I may have found a cool tax loophole with the new Trump accounts High earners can potentially use this account type to set their children up with millions of dollars of tax-free money in retirement Here's how this could work:

Caveat: This is based on my interpretation of the law as it's written Please cross-check me & be gentle in the comments. It also only makes sense for high earners with kids I'm not a tax professional and this is not tax advice &for educational / informational purposes only

Trump accounts are ultimately a special type of retirement account for your children Everyone is focusing on how these accounts are given a free $1,000 from the federal government While that's cool, that's not what I believe to be the most powerful feature of these accounts...

If you set up a custodial retirement account for your kids like a Roth IRA, they need to have earned income before you can contribute on their behalf This is tough! Kids typically can't work till their teen years at the earliest But Trump accounts do NOT have this requirement

Parents can contribute $5,000 a year to these accounts for 18 years The business the parents work at can contribute an additional $2,500 a year It's conceivable that a business owner parent can contribute $135K over 18 years to these accounts with 0 earned income!

But here's where it can get super powerful: once your child turns 18, they can convert these accounts to a Roth IRA The earnings + employer contributions would be taxable on conversion But doing it over a few years when they are in college and at a low bracket can be worth it

The upshot is your kids could have a Roth IRA worth $300k+ by the time they are 18 years old Letting that compound into retirement is manymillions of tax-free dollars And they can withdraw the converted amount at any time from age 23ish onwards All with 0 earned income

Like most good tax arbitrage, I do not think these accounts were intended to be used for this purpose This could be a very cool strategy for high-earners who want to set their children up with a tax-free retirement piggy bank And avoids the whole "hire your kids" thing