As financial advisers, part of our job is seeing opportunities where others don’t.
For example, let’s take a look at the new Trump Accounts for newborns that were part of the One Big Beautiful Bill (OBBB) Act.
Some were quick to dismiss the new accounts, saying it’s only a $1,000 government deposit and nothing much can come from that.
But we see it a bit differently.
What we see is an account that has the potential to become an important asset as children become young adults. We see a small account that could play a big role in their future.
“Our tag line is, ‘You Gotta Have a Plan.’” writes Mick Owens, author of the book Diamond of Life: The Five P’s of Success and Significance. “As important as it is to ‘have a plan,’ it’s more important to let/allow God to direct your steps.”
The Inside Story1
Thanks to the OBBB, every baby born between January 1, 2025, and December 31, 2028, will be entitled to receive $1,000. That money will be placed in an investment account in the child’s name. Parents (or any other person) can also contribute to the account, up to a yearly limit of $5,000 before the year the child turns 18.
Contributions and earnings cannot be withdrawn until the child turns 18. But after that, the money can be withdrawn for any reason.2
“Do not neglect to do good and to share what you have, for such sacrifices are pleasing to God.” Hebrews 13:16
Here’s where it gets interesting.
Let’s say, hypothetically, the child converts the account into a Roth IRA after age 18. When the money gets converted, the contributions are tax-free, but earnings are subject to ordinary income taxes. (Remember, parents who contribute to the Trump account have already paid income taxes on the contributions, so the money is not taxed again on withdrawal.)
Pro Tip: In all likelihood, the child will be in a lower tax bracket at age 18, therefore the taxes due on the conversion may be a bit more manageable if parents want to help pay.
Once the Roth IRA is open, the new account could have decades of tax-free growth from money that was originally placed in the account.
Also, once the Roth IRA is open, the Roth rules apply, which means that distributions must meet a five-year holding period and occur after age 59½ to qualify for the tax-free and penalty-free withdrawal of earnings. In certain other circumstances, tax-free and penalty-free withdrawal can also be taken, such as following the owner’s death. Keep in mind that the original Roth IRA owner is not required to take minimum annual withdrawals.
This strategy might not be right for everyone, but it’s worth considering if you have a newborn.
More importantly, it shows that we’re always looking for ways to make the most out of opportunities that come up. This Roth strategy targets young families, but if you’re approaching or in retirement, there may be a Roth strategy that can work for you, too.
- EconomicPolicyInnovationCenter.org, July 31, 2025
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Keep in mind an early distribution penalty may apply, unless an exception applies.
