER_01: That's another big benefit.
• 6:43
  SPEAKER_01: And we always need to look at our returns net of tax.
• 6:47
  SPEAKER_01: So once your child turns 18, they can convert this into a Roth IRA.
• 6:53
  SPEAKER_01: Because remember what I said in step number one.
• 6:55
  SPEAKER_01: This is just a traditional IRA.
• 6:58
  SPEAKER_01: Well, if your child converts this money into a Roth IRA when they don't have a lot of earned income, say at 18, maybe they're in college.
• 7:07
  SPEAKER_01: Guess what?
• 7:08
  SPEAKER_01: Potentially, they might not wind up paying any tax on that conversion, which would be a huge plus.
• 7:15
  SPEAKER_01: But we do have to remember that any money that went in pre-tax would be taxed on distribution.
• 7:23
  SPEAKER_01: Now let's get into the bad.
• 7:25
  SPEAKER_01: Number one, it's not a Roth for kids.
• 7:28
  SPEAKER_01: And that matters more than most people realize.
• 7:30
  SPEAKER_01: Your contributions go in after tax, growth is tax deferred, but withdrawals down the road have potential to be taxed as ordinary income.
• 7:39
  SPEAKER_01: So for a newborn that is growing this money, and let's just say they have a high-paying job when they do their conversion, when they convert this, there would be ordinary income.
• 7:51
  SPEAKER_01: Inside of this, they're going to have to convert to.
• 7:54
  SPEAKER_01: So it is not just a Roth for kids that is going to be tax-free for them forever and ever.
• 7:59
  SPEAKER_01: Number two, the money is genuinely locked up until they're 18.
• 8:03
  SPEAKER_01: There are no withdrawals for any reasons before then.
• 8:07
  SPEAKER_01: I mean, this could be medical, school, any of it.
• 8:11
  SPEAKER_01: You're losing flexibility.
• 8:13
  SPEAKER_01: So you have to put that in perspective.
• 8:15
  SPEAKER_01: Number three, the contribution window from other people closes early.
• 8:20
  SPEAKER_01: So parents, grandparents, and employers can only contribute to the end of the year that child turns 17, not all the way to 18.
• 8:28
  SPEAKER_01: A lot of people are confusing that, that at 18, they will be able to still contribute.
• 8:33
  SPEAKER_01: That is not true.
• 8:34
  SPEAKER_01: And lastly, and this fourth on the ugly, getting the actual money takes a while.
• 8:39
  SPEAKER_01: You have to remember when you're dealing with the federal government on anything, because there's a lack of competition, I mean, you're having to go to one central government here.
• 8:48
  SPEAKER_01: Guess what?
• 8:49
  SPEAKER_01: Customer service is not in their repertoire.
• 8:52
  SPEAKER_01: Think DMV, not TMZ.
• 8:55
  SPEAKER_01: TMZ is very customer centric.
• 8:56
  SPEAKER_01: I digress.
• 8:57
  SPEAKER_01: But that federal seed deposit, it is real and it is being paid out, but it is not instant.
• 9:03
  SPEAKER_01: It's not Sanka, which is instant coffee, my grandmother.
• 9:06
  SPEAKER_01: Drink, I think that's why she's made it to 92.
• 9:09
  SPEAKER_01: But the Treasury's comparing it to waiting on a tax refund.
• 9:12
  SPEAKER_01: Be patient.
• 9:13
  SPEAKER_01: That's all that I can say.
• 9:14
  SPEAKER_01: Now for the ugly.
• 9:15
  SPEAKER_01: Number one, at 18, it becomes a traditional IRA.
• 9:18
  SPEAKER_01: Penalties and all.
• 9:20
  SPEAKER_01: The account technically allows withdrawals for any reasons once your child turns 18, but that does not mean penalty free.
• 9:26
  SPEAKER_01: The IRA rules are still going to apply.
• 9:28
  SPEAKER_01: If you're under 59 and a half, there's a 10% early withdrawal penalty.
• 9:32
  SPEAKER_01: And of course, ordinary income tax would apply if they're using it for a straight withdrawal, not conversions, to a Roth.
• 9:40
  SPEAKER_01: With a Roth, there would still be ordinary income taxes to pay, but you would avoid that penalty.
• 9:45
  SPEAKER_01: Number two, financial aid treatment is still an open question.
• 9:50
  SPEAKER_01: Since this is a brand new account offered by the federal government under the one big beautiful bill, guess what?
• 9:58
  SPEAKER_01: This, and as of now, a Trump account affects a family's financial aid calculation, is pending IRS guidance.
• 10:05
  SPEAKER_01: That means it's up in the air.
• 10:07
  SPEAKER_01: There's gray areas.
• 10:08
  SPEAKER_01: So when I get clients asking me, well, Justin, if I did the Trump account, I could just do away with my 529 or other areas.
• 10:17
  SPEAKER_01: And the answer to that is absolutely not.
• 10:19
  SPEAKER_01: Or, Justin, if I hire my child, wouldn't it be better just to continue to contribute to a Trump account and not even worry about a Roth contribution?
• 10:27
  SPEAKER_01: And again, absolutely not.
• 10:29
  SPEAKER_01: The Trump account is a great way to have a thousand dollar seed for that three-year window of babies born between 2025 and 2028.
• 10:39
  SPEAKER_01: But it is still not replacing a 529 account, nor is it replacing Roth contributions, custodian Roth IRAs for children.
• 10:48
  SPEAKER_01: It's just not.
• 10:49
  SPEAKER_01: And number three, it's easy to make a mistake for a replacement for tools that are actually better for their specific purpose.
• 10:55
  SPEAKER_01: And I hit on that just a second ago.
• 10:57
  SPEAKER_01: But if you were asking me, Justin, we want to fund specifically our child's education, well, then we need to look more towards a 529 or other accounts, and even potentially a Roth could be better for that.
• 11:10
  SPEAKER_01: Because a 529 is specifically created for education earning.
• 11:15
  SPEAKER_01: Because if you think about it, the difference in what this Trump account would do between a 529 is this.
• 11:21
  SPEAKER_01: The Trump account, you put money in, it grows tax deferred.
• 11:24
  SPEAKER_01: The child cannot pull any money out until the age of 18.
• 11:28
  SPEAKER_01: Contributions have to start when that child is 17, though.
• 11:32
  SPEAKER_01: When that child goes to pull money out at 18, there could be ordinary income tax opportunities associated with this.
• 11:40
  SPEAKER_01: When a child is using a 529, the money grows tax deferred.
• 11:45
  SPEAKER_01: And when that child uses it for qualified educational expenses, guess what?
• 11:49
  SPEAKER_01: There's no penalty, there's no ordinary income tax on it.
• 11:52
  SPEAKER_01: The other benefits to a 529 that a lot of people overlook, a 529 is convertible to another beneficiary.
• 11:59
  SPEAKER_01: So if you have multiple children, if a child A went to college and didn't use all their 529, I can roll that down to my next child, or I can allow my original child to convert the 529 into a Roth IRA up to$35,000.
• 12:17
  SPEAKER_01: So there is flexibility in the 529 that you're not getting with the Trump account.
• 12:21
  SPEAKER_01: We have to assume what is the tool that we're using this for?
• 12:25
  SPEAKER_01: With any tool that we use in wealth management or tax planning, let me just state this: there is not a good or a bad tool at all.
• 12:34
  SPEAKER_01: What we have to be confident in are we using the right tool for the right problem?
• 12:40
  SPEAKER_01: And I'm going to sum that up in our weekly wealth minute.
• 12:42
  SPEAKER_01: So here is our weekly wealth minute.
• 12:45
  SPEAKER_01: If you take one thing from today's episode, a Trump account is genuinely good.
• 12:49
  SPEAKER_01: It's a great way, a genuinely good way to get a free head start for a child.
• 12:55
  SPEAKER_01: But you got to think about it like this.
• 12:57
  SPEAKER_01: It's not totally free money.
• 12:59
  SPEAKER_01: Just like I mentioned at the earlier episode, yes, there's no such thing as a free lunch.
• 13:04
  SPEAKER_01: There will be, at the age of majority for this child, ordinary income tax to pay, whether they convert it to a rot.
• 13:11
  SPEAKER_01: There's going to be something taxed at the age of majority.
• 13:14
  SPEAKER_01: It's still a good benefit because even if they're taxed at 18, they're probably in a lower ordinary income tax bracket.
• 13:20
  SPEAKER_01: But this is a beneficial way for the child to get a head start.
• 13:26
  SPEAKER_01: That's what we're looking for.
• 13:27
  SPEAKER_01: Let me wrap this up in saying this.
• 13:30
  SPEAKER_01: All of the tools that we'll talk about on future episodes or even as I do financial planning with clients, I tell them this if you're a carpenter and I only show you how to use a saw, that doesn't mean you have the ability to build a house.
• 13:45
  SPEAKER_01: You only know how to use a saw.
• 13:47
  SPEAKER_01: A saw can't hammer, a saw can't measure.
• 13:50
  SPEAKER_01: You need multiple tools for different things that you're doing.
• 13:52
  SPEAKER_01: So when you're looking at all of these tools that are out here, whether it's a federal government entity, whether it's a 529, whether it's an investment account, an ESOP, and we're going to get into all these acronyms later.
• 14:04
  SPEAKER_01: You have to understand what am I trying to accomplish and what tool is going to help me get there.
• 14:10
  SPEAKER_01: So let's wrap this up like a cheap Arby sandwich, okay?
• 14:14
  SPEAKER_01: That's the good, that's the bad, and that's the ugly old Trump account.
• 14:17
  SPEAKER_01: For the exact eligibility and rules and how this account stacks up to 529s custodial Roth.
• 14:22
  SPEAKER_01: Check the show notes.
• 14:23
  SPEAKER_01: And as always, build well and live well.
• 14:27
  SPEAKER_01: See you next week.
• 14:29
  SPEAKER_00: Parallel Financial, LLC, is a member firm of the Fiduciary Alliance, LLC, which is a registered investment advisor.
• 14:38
  SPEAKER_00: More information about Parallel Financial can be found in Form ADV Part 2, which is available upon request.
• 14:46
  SPEAKER_00: This website is for informational purposes only and should not be construed as investment advice or a recommendation to buy or sell any security or other investment, or to undertake any investment strategy.
• 14:59
  SPEAKER_00: Opinions expressed herein are solely those of Parallel Financial LLC unless otherwise specifically cited.
• 15:07
  SPEAKER_00: Material presented is believed to be from reliable sources, and no representations are made by our firm as to another party's informational accuracy or completeness.
• 15:17
  SPEAKER_00: All information or ideas provided should be discussed in detail with an advisor, accountant, or legal counsel prior to implementation.