The Best Generational Wealth Hack I’ve Ever Seen (+ Step by Step Instructions)
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Wealthy families need to know about this new hack that lets you transfer a HUGE amount of tax-free wealth to your kids.
I’m not gatekeeping - full details and exactly how to execute this strategy yourself are all in this week’s episode of Heir Necessities.
It starts with Trump Accounts (I know, I know) and ends with your 24-year-old having a Roth IRA worth $200,000+*
Listen, watch, or read below for a full walkthrough of the savings strategy that is changing the game.
From account opening and funding to understanding the Kiddie Tax rules and Roth conversions, I’m taking you through every step to set your kids up for future financial success.
Keep scrolling to learn why this strategy is so exciting, and why I’m implementing it for my kids this year.
*Depends on market returns; this is not a guarantee of future performance or investment returns.
🗓️ Schedule a FREE call to talk more about how I can help you navigate a current or future inheritance.
Transcript:
What Are Trump Accounts and Why Should Wealthy Families Care?
Hey, I'm Katherine and thanks for joining me at Heir Necessities, the podcast that turns complex financial topics into real talk for Gen X, millennial and Gen Z inheritors. Each episode of this podcast, I'm breaking down a different topic related to generational wealth and inheritance.
My goal is that you can stop asking Google or ChatGPT what to do with your money and come here instead for real talk, real solutions, and real advice that you can start implementing in your life today.
On this week's episode of Heir Necessities, I have been going crazy ever since I learned about this new tax hack that's available with Trump accounts. It is one of the best strategies I have ever seen for wealthy families to pass tax-free money to their kids.
And it is something that I know a lot of my clients, me personally, and a whole bunch of other people that are in this Heir Necessities orbit are going to want to know about. I'm gonna break down the whole thing for you today — what you need to know, what you need to do, how you need to do it, and what pitfalls you definitely need to watch out for so that you don't get tripped up because this strategy does have a little bit of complexity to it.
Before we dive into this amazing new tax hack, a quick note that if you are listening to Heir Necessities and have been enjoying the podcast, I would be so appreciative if you could leave me a five-star review wherever you listen to podcasts. Apple Podcasts, Spotify, wherever.
It's super helpful for the show and it helps me connect with and support more inheritors like you.
How Do Trump Accounts Work for Kids Under 18?
The first thing you need to know is about Trump accounts. Trump accounts were announced by President Trump last year, and they're basically savings accounts for kids under 18 that turn into a pre-tax IRA when the kid turns 18.
The big hullabaloo was because he's opening these accounts and also giving $1,000 to any baby who was born during his second term. So any baby born '25, '26, '27, '28 is going to receive $1,000 into a Trump account if their parents open one for them.
That's great, but it's not what we're talking about here. And that $1,000 actually doesn't really matter at all in the scope of the strategy that you can use for these Trump accounts if you have extra cash and want to focus on setting your kids up for some amazing future financial success without them paying any taxes.
What Is Form 4547 and How Do You Open a Trump Account?
Here's how it works. The first thing you need to do is file Form 4547 with your taxes this year in 2026.
Filing that form basically tells the government, hey, I have a kid who's under 18 and I want to open a Trump account for my kid. If your kid was born during Trump's second term, it also makes sure that account is open so that you can receive that free $1,000 directly into it.
Now, every year you can contribute up to $5,000 to a Trump account. It's a little tricky right now because it's unclear if you're gonna have to file a gift tax return when you make that gift.
Hopefully that is something that's sorted out by the time you have to file your 2026 taxes in April of next year. For now, I'm just gonna stick a pin in it that if you do this strategy, you make sure you flag it for your CPA so they know if they need to do a gift tax return for you or not.
What Can Trump Accounts Invest In?
Now, you contribute $5,000 a year into this Trump account for your child. This Trump account is going to be invested into a diversified mix of US stocks.
It's actually written into the regulations of the account that they can only invest in certain low-cost US index funds, so it's going to be growing or declining in line basically with what the US stock market is doing.
Who Is This Trump Account Tax Strategy Really For?
An important note here that this strategy is really for people who already have their kids' other savings needs covered, who already have a savings plan in place for college, who already are funding UTMAs or other custodial accounts or trusts for their kids and who still have extra cash to want to contribute.
You can also do this strategy if you have less money, but there are more urgent savings priorities. So this really is something that once again, unsurprising from President Trump, is going to benefit the top 1% or even the top half of the top 1% of earners and people with kids.
How Much Can a Trump Account Grow Over 18 Years?
Back to the strategy. You have a kid — say that you have a baby who was born this year, 2026.
First off, congratulations. I hope you're getting some sleep — I know it's very tiring.
You open a Trump account for your baby. You get the free $1,000 in there, and then you put in $5,000 when your kid is zero, one, two, three, et cetera, all the way until your kid turns 17 — when your kid is 17, that's the last year that you can contribute.
So let's say you've been putting in $5,000 a year for 18 years because you made a contribution when your kid was zero and your account has been growing at 5%, which is hopefully if you're thinking about the US stock market over the next 17, 18 years, a conservative assumption, but I like to deal in conservative assumptions.
How Does a Trump Account Convert to a Pre-Tax IRA at Age 18?
You now have a Trump account for your kid that you've put $90,000 into and assuming an annualized rate of 5%, again, a conservative assumption, that account could be worth as much as $152,000.
The thing you need to remember is when I said earlier, when your kid turns 18, that Trump account goes from being a Trump account to being a regular pre-tax IRA.
So when your kid turns 18, they don't have a Trump account anymore. Now they have a pre-tax IRA that's worth $150,000, again, assuming that 5% rate of return.
What Is the Kiddie Tax and How Does It Affect Your Child's Investments?
I'm gonna take a quick pause here to tell you about something you need to understand called the Kiddie Tax. The Kiddie Tax is basically a regulation that the IRS put in place so that you couldn't just move a whole bunch of money to your kids on the investment side and have it all taxed at extremely preferential rates because your five-year-old isn't making money yet, shame on her.
How it works is that if you have a kid who has unearned income, so this doesn't apply to earned income, we're talking about investment income here. The first $1,350 of that unearned income is tax-free to your kid — it's basically the kid's standard deduction.
The next $1,350 of unearned income that your kid gets is taxed at their marginal tax rate, which if they're not earning money is going to be low — they're not gonna pay any taxes on that. But then after $2,700 of unearned income, your child is taxed at your marginal tax rate, which means that you do not want to push a whole bunch of unearned investment or otherwise income onto your kid because after $2,700 of that income, it's all gonna flow back and it's going to be taxed at your rate, which is probably a lot higher than your kid's rate.
What Age Does the Kiddie Tax Apply To?
The Kiddie Tax is applicable to kids who are 18 or under, and also if your child is a full-time student, the Kiddie Tax applies until age 23.
So going back to the Trump account, the next part of this strategy is going to wait a few years while your kid goes through school and is no longer a full-time student. Or if they are a full-time student, still, you know, they're going to undergrad and then they go straight into an advanced degree program, until they turn 24.
How Can You Convert a Trump Account Into a Roth IRA?
You funded a Trump account, your kid turned 18, that Trump account turned into a pre-tax IRA that when they turned 18 was around $150,000. You waited six years for your kid to graduate college or if they're still in school to turn 24.
Assuming that same 5% rate of return, that pre-tax IRA could now be worth almost $200,000. So your kid has a pre-tax IRA worth $200,000.
That's great, right? It's cool, but it really is not as cool as what is about to happen next. Because what happens next is that you have a 24-year-old who's probably making little or very little money — they're maybe making 40, 50, $60,000 a year.
You are going to have them and help them convert that full pre-tax IRA into a Roth IRA. So they're gonna realize $200,000 of additional income in that year, but it's not that big a deal because they don't have a lot of income — they might actually make no income that year.
How Much Tax Will Your Child Pay on the Roth IRA Conversion?
And so that $200,000 is going to be taxed at a relatively lower bracket. You are also going to give them the money to pay the taxes on that conversion.
So say they have to pay 25, $30,000 in taxes on that conversion, you are gonna pay that tax bill for them.
So now your 24-year-old has a Roth IRA, a post-tax account that they are never going to pay another dollar of tax on, worth $200,000. You invest that account aggressively and by the time your kid turns 60, even if they never put another dollar in that account, it is going to be worth millions.
Why Is This the Best Tax-Free Wealth Transfer Strategy for Families?
This is an incredible opportunity for wealthy families to push money to their kids, to pay taxes on that money at a very low rate, and set their kids up for a huge amount of future financial success.
This isn't an amazing hack that's going to pay off today or tomorrow, but for families that are looking to continue building or maintaining generational wealth, it is an incredible opportunity.
I'm gonna be doing it myself. I'm opening Trump accounts for both of my kids this year, and I'm gonna be putting the maximum $5,000 into each of their Trump accounts. I am doing this exact strategy right now.
Yes, I'm gonna be long dead by the time my kids are taking advantage of it, but once they realize what I've done, they are going to be hugely grateful. It is an incredible opportunity for families who have extra cashflow and who wanna push money to their kids in the most tax-efficient way possible.
Have Questions About Trump Accounts, Kiddie Tax, or Roth IRA Conversions?
If you're wondering why your advisor hasn't talked to you about this, or have more questions about Kiddie Tax rules, pre-tax IRAs, Roth IRAs in general, please reach out to me.
If your advisor isn't bringing these suggestions to you, it might be time to make a change. Because if you have the kind of money that this strategy would work for your family, and you don't have the kind of advisor who's bringing these strategies to you, it's probably a mismatch, and you might be really missing out.
Get in touch with me over email, katherine@sunnybranchwealth.com, send me a DM on Instagram at @sunnybranchwealth, or if you're not ready to reach out yet, you can catch me on next week's episode of Heir Necessities.
Let’s take the next step together
Understanding how to protect, invest, grow, and/or give away a multi-million dollar inheritance isn’t easy. Inheritors can encounter a wide variety of different situations requiring knowledge and finesse to manage. If you need more help, reach out to Katherine Fox, CFP® and CAP®, financial planner for inheritors, to learn how Sunnybranch can help you evaluate your financial situation and build a plan for your financial future.
