Roth conversions get brought up a lot when people talk about the advantage of Trump accounts but something I want to push back on is that when retirement savings gets treated as the default financial priority, it can crowd out another idea that giving your kid access to some of that money before retirement age could generate real returns too. Here’s why I don’t think a lump sum Roth conversion is the “trump” card people think it is. In one scenario $100k is in a 529 and $100k in a brokerage. In another, all $200k is in a Trump account. I don’t think it’s a huge disadvantage if that kid is “only” able to max out their Ira/roth contribution up to the annual contribution limit straight out of college instead of doing a massive lump Roth conversion at their lowest income bracket. The flexibility means they can invest in themselves - take a career risks, fund a house, build a skill. There’s so many ways to generate returns that can be more worthwhile and fulfilling than just overloading their retirement accounts. The future is unknown and as a financial advisor (who is not your financial advisor), I’m not going to say one approach is the right answer - it really depends on the family. Parents could theoretically invest in all three types of accounts if they have enough wealth so again it really depends on each family’s situation but I just wanted to remind everyone not to underestimate the value of investing in your kids human capital. Increasing earning power is what makes retirement savings easier to fund in the first place.
Also, I don’t like that the investment option in Trump accounts are strictly restricted to US broad based index funds. I’m not sure if that provides enough diversification from a risk management perspective and the cynical side of me makes me at least question if Trump accounts have this restriction as a legally mandated way of funneling more money into S&P 500 style funds, essentially mechanically pushing up prices of index member stocks regardless of fundamentals. I don’t know.
Ok, I’ll get off my soap box.