With another tax season in the rearview mirror for most Americans there is a collective sigh of relief as well as a groan of frustration from some tax filers as they found out that they owed additional money to the IRS. The use of efficient tax planning is as important as investment strategies in portfolio management. That is why we are doing an analysis of your tax returns yearly.
Not only is it crucial to properly plan for your own retirement, but it is also important to help your kids and grandkids start planning for their future goals and eventual retirement. As you already know, the earlier your loved ones start saving, the more likely they are to have a successful retirement plan.
There are different strategies and investment options to help minor children accumulate savings. Each has its advantages and disadvantages. Some of those include UTMA’s, College 529’s, IRA’s and now the Trump Accounts.
Uniform Transfers to Minors Act or UTMAs
- Advantages: There is no contribution limit. (Other than an individual’s gift exclusion limit, $19,000 in 2026) There are no distribution requirements at certain ages like IRAs. Only gains are taxed when the person takes money out of the account, contributions will not be taxed. Income is taxed annually.
- Disadvantages: Once you put money into a UTMA account it is their asset. You manage it until they are adults and then the account is put into their name only.
529 College Savings Plans
- Advantages: You can gift large amounts to a 529. It grows tax deferred. If used for qualified college expenses, there is no tax on the earnings. If the intended child doesn’t use all the funds there are options for changing the beneficiary and/or using some of the balance to fund a Roth in the beneficiary’s name.
- Disadvantages: It can only be used for certain “qualified” college expenses. If you take money out without using it for qualified college expenses, you may incur penalties and taxes.
Minor IRA’s and Roth IRA’s
- Advantages: The account grows tax deferred, or tax free in the case of a Roth if certain requirements are met. They can be funded annually (up to $7,500 for 2026) if the child has compensation income. In the case of a Roth IRA, the earlier it is funded the greater the potential for larger tax-free growth.
- Disadvantages: You will incur penalties and interest if money is taken out before 59 ½. If it is an IRA, you will have to take out Required Minimum Distributions (RMD’s) at a certain age.
Trump Accounts for Minors
The One Big Beautiful Bill Act (OBBBA) of 2025 authorized the creation of the Trump Accounts. Even though they cannot be funded until at least July 4, 2026, they can be opened now. According to the IRS.gov website, as of March 31, 2026, taxpayers have already signed up more than 4 million children for tax-favored Trump accounts. With more than 1 million of those able to claim the $1,000 seed funding. Here are a few basics on the accounts with a link below going into further detail.
- Eligibility & Funding: All U.S. Citizens under 18 are eligible. Children born between Jan. 1, 2025, and Dec. 31, 2028, receive a $1,000 Treasury contribution.
- Contribution: Parents, relatives, and employers can contribute to the accounts. There are guidelines and restrictions on the type of investments which are allowed, for example, index funds.
- Activation: Parents can request to establish an account using IRS Form 4547 during tax filings or through the official Trump Accounts portal. trumpaccounts.gov.
- Purpose: The accounts are designed to start long-term wealth building, with funds accessible to young Americans at age 18 for specific uses.
- Administration: The program is managed with assistance from specific financial institutions as selected by the government.
Read here more about Trump Accounts
Highlights of The One Big Beautiful Bill Act
We hope that your summer is filled with joy, laughter and good health.
Blessings,
Kurt, Anders, Maggie and Molly
“A perfect summer day is when the sun is shining, the breeze is blowing, the birds are singing, and the lawn mower is broken.”
James Dent
The information offered is provided to you for informational purposes only. Baird is not a legal or tax services provider and you are strongly encouraged to seek the advice of the appropriate professional advisors before taking any action. Investors should consider the investment objectives, risks, charges and expenses associated with a 529 Plan before investing. This and other information is available in a Plan’s official statement. The official statement should be read carefully before investing.