Accounts Available for Kids

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Trump Account

529 College Savings

Custodial Roth

UGMA

Contribution Ordering (Rule of Thumb)

Claim "Free" Money: Enroll in the Trump Account for the $1,000 seed and any employer program matches.
Education Goals: Direct additional dollars to a 529 plan up to the expected college cost, creating tax-free withdrawals.
Earned Income: If the child works, fund a Custodial Roth IRA up to their earned income in 2026 is capped at $7,500 per year.
"Extra" Savings:

Trump Account: For long-term/retirement funds (tax-deferred, ordinary income tax later); however, today for 2026 is capped at $5,000 per year.
UGMA: For flexible funds accessible at the child's state's age of majority (18-21) and there are no caps on contributions.

Practical Guidance for Families

Newborns (Especially 2025–2028 Births)

If eligible for the $1,000 Trump seed:

File Form 4547 to open the account and get the "free" money.
Prioritize modest contributions ($500–$1,000/year) to the Trump Account over a taxable UGMA due to tax-deferral and the federal boost.

If the child later earns income:

Consider opening a custodial Roth IRA. This creates one "tax-free forever" bucket (Roth) and one tax-deferred bucket (Trump).
Comparison with 529: If college funding is the main goal, a 529 plan may be more attractive because qualified education withdrawals are tax-free, whereas Trump distributions are taxed as ordinary income.

Children Under 18 (No or Low Earned Income)

Kids with NO earned income:
- You cannot fund a Custodial Roth IRA, leaving options to UGMA, Trump Account, or 529.
- Trump Account: Use for long-term, age-18+ savings where tax-deferred growth is valued, accepting ordinary income tax later.
- UGMA: Use for shorter-term teen goals or where capital gains treatment is preferred.
- 529 Plan: Use specifically for education savings to maximize tax-free withdrawals.
Kids with MODEST earned income:
- First Priority: Fund a Custodial Roth IRA (up to earned income limit) for powerful long-term tax-free growth.
- Next Steps: Once Roth is maxed, gifts can go to the Trump Account (for deferral/employer match) or to UGMA/529 depending on goals.

Comparative Matrix: Accounts for Kids

This content is provided for informational purposes only and should not be construed as financial, legal, or tax advice. All information is subject to change without notice. We strongly recommend that you verify all data and consult with a qualified professional before making any investment or financial decisions.

Important Disclosures and Risk Information

General Investment Disclosure

This document is for informational and educational purposes only and does not constitute a recommendation, offer to sell, or solicitation of an offer to buy any specific security or financial product. Any "Rule of Thumb" strategies are hypothetical illustrations and may not be suitable for all investors. Financial figures, such as contribution limits for 2026 (e.g., $7,500 for Roth IRAs and $5,000 for Trump Accounts ), are projections based on current or proposed legislation and are subject to change, inflation adjustments, and legislative approval.

No Tax or Legal Advice

CleverAlpha does not provide tax or legal advice. This material contains information regarding tax-advantaged accounts, including “Tax-Free Rocket” (Roth IRA) and “Deferred & Seeded Vault” (Trump Account) concepts. Tax laws are complex and subject to change. Clients should consult with their own tax or legal professional regarding their specific situation before making any investment decisions.

Product-Specific Disclosures

Trump Accounts:

Legislative Risk: The "Trump Account" and specific provisions such as the $1,000 government seed for children born 2025–2028 and Section 128 employer programs refer to specific legislative proposals or statutes. Eligibility, contribution limits, and tax treatment are contingent upon the final enactment and interpretation of such laws.
Tax Treatment: Unlike Roth accounts, distributions from these accounts are taxed as ordinary income.
Liquidity Restrictions: Funds are generally locked and inaccessible until the calendar year the beneficiary turns 18.

529 College Savings Plans:

Investors should consider the investment objectives, risks, and charges and expenses associated with municipal fund securities before investing. More information is available in the issuer's official statement or plan description.
State Tax Benefits: Depending on your state of residence, there may be an in-state plan that offers tax and other benefits (such as matching grants, scholarships, or creditor protection) that are not available through an out-of-state plan.
Non-Qualified Withdrawals: Earnings on withdrawals not used for qualified education expenses are subject to federal income tax and a 10% federal penalty. State taxes and penalties may also apply.

Custodial Roth IRAs:

Earned Income Requirement: Contributions to a Custodial Roth IRA are strictly limited to the minor’s earned income. Contributions cannot exceed the lesser of the annual limit or the child’s total earned income for the year.
Withdrawal Restrictions: While contributions may be withdrawn tax-free, earnings withdrawn prior to age 59½ and before the account has been open for five years may be subject to taxes and a 10% penalty.

UTMA/UGMA Accounts:

Irrevocable Gift: Assets transferred to a UTMA/UGMA account are irrevocable gifts to the minor. The custodian must manage the assets for the minor's benefit until the age of majority (typically 18 or 21), at which point the beneficiary gains full control of the assets.
Financial Aid Impact: Assets in UTMA/UGMA accounts are generally considered assets of the student for federal financial aid purposes (FAFSA), which may have a higher impact on financial aid eligibility compared to assets held in 529 plans or retirement accounts.

Asset Class Risks

All investments involve risk, including the possible loss of principal. "Growth" strategies imply investment in equities, which may be volatile. Historical performance does not guarantee future results.