A Look at Your Options and Why Saving Early Wins

Saving for Your Child’s Future Doesn’t Have to Be Complicated 

Did you ever find yourself studying for an exam the night before? Some people call this procrastination; others claim this is when they do their best work.  

My most difficult class in college was Portfolio Theory. The professor knew this was a challenging class and warned that the outcome would not be pretty for those who procrastinated. I’m sure more than a few students thought, “We’ll see about that.” His suggestion was simple: study 15 minutes a day for the entire semester, and by finals week, you’d barely need to review. I must admit, it sounded nice. Fifteen minutes felt like nothing. Could such a small daily habit compound into something meaningful?

As it turned out, the answer was yes. The same principle applies to saving for your children, your retirement, or any future goal. 

Some folks claim they perform best with limited time, but when it comes to saving money, procrastinating rarely leads to great outcomes. My professor’s lesson on study habits was the best investment lesson of all: small, consistent action compounds. Whether it’s 15 minutes of studying or $15 a month invested over 18 years at a 10% return, it adds up, believe it or not, (to about $7,000). 

If you don’t make it past this sentence, please take this with you: 

 

Saving $15 a month or whatever amount feels insignificant today will most likely turn into something significant in the future. 

 

Doing something is infinitely better than doing nothing. Saving in an imperfect account beats spending years searching for the perfect one and never opening anything. As someone wisely put it, America doesn’t have a savings crisis because people choose the wrong accounts, it’s because many don’t save at all. 

That perspective brings me peace. It lets me move forward, perhaps imperfectly, but consistently. 

 

The Trump Account Basics  

The specific account mechanics and details in this section draw directly from savingforcollege.com and related guidance for Trump Accounts. Please see sources linked at the end of the article for more information. 

Let’s take a look at The Trump Account, one of the newest savings tools available. It’s a tax advantaged investment account for U.S. citizens under age 18, designed to support a broad range of future goals: higher education, a first home, or long-term savings.

The $1,000 question: If your child is born between January 1, 2025, and December 31, 2028, they’re eligible for a $1,000 pilot contribution from the US Treasury. To me, that’s a no brainer. Even if you never add another penny, $1,000 today is better than not having $1,000. 

 

What if you don’t qualify for the $1,000 deposit?  

Keep in mind that just because you can use a certain account doesn’t mean it’s the best fit for your goals. Continue reading to learn more about the Trump Account and check out my section below on which types of accounts best align with common savings goals for children. 

 

How to Open a Trump Account (Form 4547) 

• Open and claim the $1,000 deposit (if eligible) by filing IRS Form 4547, ideally with your 2025 tax return (due April 15, 2026).  
• Timeline: The IRS plans to send activation info starting May 2026, with accounts going live in early July 2026.  
• You’ll be contacted by a custodian (Fidelity, Schwab, etc.) with whom your Trump Account will be established, with further instructions on how to complete account setup. If you use a certain custodian already, you will be eligible to transfer your Trump Account to the custodian of your choice with no tax consequences.

 

Ownership & Contributions 

• Ownership: The account is in the child’s name; you serve as custodian/authorized individual until the child reaches age 18.  
• Contribution channels & limits:  
• No contributions are necessary, but you can deposit up to $5,000 per year to maximize growth. The initial $1,000 deposit does NOT count towards the yearly $5,000 contribution limit. 

 

Investment Approach (Before Age 18) 

• During the “growth period” (before age 18), funds are invested in low-cost U.S. stock index funds; as custodian, you can select among eligible options. More to come once the program goes live.   

 

What Happens When My Child Turns 18? 

At the end of the growth period, the Trump Account becomes your child’s asset and follows traditional IRA rules. They can then:  

• Keep the Trump Account – Let it continue tax-deferred growth, and the account automatically becomes a traditional IRA. 

• Convert to a Roth IRA – Pay income tax on the balance at their (likely low) tax rate, then enjoy tax free growth going forward; this is expected to be a popular strategy.  

• Roll over to an Employer Plan – Move funds to a 401(k), 403(b), or governmental 457(b), if the Trump Account has no after-tax basis. 

• Take Distributions – Withdraw for education, a first home, or any purpose; distributions are taxable as ordinary income and may face a 10% early withdrawal penalty before 59½ unless an exception applies (traditional IRA rules). 
• Education expenses and $10,000 lifetime allowance towards the purchase of a first-time home are usually exempt from penalty. 

 

More can be found on Trump Accounts directly from the official government website: Trump Accounts – Jumpstarting the American Dream 

The Trump Account website mentions that another advantage in the account is “The power of time in the market.” I love this focus and of course it is not a phenomenon exclusive to the Trump Account. There are many savings vehicles to use for your children where the money can grow over time with compound interest.  

 

The question becomes: What is the long-term goal of the account? In other words, what will this money be used for? 

Instead of breaking down the pros/cons of every type of college account, I wanted to share two of the most common questions/scenarios we hear from clients and the tools that often make the most sense. Think of each account as a tool in a toolbox. All are useful in the right situation, but the challenge is matching the tool to the goal. 

 

Scenario 1: “I’m confident my child will pursue education after high school, but I still want flexibility.” 

A 529 plan is usually the most effective option here. The parents or grandparents can contribute directly to the 529 plan and depending on their state, receive a state income tax deduction, the earnings grow tax-free, and can be withdrawn tax free for qualified education expenses. These 529s also have no contribution limits set by the IRS. 

One of the biggest concerns I hear from parents is, “What if I overfund a 529?” The good news is that 529 plans have grown significantly more flexible over the years, and many of the old worries no longer apply in some circumstances. 

If your child earns scholarships, chooses not to attend college, or has leftover funds for any reason, current rules now allow up to $35,000 (lifetime) to be rolled over from a 529 into the beneficiary’s Roth IRA. It is key that the 529 is opened in the child’s name for 15 years to be eligible for this rollover. It is typically a prudent decision to at least open a 529 as soon as possible, even if you don’t put in a dollar for a while, to get that 15-year clock ticking to be eligible. If eligible, this gives unused education dollars a powerful second life as long‑term, tax‑free retirement savings. 

There’s also the option to transfer unused 529 funds to another child, giving families even more flexibility when plans change. 

For families worried about “overfunding,” here’s some perspective: 

If you’ve built up $35,000 in a 529 to the point where the rollover becomes relevant, that’s already an incredible accomplishment. 

As I often say: save $35,000 first and then worry about flexibility. Most families never regret having too much saved for education, but many regret not starting early enough. 

 

Scenario 2: “I want zero restrictions and am not interested in a 529. I want an ‘Adult Fund’ they can use for anything.” 

A custodial taxable brokerage account (UTMA or UGMA) prioritizes flexibility over tax perks that comes with a 529. The funds can be used for any purpose, and you will have a broader array of investment options. With either a UTMA or UGMA, the account is the child’s asset with the guardian usually as custodian over the account. Once the child reaches age of majority for their state, the young adult then becomes full owner and can do with it as they please. 

As Mark Kantrowitz notes in his article comparing custodial taxable brokerage accounts vs. 529s, a few trade-offs include: 

• Taxes each year under “kiddie tax” rules; no tax-free qualified distribution like a 529.  
• Financial aid: Counted as student assets, often reducing aid eligibility by 20% of the asset value. This is higher than a parent-owned 529.  

If maximum flexibility matters more than potentially optimizing taxes and financial aid, then a UTMA/UGMA could be the right tool for you. 

 

Bottom Line: 

If your child is born between January 1, 2025, and December 31, 2028, it’s worth seriously considering a Trump Account to receive the $1,000 initial deposit. You can then decide whether to pair it with another savings vehicle, like a 529 plan or a custodial account, depending on your long-term goals. No matter which account you choose, remember to save a little now, even if it feels insignificant. Consistency beats the perfect plan in theory that may or may not happen. 

I leave you with two quotes from personal finance expert, Morgan Housel. He explains in his book, The Psychology of Money, that sometimes sticking to a simple strategy is more effective than endlessly searching for the perfect one. Don’t get bogged down by details; focus on saving and spending less than you earn. 

“My own theory is that, in the real world, people do not want the mathematically optimal strategy. They want the strategy that maximizes how well they sleep at night.” 

“The reasonable investors who love their technically imperfect strategies have an edge, because they’re more likely to stick with those strategies.” 

 

Resources: 

• Trump Accounts Explained: $1,000 for Babies Born 2025–2028 
• Trump Accounts – Jumpstarting the American Dream 
• 529 vs. UTMA/UGMA: Which is Best for College Savings?