Trump child accounts: Age 18 and beyond – accessing your money

Previously in this series, Articles 1–3 covered filing urgency, account mechanics, and tax treatment. Now we turn to the most important transition point: what happens when your child turns 18.

The big transition: What happens at age 18

January 1 of the year your child turns 18 marks a fundamental shift in how Trump Accounts work. What was once a locked, restrictive children's savings account transforms into a flexible (though tax-exposed) traditional IRA under the young adult's control.

The automatic conversion

On January 1 of the calendar year that the child turns 18:

• Account becomes a traditional IRA (subject to standard IRA rules)
• Withdrawals are now permitted (subject to taxes and potential penalties)
• Investment restrictions lifted (no longer limited to US stock indexes)
• Young adult gains full legal control (parent is no longer the responsible party)
• Contribution rules change (must have earned income to contribute more)
• All traditional IRA rules now apply (RMDs, early withdrawal penalties, etc.)

NOTE! Important timing: Even if your child's 18th birthday is in December, the account converts on January 1 of that year (not on their actual birthday).

What doesn't change

• Tax basis remains – tracking of after-tax vs. pre-tax money continues
• Account history intact – all prior contributions and growth stay
• No forced distribution – child doesn't have to take money out
• Same custodian – unless the child chooses to transfer to another institution

Control transfers to your young adult

The parents' role ends

Once the child turns 18:

– You no longer make investment decisions

– You no longer receive account statements (unless the child authorizes)

– You cannot prevent withdrawals

– You are not responsible for tax reporting

This is now completely your child's account.

Teaching moment

The transition to age 18 is an ideal time to have conversations about:

– Long-term thinking vs. immediate gratification

– The power of compound interest

– Roth conversion strategies

– How to avoid unnecessary taxes and penalties

Many 18-year-olds will be tempted to cash out. The families who use this transition as a financial education opportunity will see the most benefit.

Withdrawal rules after age 18

Can this money be used tax-free? The answer you need to hear

NO – Trump Account withdrawals are NEVER completely tax-free.

This is the single most important thing to understand about these accounts.

Tax treatment of withdrawals

Two types of taxation apply:

1. Ordinary income tax (always applies): Withdrawals are taxed as ordinary income at your child's tax rate.
2. 10% early withdrawal penalty (applies before age 59½)

If your child takes money out before age 59½, they typically owe an additional 10% penalty on top of income tax.

Penalty-free withdrawals: The exceptions

Your child can avoid the 10% penalty (but NOT income tax) for these qualified purposes:

• Education expenses
• First-time home purchase
• Birth or adoption expenses
• Medical expenses
• Disability
• After age 59½

The harsh reality: No tax-free scenario for education

Let's be crystal clear about the biggest misconception regarding Trump Accounts:

What people incorrectly assume:

1. "I can use Trump Account money tax-free for college, like a 529 plan."
2. "The education exception means tax-free withdrawals."
3. "It's just as good as a 529 for college savings."

The actual truth

Trump Account withdrawals for college are TAXABLE as ordinary income

The education exception only eliminates the 10% penalty

You still owe full income tax on the taxable portion

Real-world impact: Comparing costs

Scenario: $60,000 college expense

Option 1: Trump Account

• Withdraw $60,000
• Assume $40,000 is taxable (after exhausting basis)
• Tax at 22% bracket: $8,800
• Penalty: $0 (education exception)

Total cost: $68,800 to pay $60,000 tuition.

Option 2: 529 plan

• Withdraw $60,000
• Tax: $0
• Penalty: $0

Total cost: $60,000.

The 529 plan saves $8,800 (14.7% savings) on this transaction. For a full four-year degree costing $240,000, the difference could be $35,000+ in taxes.

Strategic withdrawal planning

Minimize taxes: The priority order

Best strategy for young adults:

• Priority 1: Use for qualified exceptions when possible. Avoid 10% penalty by timing withdrawals to coincide with education, home purchase, etc. Still owe income tax, but saving 10% is significant
• Priority 2: Consider Roth conversion. If not needed immediately, convert to a Roth IRA while in a low tax bracket. Pay taxes now, enjoy tax-free growth forever
• Priority 3: Leave it alone. If financially stable, don't touch it; let it grow for retirement. Most valuable at age 65, not age 22

The Roth conversion strategy (Advanced)

This is the most powerful move an 18-year-old can make with a Trump Account.

Why this works

Young adults typically have:

– Low income (part–time jobs, early career)

– Low tax brackets (10%, 12%, 22%)

– Long time horizon (40+ years for tax-free growth)

– Flexibility (haven't yet entered peak earning years)

The numbers

Tax savings: $4 million+

What young adults should do with Trump accounts

Age 18-22: College years

Best use: Education expenses (but recognize it's less efficient than 529)

Strategy:

– Use 529 plans FIRST if available (tax-free)

– Use Trump Accounts SECOND (taxable but penalty-free)

– Convert unused amounts to Roth (stay in low brackets)

Don't: Cash out the entire account to buy a car

Age 22-25: Early career

Best use: Roth conversion while income is low

Don't: Withdraw for non-essential purchases (vacations, entertainment)

Age 25-30: Building years

Best use: First home down payment (if needed) or continued Roth conversion

Don't: Use for wedding expenses, new car, or lifestyle inflation

Age 30-59½: Peak earning years

Best use: Leave it completely alone

Don't: Touch it unless a genuine emergency (medical crisis, job loss)

Age 59½+: Early retirement

Best use: Tax-free income from Roth

Strategy:

– Start drawing from Roth (if converted) – completely tax-free

– Delay Social Security until age 70

– Live off Roth withdrawals in early retirement years

– Minimize taxes in retirement

Age 73+: Required minimum distributions

If NOT converted to Roth:

– Must take Required Minimum Distributions (RMDs)

– RMDs are fully taxable

– Can't avoid them

If converted to Roth:

• No RMDs ever
• Can leave to heirs tax-free
• Complete control over withdrawals

This is another huge advantage of the Roth conversion strategy.

Common mistakes to avoid

Mistake 1: Cashing out at 18

The temptation: $100,000+ windfall at age 18 is tempting

The cost:

– Massive tax bill (potentially $25,000-$40,000)

– 10% penalty if not a qualified expense

– Lost decades of compound growth

– $100,000 at 18, at’ $1.74 million at 65 (if left alone)

Better approach: Touch only what you absolutely need

Mistake 2: Using for non-essential expenses

Common wastes:

– Expensive car

– Luxury vacation

– Designer clothes

– Entertainment

Reality: These purchases cost 40-50% more when funded from the Trump Account (after taxes/penalties)

Better approach: Work part-time jobs for discretionary spending

Mistake 3: Not tracking tax basis

• The problem: Can't prove what's already taxed without records
• The consequence: Might pay taxes twice on the same money
• Better approach: Keep a detailed spreadsheet from birth to age 65

Mistake 4: Ignoring Roth conversion

• The problem: Paying 32% taxes at age 40 instead of 12% at age 21
• The consequence: Hundreds of thousands in unnecessary taxes
• Better approach: Convert methodically during low-income years

Key takeaways for age 18+

1. Withdrawals are NEVER tax-free – always subject to ordinary income tax on taxable portions
2. 10% penalty applies before 59½ unless a qualified exception
3. Education exception eliminates penalty, NOT taxes – still owe income tax
4. Roth conversion at 18-25 is the optimal strategy – pay low taxes now, avoid high taxes later
5. $1,000 at birth left untouched at $490,000 at 65 – patience pays
6. Tax basis tracking is critical – don't pay taxes twice
7. RMDs apply if NOT converted to Roth – forced withdrawals after age 73
8. Young adults in low brackets have a golden opportunity – convert while taxes are cheap

Coming up next: Trump Accounts vs. 529 plans – making the right choice

In Article 5, we compare Trump Accounts and 529 plans side by side. You’ll see how each account is taxed, when one is more efficient than the other, and how to decide which vehicle fits your child’s education and long-term goals.

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