Roth IRA vs. Trump Account: Which is better for kids?
· 13 min · Episode 1046
Episode Roth IRA vs. Trump Account: Which is better for kids?
1046. Did your teenager earn money from a summer or part-time job? Laura answers a listener’s question about two tax-advantaged savings accounts for minors: the Roth IRA and the new Trump Account. You’ll learn how both accounts work and where working teens or their parents should put their hard-earned dollars first.
Key Takeaways:
• Minors can have a custodial Roth IRA when they earn income from W-2 employment or self-employment and contribute up to $7,500 or 100% of earned income, whichever is less. • A Section 530A Trump Account can be opened for kids under 18 regardless of whether they earn income, and contributions can total $5,000 annually. • A Roth IRA offers tax-free growth and tax-free withdrawals in retirement. • A Trump Account grows tax-deferred, and once the owner turns 18, it becomes a traditional IRA, with distributions taxed (except for contributions that were previously taxed). • Parents or relatives do not need to use a minor’s money to fund a Roth IRA; they can match or make an eligible contribution for the minor. • After age 18, doing a Roth conversion on an old Trump Account is a wise move to lock in tax-free growth forever. • Eligible working minors can max out a Custodial Roth IRA up to their earnings limit and receive up to $5,000 in a Trump Account from family, friends, or employers in the same tax year.
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