The 2025 Trump tax law created the Trump Account as a new tax-advantaged account type. I wrote about it in Trump Account: IRA for Kids With No Earned Income. It’s basically as the title says, a non-deductible IRA for kids without requiring earned income. It isn’t as good as a 529 plan if the money is for college education. It isn’t as good as a custodial Roth IRA if the child has income from a job or self-employment. It isn’t as flexible as a UTMA account. You can’t control it as much as a regular brokerage account in an adult’s name.
Convert to Roth
Besides collecting the one-time $1,000 from the government for babies born in 2025 through 2028 and the $250 from Michael and Susan Dell for some older kids living in certain zip codes, some people say a good use of a Trump account is to contribute every year until the child is 18, convert it to a Roth IRA in early adulthood, and enjoy 40+ years of tax-free growth.
It’s usually compared with a taxable account, which can’t be converted to a Roth IRA. However, as we will see in this post, money in a taxable account can still go into Roth accounts. The older the child is when you start, the sooner that will happen.
Ben Henry-Moreland at Kitces.com raised a few issues with converting a Trump Account to a Roth IRA in his article, Why Taxable Custodial Accounts Are Better Than OBBBA “Trump Accounts” For Kids’ Savings. Those include:
- Kiddie tax applies before the child provides more than half of his or her own support;
- 10% penalty on the conversion tax if it’s paid from the account being converted;
- Getting bumped into a higher tax bracket when the full balance is converted in one year.
Let’s be generous to the Trump account and assume the child converts after graduating college at 22, pays the tax from after-tax salary, and spreads the conversion over a few years.
UTMA
If you contribute the same amount to a UTMA account and invest tax-efficiently, the child will have a similar balance at age 22, especially if you start after the child is already at least 5 years old. The UTMA account just doesn’t earn enough dividends to pay much tax until it grows well above $100,000.
Taxable Account in Your Name
It doesn’t have to be a UTMA either. Some parents prefer to use a regular taxable account mentally earmarked for the child but legally under the parent’s name. They accept paying taxes on dividends as a cost of retaining full control of the account. They will gift appreciated shares to the child only when they see he or she will handle the gift responsibly.
Ben Henry-Moreland mentioned in passing that money in a taxable account can go into a Roth account:
A taxable account owner could choose to use funds from a taxable account to make Roth contributions, but those contributions would be subject to the annual contribution limit ($7,500 in 2026) …
I will expand on it and point out another path: Roth 401(k). Roth contributions aren’t limited to the $7,500 Roth IRA limit. The contribution limit in a Roth 401(k) is $24,500 in 2026 (soon to be $25,500 in 2027).
Unused Roth Contribution Room
How many 22-year-olds in their first job out of college max out both a Roth 401(k) and a Roth IRA? According to Vanguard’s latest How America Saves report, only 2% of participants under age 25 in its 401(k)-type plans contributed the maximum in 2025.
Most people in their first full-time jobs only contribute enough to earn the employer match. On a typical $60k salary, contributing 6% is $3,600. It leaves $24,500 + $7,500 – $3,600 = $28,400 of Roth contribution space unused.
We’re not even talking about employer plans that allow additional non-Roth after-tax contributions that can be converted to Roth (“mega backdoor Roth“). Or employers that have both a Roth 403(b) plan and a Roth 457 plan. The unused Roth contribution room is larger still if the child lands an employer like that.
If parents choose to keep the taxable account under their names, their annual gift tax exclusion is $19,000 x 2 = $38,000 per child in 2026, well above the $28,400 in unused Roth contribution space. They could also file a gift tax return, with no tax due, and gift a higher amount if the child’s unused Roth contribution space is higher than their gift tax exclusion. Gifting appreciated shares gives the child the parents’ cost basis and holding period. The child can sell gifted shares right away at their own long-term capital gains rate.
Years to Roth Accounts
Assuming that parents contribute the maximum $5,000 every year until the child is 18, and the account earns an inflation-adjusted 7% return, here are the ending balances at age 22 and how fast it can go when the child contributes an additional $28k per year to Roth accounts and uses the money in the taxable account to make up for the lower paychecks (all in today’s dollars):
| Starting Age | Balance at 22 | Years to Roth Accounts |
|---|---|---|
| 0 | $238k | 12 |
| 2 | $196k | 9 |
| 4 | $158k | 7 |
| 6 | $125k | 6 |
| 8 | $97k | 4 |
| 10 | $72k | 3 |
| 12 | $50k | 2 |
| 14 | $31k | 2 |
| 16 | $15k | 1 |
If you start contributing $5,000 when the child is 8, the taxable account grows to $97k in today’s dollars when the child is 22. It takes only 4 years to pour the money into Roth accounts. That isn’t much longer than spreading the Roth conversion of a Trump Account over a few years. Selling from the taxable account incurs lower taxes because capital gains are taxed at a lower rate.
The older the child is when you start, the smaller the taxable account balance will be, and the sooner it can flow into Roth accounts. Taxes will be lower to move the taxable account balance into Roth accounts than to convert a Trump Account.
If you’re thinking of contributing the maximum to a Trump Account and converting it to Roth, it’s a better move to contribute the same amount to a UTMA or a regular taxable account in your name, especially when the child is already a few years old. Use the money to fill unused Roth contribution room in the child’s early adulthood. The tax on dividends along the way, plus capital gains tax when the shares are sold, is still less than the ordinary income tax on a Roth conversion. Once the money is in Roth accounts, it’s all the same tax-free growth and worth millions when the child retires.
The same idea also works if your child or grandchild is already over 18. Offer a match in their early career: gift appreciated shares to make up for whatever they put into Roth accounts beyond the employer match. Your money effectively ends up in their Roth accounts.
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Thomas Hedberg says
Nothing seems to address the potential problem of a drug-addicted irresponsible 18-year-old who suddenly has several hundred thousand dollars to spend secretly.
Harry Sit says
Both the Trump Account and UTMA give the child control over the money at a young age. They’re about equal in that regard. This post only addresses the Roth conversion aspect. The control issue is mentioned in the “Introduction to Trump Account” post under Trump Account vs Account in an Adult’s Name.
Tom H says
What if the child has gone off the rails and is a week shy of the 18th birthday. The parent withdraws the money, violating the rules. The custodian must do what the parent says. What are the consequences for the parent?
Harry Sit says
Trump Accounts go by the calendar year, not birthdays. Age 18 means January 1 of the year in which the child turns 18. If we change your question to a week shy of January 1 when the child is still 17, no, the custodian must not do what the parent says. The custodian is required to disallow distributions except for “qualified rollover contributions, qualified ABLE rollover contributions, distributions of excess contributions, and distributions upon death of the account beneficiary.” These requirements are in IRS Notice 2025-68.
Jacob says
Parents who are doing this for their children are not going to require them to make withdraws at ordinary income rates and a 10% penalty to pay the taxes on the conversion. The whole point of this is the transfer wealth to the next generation – so why would they sabotage the gift like that? The whole big-picture of this would be for the parents to pay the taxes on the conversion.
And it seems like the suggestion is being made that contributing to a TA and converting to Roth is less valuable if the child is older? If the child is older, and the funds were contributed by a parent (nondeductible) – then even more of the account is going to be basis that will require no tax to convert. The older the child is, the more similar this is to a backdoor Roth for an adult. Why would that be less valuable?
Harry Sit says
A Trump Account is less valuable to an older child because the contributions are capped. Suppose the child is already 17. You get to contribute $5,000. That’s it. Suppose the money grows to $5,500 and you pay the tax on the $500 growth to convert it. The tax isn’t much in the context of wealth transfer, but you still only transferred $5,500. It’s like a backdoor Roth but you only get to do it for one year. That’s not very valuable. You could easily gift the $5,000 in a UTMA, pay the long-term capital gains tax on the growth, and have the child use it to increase Roth 401k contributions. UTMA has a much higher limit. If the goal is wealth transfer, you can transfer a lot more in a UTMA.
As a thought experiment, you can easily see why no one would do it if the annual contribution limit is $50. The percentages and the tax rates are the same, but the low dollar cap makes it not worth the hassle. The same principle applies when the child is older. The older the child is, the less valuable a Trump Account is.
You can’t avoid paying taxes at ordinary income rates when you convert an account to Roth. It’s either the parents’ ordinary income rates when kiddie tax still applies, or the child’s ordinary income rates when the child is out of kiddie tax. If parents are paying the taxes on the conversion, they can also pay the taxes on capital gains to sell from a UTMA and add the difference to the child’s taxable account. Then the race to Roth begins, as shown in this post. Money in a UTMA and a taxable account gets into Roth accounts a little later, but it incurs a lower toll along the way.
Kevin says
So for the Roth 401k contribution from UTMA, is the idea that, in practice, the child would put a huge chunk of their low income into that account and sell UTMA for living expenses, making it an effective UTMA to Roth 401k conversion? Or did I completely misunderstand that part?
Harry Sit says
That’s correct. Money is fungible. The paycheck deduction for Roth 401k can be made up by selling from the UTMA.
Prof.Dimitri says
Excellent article, as always.
The only missing element is college financial aid, which complicates the UTMA route. Under current rules, UTMA is the child’s asset, so aid formulas count about 20% of its value per year plus 50% of the income it generates, compared with about 5.64% for parent-held assets, and your plan has the UTMA sitting in the child’s name through all four years of college.
FAFSA completely ignores 530A accounts; as long as the Roth conversion waits until after graduation, as you assume. If the goal is to fill Roth space at 22 with capital-gains treatment along the way, a brokerage account in the parent’s own name beats a UTMA: lower aid assessment, no kiddie tax or separate tax return for the child, and parents keep control until the child is actually ready to use it.
I cover it here: https://profdimitri.substack.com/p/accounts-for-kids-529s-utma-and-530a
Harry Sit says
Parents wealthy enough to fund $5,000 per year per child on top of fully funding 529 plans probably don’t expect financial aid. Colleges often cover FAFSA gaps with loans, not grants. If parents want to leave that option open and retain more control, I agree a good ol’ taxable account in the parents’ names also works. The favorable tax treatment on the first $2,700 of income in a UTMA isn’t worth that much. If parents gift appreciated shares to the child, the tax from selling will be the same whether the account is in the parents’ names or the child’s name. I’ll add this as another good option for parents who prefer more control over small tax benefits in a UTMA.
The main point of the post still stands whether parents use a UTMA or a taxable account in their own names. Converting a Trump Account to Roth isn’t as powerful as it sounds.
C says
Why would you assume the conversions would be done at 22 and not 18? The whole idea I’ve seen is to convert during college while they have not much income. Very weird to put your thumb on the scale and pick an objectively worse time (22) even after saying the kid when to college.
Harry Sit says
Kiddie tax.
Michael says
I have a 15 year old and if I contribute in Dec this year can put 3 years of 530A contributions and do the Roth conversion in Jan of 18th year with minimal gains. This would likely stay under kiddie tax. Thats 15k of Roth Conversions my kid wouldn’t otherwise have.
Harry Sit says
If you put the $15k in a taxable account and wait until your child has a job, the entire balance can go into Roth accounts in one year. Suppose the $15k gained $10k in those interim years, which is huge; the capital gains tax would be $1,500. You would save $1,500, true, but it isn’t as powerful as it sounds. People get this much from credit card sign-up bonuses.