Trump Accounts Drive Roth Conversions for Wealth Transfer

High-net-worth families are accelerating contributions to custodial accounts, colloquially termed Trump accounts, to facilitate future Roth IRA conversions for heirs before the Tax Cuts and Jobs Act provisions sunset in 2026. MarketWatch reported on June 26, 2026, that financial planners are prioritizing this strategy for its potential to transfer decades of tax-free growth to children. The approach requires funding a custodial account with after-tax dollars, which a child can later convert to a Roth IRA upon earning qualified income.

Context — why this matters now

The current strategy is a direct response to the scheduled expiration of key individual tax provisions from the 2017 Tax Cuts and Jobs Act on December 31, 2025. The last major tax legislation affecting estate planning was the SECURE Act of 2019, which limited stretch IRA distributions to a 10-year window for non-spouse beneficiaries. The current macro backdrop features a top marginal income tax rate of 37%, which is scheduled to revert to 39.6% in 2026 unless Congress acts. This impending change creates a narrow window for high-earners to lock in current lower tax rates on conversions. The catalyst is the convergence of the sunset deadline with rising awareness of the strategy's long-term compounding benefits.

Data — what the numbers show

A child with $7,000 contributed annually to a custodial account from birth could accumulate approximately $150,000 by age 18, assuming a 7% annual return. This sum can then be converted to a Roth IRA over several years, once the child has earned income. The maximum annual contribution for a Roth IRA is $7,000 for 2024, indexed to inflation. For comparison, a traditional taxable brokerage account would generate annual tax liabilities on dividends and capital gains, reducing the compound growth rate. The strategy's efficacy is demonstrated by the math of tax-free compounding; a $150,000 Roth IRA growing at 7% for 50 years becomes $3.3 million entirely tax-free.

Scenario	Account Value at Age 18	Value at Age 68 (7% return)	Tax Status
Trump Account -> Roth IRA	$150,000	$3,300,000	Tax-Free
Standard Brokerage	$150,000	~$2,200,000	Taxable

The table illustrates the significant long-term advantage of the Roth structure over a standard taxable account due to the elimination of drag from annual taxation.

Analysis — what it means for markets / sectors / tickers

This trend benefits asset managers and brokerages that custody these accounts, such as Charles Schwab (SCHW) and Morgan Stanley (MS), through increased asset inflows and management fees. The strategy also supports financial advisory firms like Focus Financial Partners (FOCS) that provide high-net-worth planning services. A key risk is legislative uncertainty; Congress could alter tax laws or IRA rules retroactively, undermining the strategy's assumptions. Another limitation is the requirement for the child to have earned income equal to the conversion amount, which may not be feasible for all families. Current flow data shows increased allocations to broad-market equity ETFs like the SPDR S&P 500 ETF (SPY) within these custodial accounts, as the long-time horizon favors growth assets.

Outlook — what to watch next

The primary catalyst is the outcome of the November 2026 congressional elections, which will determine the political appetite for extending the TCJA provisions. The IRS will announce the 2027 Roth IRA contribution limit in October 2026, a key figure for planning final conversions. Watch for support levels in broad equity indices; a sustained market decline below the 200-day moving average could delay implementation for some families. The strategy remains viable only while the current tax laws are in effect, making the next 18 months critical for execution.

Frequently Asked Questions

What is a Trump account?

A Trump account is an informal term for a custodial brokerage account (UTMA/UGMA) funded by parents with the explicit intent of later converting the assets to a Roth IRA for the child. The name references the Tax Cuts and Jobs Act passed during the Trump administration, which set the sunset provision that makes the strategy time-sensitive. The account itself is a standard financial product, but its strategic use for Roth conversions is a recent planning innovation.

How does a Roth conversion work for a minor?

A minor cannot directly contribute to a Roth IRA without earned income. The strategy involves building assets in a custodial account first. Once the child earns income from a job, perhaps as a teenager, they can convert custodial assets to a Roth IRA up to the amount of their earned income that year. This process can be repeated annually until all custodial assets are transferred into the tax-advantaged shelter.

What happens if the tax laws change in 2026?

If Congress passes new legislation that extends the current lower tax rates, the urgency for this strategy diminishes. However, if rates revert to higher pre-TCJA levels as scheduled, the cost of converting a traditional IRA to a Roth becomes more expensive. The Trump account strategy uses after-tax dollars initially, so it is primarily affected by the sunset through the higher ordinary income rates that would apply to the child's conversions post-2026.

Bottom Line

The Trump account strategy leverages current tax law to seed multi-generational, tax-free wealth.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. CFD trading carries high risk of capital loss.