The new tax bill created Trump accounts for all children under the age of 18
If you are a high earner, here's how you can arbitrage these accounts to make your kids tax-free multimillionaires:
If you are a high earner, here's how you can arbitrage these accounts to make your kids tax-free multimillionaires:
Trump accounts are special type of retirement account for your kids
They cannot get money out until the age of 18
Between age 18 and 59.5, while they can get money out, they have to also pay a 10% penalty on top of taxes unless it's for a qualified expense
So, why contribute?
They cannot get money out until the age of 18
Between age 18 and 59.5, while they can get money out, they have to also pay a 10% penalty on top of taxes unless it's for a qualified expense
So, why contribute?
The most powerful feature is you can contribute up to $5,000 for your kids every year until age 18 *without* them needing any earned income
If you want to set up a custodial Roth IRA, they can only contribute after they earn
This results in many more years of early growth!
If you want to set up a custodial Roth IRA, they can only contribute after they earn
This results in many more years of early growth!
At the age of 18, you can also convert the entire account into a Roth IRA
This is partially taxable (you'd be taxed on earnings) but is taxed at your kids tax bracket
The entire converted amount can then be used after 5 years, and all future growth is completely tax-free
This is partially taxable (you'd be taxed on earnings) but is taxed at your kids tax bracket
The entire converted amount can then be used after 5 years, and all future growth is completely tax-free
I built a simple model to see how powerful this is:
1 - Contribute $5,000 a year for 18 years
2 - Invest in the S&P 500 with dividends reinvested
This leads to ~$230K at point of conversion!
Even if they never invest another dollar, this grows to $12M by retirement!
1 - Contribute $5,000 a year for 18 years
2 - Invest in the S&P 500 with dividends reinvested
This leads to ~$230K at point of conversion!
Even if they never invest another dollar, this grows to $12M by retirement!
If you want to read a more detailed breakdown on exactly how this works, the latest edition of my newsletter covers it:
I also link to the model and you can tweak the inputs and see exactly how it all shakes out.sillymoney.com/p/how-to-use-t…
I also link to the model and you can tweak the inputs and see exactly how it all shakes out.sillymoney.com/p/how-to-use-t…
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