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Plan With The Tax ManAuthor: Tony Mauro
Financial, tax and retirement planning guidance from Tony Mauro. Tony is the original Tax Doctor, serving central Iowa. Well teach you how to properly plan for retirement, minimize your tax burden and attain a successful financial future. Language: en Genres: Business, Business News, Investing, News Contact email: Get it Feed URL: Get it iTunes ID: Get it |
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Trump Accounts: Free Money or Future Headache?
Episode 141
Thursday, 15 January, 2026
A new government-backed savings account for kids is coming. On the surface, it sounds like a win. Free money for newborns, long-term investing, and a head start on adulthood. But once you look under the hood, Trump Accounts raise some real questions about taxes, flexibility, and whether they beat existing options. Today, we’re walking through the pros and cons and asking if this new account is worth the effort. Important Links: Website: http://www.yourplanningpros.com Call: 844-707-7381 ----more---- Transcript: 00:00 A new government backed savings account for kids is coming. We've all heard about this, and on the surface it sounds like a win free money for newborns and long term investing and a head start on adulthood. But when you look under the hood, the Trump accounts raise some questions about taxes flexibility and whether they beat existing options. So this week on plan with the tax man, let's break it down. Look up in the sky. It's a bird. It's a plane. No, it's the tax man. He may not be a superhero, but Tony Morrow has saved many retirement plans with his extreme knowledge of tax planning strategies. It's time for plan with the tax man. Hey everybody, welcome to the podcast. This is planned with the tax man, with Tony Morrow from tax Dr Inc and Tony. Let's talk about the free money, or the future headache of the pros and cons of the new quote, unquote Trump accounts, and just kind of see if we can kind of give some, you know, back and forth, a little bit on some of these things, because there's a lot of interesting ideas, but there's also some conundrums as well. So we'll dive into that. How you doing? My friend, doing good. You know, New year, new goals. Hopefully everybody's got some new goals and feeling good. And so, yeah, we're looking forward to, course, tax season starting for us shortly as we as we're taping this right, right? So we've got that coming about. Get busy. Yeah, yeah, yeah. Well, so let's break into this. Let's chat on this conversation here a little bit. So I guess let's kind of start with big picture, right? So this was part of the Oba the one, and they launched this year. So this stuff, if it all goes through again, this would start this year in July of 2026 give us some some highlights here, some big picture. Yeah, so the big picture. And the reason I wanted to talk about this because we're starting to get some questions. Some questions from tax clients. I think they're hearing things, you know, out on the news and things in Google and whatnot, but I still think there's a lot of people that don't know anything about it. That's why I want to at least try to reach as many people as possible. But you know what they did? And you know, again, putting all politics aside whether this is right wrong, we have the money, but this is what's going on, and you got to decide whether or not you know you want, can take advantage of it. So what they did was they're basically saying that starting in July 26 children born between 25 and 28 so we're only talking 25 at the moment, 26 to be but they got to keep this in mind, the government's going to give each of these children, if they open up a Trump account, $1,000 free money, which, on the surface sounds good, and what happens is, is the child owns the account. The parent is the custodian, till they're 18, other people, like grandparents, parents, friends, all that contribute up to $5,000 a year to this account in total. And even employers could throw in 2500 but it's not, I don't know. See a whole lot of that happening, but who knows? Maybe. And then what they're going to do, what the federal government is going to do, is take this money invested in low cost US equity funds are probably going to be ETFs and index funds, things like that. It's very low cost. All of this interest in gain is going to grow tax deferred, and then when the child's 18, they do have the opportunity to withdraw this amount, but they don't have to any withdrawals. It's treated just like any other retirement account. It comes out taxed at ordinary income, and they could face penalties there and whatnot. That's kind of the big, big picture of that. And you know, we'll continue to move on, and I'll go over some numbers that I ran before we got this on here, and just to kind of give some people some numbers to put with it. But I think the big thing they're what they're looking at, in my opinion, is, again, I think a lot of times the government sometimes means, well, they rush things out, don't think it through. I think their big you know idea here is, let's start something for newborns, so that if they save this money and end up with it all the way till they retire, that maybe you know, if we don't have the programs we have now, that they're going to be okay, in other words, less reliant on the government. But that's my opinion of that, because I you know they know that not enough Americans are saving on the regular, and I think that's, that's their primary motivation, yeah. And I think there's two pieces to that, Tony, and thank you for breaking that down, good and concise, good stuff there. I think one is to get people saving. Or, I think these are really three. There's really threefold, really right? One is to get people saving from a young age, teach in the value or the power of compounding, as you know, is massive, right? Absolutely. And so I think that's one piece. I think another piece is get people making kids, because we're going to have a real shortage of workforce, not only our country, but a lot of countries. And I think, I think there's some of this is a leftover Elon kind of feel right with with Trump and with the administration, because he's a huge proponent of we are going to have major shortfalls in society, in the workplace in about 2025, 30 years, right? And so if you look at China, they're going to have huge workforce problems as well. So I think it's that and that, and then tax revenue. And the reason I say that about the tax revenue and I'm going to have you buy. 05:00 Break this down for us is because they're a little sticky, right? There's, there's some criticisms here about how it works. So why don't you break down some of the the cons, some of the negatives of this, some of the negatives really, you know is, and this is what, what I didn't even know until we started really dwelling into it, is, if somebody like me. So the reason this is near and dear to my heart because I had my first grandchild. First grandchild in 25 so, you know, I want my son to open up this account get the 3000 I'm gonna I'm planning on putting the $5,000 a year in for her, and we'll get back to that. But one of the cons is, is these contributions don't qualify for the annual gift tax exclusion. A lot of people don't know that when they give gifts away of cash and other things, there's an annual gift tax exclusion, and after that, you have to file a tax form using some of your lifetime exemption. These don't qualify for the exclusion. So therefore, when I do this, I'm going to have to file a gift tax return, which is a form 709, which is not terribly difficult, because obviously I know how to do them, but people that don't know how to do them are gonna have to go pay somebody two. To go pay somebody to do them, or they could get themselves in trouble, you know, with the IRS. The other thing too, is, and I just found this out before, well probably a couple weeks ago, is this is not supported this form by DIY tax software, you know, so half of America is using DIY tax software. You're going to need to pay someone like ourselves to do this for you, which just means a little more money out of your pocket. The other thing too is there's no tax deduction for these contributions, because it's not, you know, not a qualified charity or anything like that. Withdrawals are taxable, unlike Roth's and other types of things. And then there's limited flexibility, I feel like, for me personally, I don't mind assuming this all comes off like they talk about letting the government run the account until she's 18, but after that, if I were to convince her, if I'm still around, and not to let the government hold that, we move that into something, you know, a rollover IRA, something like that, that we can Control outside of the government hands. That's just me personally, but so I think there's some of those. Are some of the criticisms. I would say people have to watch out for some of the cons. But I think the pros, you know, really are number one. Government's handing out 3000 bucks right of a child you know, born between 25 and 28 you might as well take it if you have a child. But even if you don't do anything else, you might as well take the free money. Granted, we don't, maybe not have the money to do it, but they're going to hand it out. So, you know, why not take that? I think that's one. I think two, like you were talking about, really gives the child early on some sense of, you know, investing, using compounding things like that, the investments are going to be very low, and you don't have to make any decisions about them. It's just going to be invested in index types of funds. And I ran the numbers before we got on so you know, if you take advantage of this, if you have a child, and you just open one up and the government puts the 1000 bucks in you, nothing else, right? If you leave it like that, and let's say that these funds earn roughly 7% you know, not, not very high, but I they probably gonna do better than that over 18 years. But so you would have, for that child $3,379 08:15 you know, it's not a ton, but it's free money. I ran, I think I ran it Tony. And if you go out something crazy, like 40 years, just, just the I ran that one, right? Yeah. Did you run that one too? I ran that one. Go ahead. Took the same 1000 bucks and you left it so you're 3379 and 18. You took it out another 48 years till they were 65 that person would have an 81,250 08:38 bucks. If you did nothing, you did zero, right? So, like, if you do nothing and you leave it alone, and again, there's that limitation, right? You got to have a kid born this year for right now, but that's 85 grand at retirement that you didn't have before, and you did nothing, did nothing, that's not that's not terrible, that's not terrible. So I think the Pro, in my mind, pros outweigh the cons. Yeah, especially if you, if you, you know, take control of it after 18. Yeah, maybe help them, not just go out and spend it. I had, I had done that Tony with and added $1,000 annually, right? So, just saying, okay, like life gets in the way, whether, you know, whether it's family or whatever, adding $1,000 while the kid is young, up to a, you know, 18, and then they've got a job, and then you've, you've taught them, you've educated and you've got them set they're going to put $1,000 in every year like clockwork until they're 65 and it was over half a million. Yeah, right. Well, I ran the numbers for my own granddaughter, and if I, if I open one, or my son will open it, but Right? And so the free 1000, if I put in $5,000 a year for her till she's 18, and stop at 18, she'll have $173,000 09:50 in that account. Wow. Imagine that. That's amazing. If she left that till she was 65 and did zero, you know, nothing else for retirement, she would have 4.4 10:00 Million dollars. Holy moly. So granddad would have funded her retirement up till she was 18, and she just didn't touch it again. Now that again, to your point, this is assuming 7% year over year. 7% things can happen, right? But, yeah, and who knows, you know, if people are going to have the wherewithal to set it aside, but it would be kind of in my own, my own situation. For me, it's like, you know, maybe that would be something kind of, you know, for my legacy, you know, even so if something happens to me or when I'm gone, right, she can say, hey. I mean, 4.4 may not buy as much as it does today, but it's still, I gotta think $4.4 million 60 years from now, still got to be nice. Yeah, you know, it's gonna be nice. So interesting, yeah, interesting, yeah. Well, let me so let's, let's play devil's advocate, right? So you've talked about some of the criticism, you've talked about some of the pros. How do they stack up against the things that are already out there, right? So, is it the best fit? Is it, are you still better off doing, you know, like, a 529, or a custodial account? Like, what's some thoughts? That's good thought. I would say this where hopefully you're working with your advisor to talk to them and go over that. I think I hate to give away free money, especially when the government's given it. So I would at least take advantage of 1000 bucks, right? And but as I did the numbers and I compared it, you know, to say, if I put for my own situation, I put in $5,000 into a 529, plan for her, and she didn't use it for college, and we rolled it to, you know, an IRA, assuming that rule is still in effect, it's going to be close. She'd actually probably have a little more in that if she took it all the way out to 65 simply because the investment flexibility and whatnot. But when you take away some of the, you know, the manager fees and something like that. It starts getting down fairly close to it. But again, it depends on what clients want to use this money for. Maybe some are just saving for the 18 and using it for college and calling that good. I know in Iowa you can get a, you know, a deduction for your 529, contributions. So in Iowa, if you're using it for college, it might not make as much sense to do the Trump account versus an Iowa 529 plan, but different. You know, people in different parts of the country might find it different. So my my takeaway there for everybody would be, make sure you run some numbers with your advisor and what you're wanting maybe to use this for, because Roths and 529, may be still a better option. They're not getting the the headlines like this, but, you know, they still may be better options for you. All right. So final thoughts, my final thoughts, basically, are, you know, with the state of the government right now, I don't, I don't want to get into all that. I say, you know, if you've got a child being born, go ahead and take the money, at least, take the free 1000, then work it into your plan and see where that takes you. I will say in closing on this topic, for 2025 12:52 there's actually a form that you can fill out and submit with your tax return, and they will open it up automatically for you in 26 and beyond. Right now they're saying you've got to go out on your own and open up the account. I don't know if that'll be the case once they get the 26 forms and everything done, but for those born in 25 which my granddaughter was, it's very easy to get at least get the account open, rather than going through a lot of bureaucratic, bureaucratic BS. But I hope that they can do this, and they can continue to do it for these three or four years here, where this, I don't know, I'm hearing all kinds of things. I'm hearing some of its federal money, some of it, Michael Dell, or somebody's done, yeah, they did, like, 6 billion, I think, to this fund, yeah. So, you know, there's some money out there, and, you know, it's, I think it's worth a look anyway. Don't, don't just pass it up because it's a government thing. It's funny. People are like, Oh, they just did that because they're, you know, if you're, if you're getting political, well, they're cronies and all that kind of stuff. It's like, it's also a tax write off for the Dell corporation or Dell person, whatever the case is, right? And who cares, right? I was like, sometimes people get so, they get so wrapped up in political minutia that it's like, Look, if it's $6 billion it's coming from a private individual to fund something that may help, you know, another generation save some money, and yes, there'll be tax revenue generated for it. Let's be honest. It's not, and it's not, yeah, it's not just Trump's administration that needs tax revenue. It's our country, right? It's our government. So whether taxes, you know, taxes are probably still going up. Tony, I mean, you know, they passed the extension of the tcja, right with the over but we're in there. We're in our low tax, you know, brackets now for another few years. But let's be honest, at $38 trillion we need tax revenue. We need tax revenue. And I would agree with you. You know, as much as political things are going on the country right now, you can't let political things drive, you know, every single like, motivation about everything, right? Yeah, that's, I mean, because, from a from a truly tax guy standpoint, me saying, the government, hey, you guys spend way more than you you take in. Why are you doing this? We don't have the money. Blah, blah, blah, but Right? I mean, as a user of the system, hey, if you're gonna hand out money, I think I should Right, exactly, take it exactly. It's. 15:00 Interesting, yeah, yeah, we just can't get so politically polarized, you know, we can't see that. But so, yeah, I think, I think that they're a worthwhile take a look at deal, right? Okay, well, overall, they're not inherently bad, but they're not automatically better either, right? But the money is real, and so are the trade offs. So like most financial tools, Tony, all financial tools, their value depends on the family, the goals and the other situations that are already in play or could be in place. So sit down with a qualified Pro and see if it's you know, right for you. And again, you have to even fall in line with this if you're having a child or your child's having a child with this past year, right? So it's a very limited option for people right this minute, but if it's something that does pique your interest, and as Tony said, he's had a lot of calls and emails about it here recently, then reach out to him and have more in depth conversations at your planning pros.com that's your planning pros.com or call 844-707-7381, 15:56 we'll have a link in the show descriptions so that you can click on there and get in touch with With Tony, but don't forget to subscribe to us on Apple or Spotify or whatever podcasting app you enjoy, and for that, we'll see you next time here on plan with the tax man. Tony. Thanks for breaking it down. All right. Well, take care. We'll see you next time. We'll see on the next episode. 16:17 Right here Securities offered through a van tax investment services. SM, Member FINRA, SIPC, investment advisory services offered through avantax advisory services, insurance services offered through an event tax, affiliated Insurance Agency. Investment strategies discussed in this episode may not be suitable for all investors. Please consult with a financial professional. Securities offered through Avantax Investment Services SM, member FINRA, SIPC. Investment advisory services offered through Avantax Advisory Services. Insurance services offered through an Avantax affiliated insurance agency. Investment strategies discussed in this episode may not be suitable for all investors. Please consult with a financial professional.
