Trump accounts
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I don’t believe we qualify due to income restrictions.
There is no income restrictions.
Just put in post tax money. Let it grow and convert to Roth when they are 18 and at
Their lowest tax brackets
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How many of y'all are having kids these days?
Most married people have children. Unless they marry or remarry late (women).
It’s a touchy subject married couples who get married say ages 26-34. (Prime ages for professional women). And u don’t see them having kids. A few disclosed to me by age 44. That they tried but couldn’t have children.
you need to make sure you file it correctly on your taxes during the years you put money into it. It is not treated the same as a 529 contribution (for example).
A lot of folks are pushing this strategy but fail to mention possible “kiddie tax” implications. A Roth conversion counts as unearned income and can be taxed at the parent’s tax bracket. This is why it’s better to save in an earmarked brokerage account rather than a UTMA account.
If you really want that tax free growth, best to employ your children and put it directly into a Roth.
Yes it’s similar to filing 8606 to keep cost basis for Roth contributions.
File form 4547 to established the account. And come tax time in 2027.
Determine the cost basis for a Trump account by keeping records of non-deductible after-tax contributions made by you, your parents, or others. To establish and track this basis, file IRS Form 5498-TA
Just avoid with kiddie tax at 18 if u convert after they turn 24? They should still be in the lowest tax bracket at age 24
What if my kids clean my home office?
Depends, did they manage your calendar?
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After tax contribution, not worth it.
UTMA, just don't realize gain. Not kiddie tax. If you do sell, capital gain tax rate.
Or I keep the $$, kids inherit with adjusted cost basis.
UTMA, just don't realize gain. Not kiddie tax. If you do sell, capital gain tax rate.
Or I keep the $$, kids inherit with adjusted cost basis.
Fund investments restricted to low cost ETFs. Makes sense as Trump himself made a billion off memecoins last year.
What do u mean after tax contributions not worth it.
Many of us have pretty much maxed out on everything. Spend tons of money on vacay.
All that is left is taxable accounts to invest in and real estate. So what else do we do with the money?
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You can’t predict their income tax bracket at 24 years old and the last thing you want is money stuck in a traditional IRA that complicates future backdoor Roth IRA contributions. It just seems more likely than not you’ll be paying taxes on the conversion when they’re adults.
Not while in school. The kiddie tax applies if they are full-time students until they turn 24 years old.
If they are making $$$ by age 24 so they can’t contribute to a Roth the regular way due to income restrictions. I consider that a win. The Roth income restrictions is currently 153k AGI for singles. Meaning they gotta be making around 190k or more pretax before deductions.
When people are obsessed with backdoor roths. I pretty much know they only started investing after the 2010 tax law changes that allowed for Roth conversions without income limits.
Tax Laws change all the time.
Many of us did non deductibles Ira way before 2010 without the Roth conversion laws. Knowing we would pay taxes on the Gaines.
Why would anyone do an IRA if there is no benefit at the front or backend? Isn’t that called an individual account, without any IRA rules or scrutiny?
Explain.
remember. This was before the 2010 era of the backdoor Roth. You couldn’t convert to Roth due to income restrictions.
That’s why.
I don’t need to remember anything. I’m looking for an explanation on why use a zero benefit IRA versus an individual taxable account.
Were u investing in 2000? I’m trying to get a time line when u started investing.
Tax laws change over time.
Non deductible Ira were pushed by many financial companies from 1990s to early 2000s. Because capitals gains rates (long term were 28%) before bush 43 changed it to 15%. For those wealthy individuals who had spare money leftover. That’s why
For you to say I don’t need to remember anything Means you don’t knows the tax laws back than.
So the benefit back than was you don’t pay tax taxes on reinvested dividends. Plus avoiding 28% capitals gains taxes on taxable accounts even on reinvested dividends.
That’s why.
So again. When did you really start investing? People need to have historical context to understand why people do things
Like housing crash was caused by people not having to pay taxes on gains after 1997. Before they had to upgrade to bigger home and roll over the profits to avoid capital gains
Times change. Tax laws changes.
Employer contributions are tax deductible so 1099 folks benefit there.
Yes I was investing before 2000, in individual accounts, not IRA. I didn’t have enough money to make income tax a concern.
So basically the benefit was deferring paying taxes on dividends and transactions until withdrawal time?
Seems kind of soft, but for those with more money than they know what to do with it, why not. Kudos to you for being in that position.
Yes
The long term capitals gains taxes were higher at that time. 28%.
Agree. With Ira being restricted to age 59.5 to withdraw. Locking urself for 25 plus years putting money in non deductible non Roth convertible Ira does see no advantageous these days (even looking back 25 years)
Who knows what’s the future holds for backdoor Roth
The intent of the tax law in 2005 (when income limits for Roth conversions were lifted) was to generate govt tax revenue. Not allow for backdoor Roth with after tax money
There has been legislation in the work trying to eliminate mega Roth and backdoor roths. Govt is so desperate for tax revenue and letting someone use after tax money they have already grow tax free forever was not the original intent
“
Proposed Changes in Reconciliation
Section 138311 of H.R. 5376 would prohibit (1) all taxpayers from converting after-tax (non-Roth) savings in qualified plans and nondeductible IRA funds to Roth IRAs and designated Roth accounts after December 31, 2021, and (2) high-income taxpayers from converting pre-tax savings in qualified plans or IRA savings attributable to deductible contributions to Roth IRAs or designated Roth accounts after December 31, 2031. High-income taxpayers would be defined as
- single taxpayers (or those married filing separately) with modified adjusted gross income (MAGI, as defined in the bill) over $400,000;
- married taxpayers filing jointly with MAGI over $450,000; and
- heads of households with MAGI over $425,000.
This was a proposal a few years ago.
How to get the free $1K?
Thought the account was only for kids born after 2025?
The free $1000 is for kids born 2025-2028
But anyone under age 18 can have it setup to grow as a defacto non deductible Ira and I guess the theory is to do a Roth conversion when they are 18. Or 24. Depending how to avoid the kiddie tax if they are still claimed as a dependent in college up to age 24.
There is some benefit to deferring taxes, even if they have to be paid eventually.
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If you're dead before you need the money, either you saved too much, or you died young. That's either fine or tragic, but unrelated to taxes. 🙂
And you don’t have to pay taxes on reinvested money shelter in the Ira (non deductible) which is what the Trump account really is.
Pay ordinary income taxes minus the cost basis on gains.
So put 50k non deductible over 10 years and say the account is worth 200k by the time the kid turns 18/24. Assuming they are in grad school not making much. Withdraw 20-30k each year. You likely be pay 5-10% income taxes on those 150k capital gains
But it may not be worth it over a taxable brokerage which gives u maximize flexibility when to liquidate it and pay 15% capital gaines taxes on it.
The math is very, very good on maxing it out annually then converting it to Roth when the kids are 18-24.
You are talking about the Trump accounts? Can u elaborate it
“For a high-income earner, it is often not worth claiming an 18-year-old college student as a dependent due to income phaseouts on education credits. Forgoing the dependency exemption may allow the student to claim tax credits on their own return that the parents' income disqualifies them from receiving”
So the Roth conversion is a good idea when your kid turns 18 since they are in low income tax bracket. Just do a ladder Roth conversion each year to minimize federal taxes.
You put $5000 per year tax free in your child’s trump account. It converts to an IRA at age 18. Their earned income will be very low if they are going to college for several years. You convert at least the standard deduction allowed amount to a Roth annually beginning at age 18. This will make the account a Roth IRA so they will withdraw tax free at age 59.5. Basically, the money never gets income taxed in this scenario.
I thought you contribute with post tax dollars?
Yes, you are correct for most people. If your employer sets it up, the employer can contribute tax free to an employee’s child’s trump account.
“
- Limits: Employers can contribute up to $2,500 annually per employee (not per child). This counts toward the overall annual contribution limit of $5,000 per child. [1, 2]
- Tax Treatment: Employer contributions are excluded from the parent's gross income and are not treated as taxable income to the child at the time they are made. [1, 2]
- Withdrawals: Once the account converts to a traditional IRA in the year the child turns 18, employer contributions and accumulated earnings will be taxed as ordinary income upon withdrawal”
But if parents contribute post tax money and lets it grow. The cost basis is different and needs to be kept track of.
Envision this scenario: Plinko LLC is a s corp. it has two employees (Bob and Janice). Bob and Janice are married. They have one child. Plinko LLC funds $2500 for Bob and $2500 for Janice’s kids trump accounts. They just so happen to share a child. That gives $5000 annually in that child’s trump account tax free. Then, that child converts from the ages of 18-24 the trump account (now an IRA) into a Roth. That money doesn’t get taxed very much at all. 0% when it goes in the account, a very small amount or potentially 0% when converted, and finally 0% when withdrawn as a Roth beginning at age 59.5.
Do I have to report the trump account on my yearly tax returns?
Yes. New forms to file
Have any hospital employed physicians found that their employer is offering this employer contribution option?
If an employer contributes funds on my behalf, I still have to declare it as income when I convert it to Roth for my kids?
L
but will pay regular income taxes on full amount converted.
Vs parents putting their own post tax money into the account $5000 (non deductible)
Kid will pay taxes only on the converted gains and parents need to keep track of the non deductible amount to add the cost basis similar to 8606 Roth conversion we normally do for cost basis record keeping
Im sure those self employed with their kids on the payroll will do the employer contribution and deduct pretax on their 1120s.
No income is declared on the kids.
And when the they turn 18. Do a slow Roth conversion to minimize taxes.
no. U don’t Have to declare it as income
but will pay regular income taxes on full amount converted.
Vs parents putting their own post tax money into the account $5000 (non deductible)
Kid will pay taxes only on the converted gains and parents need to keep track of the non deductible amount to add the cost basis similar to 8606 Roth conversion we normally do for cost basis record keeping
Im sure those self employed with their kids on the payroll will do the employer contribution and deduct pretax on their 1120s.
No income is declared on the kids.
And when the they turn 18. Do a slow Roth conversion to minimize taxes.
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Are there any issues/implications with taxes from individual states?
It’s a non deductible contribution if it comes from a parent to the child. So there are no tax implications.
The trump accounts is essentially another tax advantaged account for wealthier parents to contribute to their kids accounts without getting creative and putting them on their self employed payroll.
Trump is also giving poorer newer (kids born 2025-2028) parents a bone throwing $1000 seed money
Just remember
1. Non deductible money contributions stay tax free (adds to the cost basis). Say parents put $5000 post tax money into the account The gains are always taxable
2. Tax deductible money giving by companies or ur own self employed payroll that you deducted on your business taxes before fully taxable for the kids when they cash out or do a Roth conversion
Anyone know how we can complete an employer contribution if we are self-employed? I have my own S-Corp, and I run my payroll through Gusto.
I think it’s so new. We gotta wait.
Employer Contributions to Trump Accounts
Reinhart attorney Sam Rosin breaks down the newly created tax-deferred savings accounts for children, known as Trump accounts, and their impact on…
www.reinhartlaw.com
My kids just turned 14/16 a week ago. I may just stick with post tax personal contribution of $5000 per kid
Trump account only allows $2500 PER EMPLOYEE. So if you have 3 kids. You are limited to just $2500 total as employer contribution.
