Mat Sorensen:
Welcome everyone to the Directed IRA Podcast. This is Mat Sorensen, joined by the incredible Mark J. Kohler. Today we’re talking about something new that I’ve fallen in love with recently: Trump Accounts.
If you’ve got a child under 18, you need to hear this episode. We’re going to break down what a Trump Account is and compare it to other accounts you might already be using for your kids.
Mark J. Kohler:
Happy New Year, everyone. This is our first podcast of 2026.
I’m going to start by saying I’m not in love with Trump Accounts. I think there are already accounts that parents are underusing. Trump Accounts make sense only after you’re already using those other strategies well.
So this is going to be a debate, and I’m excited for it.
Mat Sorensen:
I love it. We’re debating, and I will win.
Mark J. Kohler:
Just saying you’re in love with something that has “Trump” in the name probably lost half the audience already.
Mat Sorensen:
First, you’ve got to get over the name. Whether you voted for Trump or not doesn’t matter. This is a powerful tool for helping your kids build wealth.
When I first saw these, I thought they were terrible. Then I learned one thing from the IRS regulations that changed everything:
You can convert a Trump Account into a Roth IRA.
That’s the game-changer.
It means your child could have a Roth IRA at 18 that you funded, even though they never had earned income. And if we do it right, the conversion can happen tax-free.
That’s why I love these accounts now.
Mark J. Kohler:
I’ll say one thing first. Don’t reject legislation just because of who passed it. Look at it objectively and decide if it helps your family.
So Matt, walk us through the basics.
Mat Sorensen:
Trump Accounts were created in the “One Big Beautiful Bill” and go into effect in 2026. You can open one starting July 5, 2026.
They’re for kids under 18. Parents, grandparents, aunts, uncles, anyone can contribute.
You can put in up to $5,000 per year per child.
No tax deduction for the contribution. It’s after-tax money.
The benefit is that all the investment growth inside the account is tax-deferred, similar to an IRA.
Unlike a brokerage account for a child, you’re not paying taxes each year on investment gains.
Mark J. Kohler:
One big positive: there are no income limits. Any family can open one, regardless of how much money they make.
The downside is control. You can’t self-direct. You’re stuck with Wall Street-style ETFs and mutual funds. Fees will exist. You have to watch them.
But it does start the snowball of compound growth.
Mark J. Kohler:
Here’s my concern. You can’t pull money out tax-free for college. Even after converting to a Roth, you still have age limits.
Most parents are worried about college or trade school first. That’s why I usually point people toward:
- Coverdell ESAs
- Roth IRAs for working kids
- 529 plans
You should be stacking accounts, not using just one.
So Matt, how does college really work with Trump Accounts?
Mat Sorensen:
You’re right. Trump Accounts are not designed to be college savings accounts.
They turn into a Traditional IRA at age 18.
If your child withdraws money for college, the 10% early withdrawal penalty is waived, but taxes are owed on the growth portion of what’s withdrawn.
So if you put in $60,000 and it grows to $100,000, then 40% of any withdrawal is taxable, but there’s no penalty if it’s used for education.
It’s usable for college, but it’s not as good as a Coverdell or 529 for that purpose.
Trump Accounts are really meant for long-term wealth and retirement, not tuition.
Mark J. Kohler:
This is where I think people need clarity.
If you’re tight on money, start with a Coverdell.
If you own a business, pay your kids and fund a Roth IRA.
If you’re doing better financially, add a Trump Account.
If grandparents want to help, use a 529.
These are not either-or. They stack.
Business Owners Get a Big Advantage
Mark J. Kohler:
One thing many people miss: if you own a business or rental property, paying your kids is a legitimate strategy. That money is deductible, and the kids can fund Roth IRAs or Trump Accounts with it.
That turns these accounts into tax-deductible wealth builders.
Mat Sorensen:
Exactly. If your kids have earned income, a Roth IRA is even better than a Trump Account because you can self-direct it into real estate, private deals, or crypto.
Trump Accounts shine for families who don’t have that business income option.
Mat Sorensen:
This is the most important part.
When the child turns 18, the Trump Account becomes a Traditional IRA.
At that point, you can convert it to a Roth IRA.
If your child has little or no income, the conversion can happen inside the standard deduction, meaning no tax is owed.
So if the account is worth $60,000 or $100,000, you can convert it over several years and pay little or no tax.
Even better: you only pay tax on the growth, not the original contributions.
Mat Sorensen:
Here’s the math.
Say you contribute $5,000 a year for 12 years. That’s $60,000.
Let it grow to $100,000 by age 20.
Convert it to Roth.
Let it grow at 10% for 45 years.
That becomes about $8.8 million, completely tax-free.
Mark J. Kohler:
That’s hard to argue with. Not everyone can fund all these accounts. That’s okay. Start where you are. Learn. Grow. Stack strategies over time.
This is about building the American Dream for your family.
Mat Sorensen:
Thanks for listening. Share the episode, subscribe, and we’ll see you next time.
Stay calm. Self-direct on.
Mark J. Kohler:
This podcast does not create an attorney-client or CPA-client relationship. Always consult qualified legal and tax professionals before acting.
